Request for quotation (RFQ) is a business document prepared by businesses with specialized products or services. Since the present reality of B2B SaaS sales is not a one-way process – buyers can become sellers, and vice versa – every B2B business must understand how to create RFQs that distinctively showcase their product specialty, features, and prices.
Although RFQs are important for sellers, it is similarly important for buyers who have to scan through a wide list of service vendors before finally settling for one that fits their business needs.
If you are in need of a guide to help you prepare for your next RFQ, look no further. In this guide, we will discuss everything you should know about creating a request for quotation (RFQ) for your customers.
Table of Contents
- What is a request for quotation (RFQ)?
- The difference between RFI, RFQ, and RFP
- The Importance of RFQs
- When is RFQ used?
- Types of RFQ
- The RFQ process
- What’s included in an RFQ?
- RFQ Templates
What is a request for quotation (RFQ)?
Request for quotation (RFQ) is a key document that businesses send to potential suppliers to learn more about their pricing information. It is a standardized form that is used by companies to scan through a wide list of vendors and get information from them, making it easy to compare and contrast vendors.
An RFQ document typically contains key information with detailed specifications about the things that a company needs, such as technical requirements, the length of the contract, the estimated project budget, submission deadline, the required labor (service), or the total amount of goods needed.
Request for quotation (RFQs) is mostly created to simplify the procurement process and make it easier for buyers and sellers to work together.
Essentially, once the procuring company is done tailoring the RFQ with all the necessary requirements and information, they send it to potential vendors that the company is interested in working with, who upon receiving the document respond with pricing quotations and other specifications that best suit the buyer’s requirement.
There are no restrictions on the amount of RFQs a company can send to vendors, it can go from one to as many as you want, your decision to settle for a business will now be based on how best they fit into your evaluation criteria, payment terms, and other important factors.
The Difference Between RFI, RFQ, and RFP
The RFQ is not the only document created or used during the buying process. Along with the request for quotation, there is usually also the request for information (RFI) and the request for proposal (RFP). Although they have different templates and content, the RFQ, RFP, and RFI are all important business documents that aim to achieve an overarching goal – they all provide relevant documentation on the product, service, or project that can help move the deal forward.
They provide the buyers with relevant information on the cost and capabilities of the products or services and give sellers the buyer’s expectations.
Request for Information (RFP)
Request for information is a formal method used by a buyer to request more information from a seller. RFIs are sent first between the three documents – RFI, RFQ, and RFP. An RFI contains open-ended questions sent to vendors or suppliers, to get more information about their product or solution’s benefits, features, and capabilities.
RFIs are mostly sent to so many vendors, so it’s not an indication of payment but an indication that your buyer is interested in your product. To a buyer, the RFI gives them a good idea of the seller’s expertise and product capabilities while for sellers, it is an eye opener to the buyer’s business pain points and an opportunity for you to position your product in a way that will influence your buyer’s decision.
Request for quotation (RFQ)
After your buyer has requested gotten your response to their RFI, they can decide whether your product or solutions fits into their requirements and needs. If that is the case, the next subject of discussion is the price – which is where RFQ comes in.
RFQ is a request for price quotations that a potential buyer sends to a potential supplier or vendor with the aim of getting a solution that fits their budget. They know what they want and where to get it, they just a suitable price that is within their budget. Although like the RFI, RFQs are also sent to multiple suppliers, it indicates an increase in the customer’s interest in your solution. RFQs typically contain the following information
- General and technical specifications for the product or service
- Last date for accepting RFQ responses
- Estimated dates for the final product or service delivery
- Proposed contract duration with the vendor
- Other terms and conditions that need to be accepted by the vendor.
As a seller, your response to the RFQ determines if you get the deal or not. Including a comprehensive price quote or pricing, the template could help you. Check out the detailed guide about the average selling price.
Request for Proposal (RFP)
A request for proposal (RFP) is a document a company uses to outline the requirements or specifications for a particular product, service, or project.
It is used by companies or customers to request or solicit bids from potential suppliers or contractors and determine which of the vendors or contractors best fit the selection criteria and will best deliver the best results.
An RFP should contain all relevant information that can help you make informed purchase decisions. Hence an RFP must be very specific, it should give the vendors details with regard to the processes, needs, and end goals for the project or investment. It mostly contains information like:
- The nature of the project
- The goals of the project
- The vendor’s qualifications
- The company’s style guide
- the deliverables schedule
With RFPs, it’s straight down to business and is usually a better indication that a purchase is ready to be made and not really to explore different options – They have most likely chosen a vendor and just want to extra sure they are making the right decision.
The Importance of RFQs
A buyer and seller can benefit from using an RFQ in the following ways:
It helps transmit important business information
For buyers, an RFQ is a key document that you can use to collate all important business or project information and send it to sellers in a way they can easily understand. It helps you pass the requirements and specific information about a project to get trusted vendors.
It’s an eye-opener to industry practices, prices, and processes
An RFQ is your best shot at researching and understanding the practices, prices, and processes of sellers in a particular industry. It is widely known, generally accepted, and can be sent to many vendors at the same time. From the responses you get from the vendors or suppliers, you gain a better understanding of the pricing, processes, and practices (products quote and support services quote).
It helps you save money
One of the best benefits of using an RFQ is that it helps you save money. From the different responses you get from the vendors, you can check the prices, features, and capabilities and compare them to choose one that best suits your needs and budget.
It helps you make better business decisions
You gain valuable business insights from the responses you get to your RFQ. With this information, you can decide on the best vendor with the right pricing template, features, and timeline that fit your preference.
It takes you a step closer to your sales deal
For sellers, RFQ provides you with great insights into the buyer’s needs, goals, and interests. It helps you understand what they need, why’s improtant to carry out the project, and other requirements that you can use to your advantage. For RFQs, you know you have competitors, hence it is necessary that you craft your response in such a way that convinces the buyer to choose you – thereby taking you a step close to sales. Explore the guide for perfect sales pipeline stages.
When is RFQ used?
An RFQ is not required in all procurement orders, they are used in only certain conditions like:
- There is a pre-qualified list of vendors or suppliers.
- When a specific product or service is required such as materials office supplies, hardware, etc., (RFQs are only used when you know the specific product or service you need and might not be a good fit if you don’t know exactly what and how much you want).
- When a product is needed in bulk and on an ongoing basis (e.g in the case of construction, certain raw materials will be needed in bulk for a certain period).
- When your primary evaluation factor is the price, which can greatly influence your choice of supplier.
- There is no requirement for add-on service or maintenance contract terms.
Types of RFQ
A request for quotation can be presented in four different ways, depending on how you want the RFQ process to go and the number of suppliers you want to send to. Before using any of the steps, it is important to take note of the pros and cons of each type.
An open bid is an RFQ format where the buyer introduced some competition in the process by publicly opening the bid. In this method, the buyer sends an RFQ to specific sellers and makes each seller’s quotes visible to the other vendors. The advantage of this is that the pricing visibility can influence sellers to reduce their prices and on the other hand can cause problems when the vendors decide to fix a uniform price – which can be higher than the normal price. Find the guide about average selling price.
A sealed bid is the direct opposite of the open bid format. In this case, the qualified sellers send in their bids and the buyer only opens the bid after they have received all the responses. This RFQ type makes the bids invisible to other vendors until after submission. The good side of this is that it promotes transparency and reduces the possibility of fraud while it can affect it can eliminate pricing competition.
An invited bid is the general RFQ format where qualified sellers are invited to submit their price quotations. This type is cost-effective as only trusted and pre-vetted suppliers or vendors are invited. One of the biggest advantages of this type is that it speeds up the procurement process as only trusted vendors are invited, the downside of this is that limits the opportunity to save costs with other new vendors.
A reverse auction pretty much works like an auction but in a reversed order. In this method, the buyer invites suppliers to send their lowest price quote for the specified products with the sole aim of getting more price reductions. This process is best suitable when you fail to get a quotation within your budget on the first attempt. Price is a determining factor here and once the lowest price is achieved, the RFQ process ends.
The RFQ process
The crucial aspect of writing a successful RFQ is by writing the exact product requirements. RFQ documents contain clear information on the business needs and pricing expectations to make the process a lot better. The clearer your business needs and requirements are, the easier it is to get the perfect vendor for your project. The RFQ process is as follows:
This is the earliest and most crucial phase of the RFQ process. It starts by gathering all necessary information before writing the request for quotation. It includes the following activities:
1. Write your business needs: This involves identifying the specific business or project requirements and writing them. Consider talking to project managers, internal stakeholders, and teams to determine what’s needed for the project.
2. Determine the vendors: This is when you decide on the vendors to send your RFQs to – is it going to a large pool of vendors (Both new and old) or pre-vetted and trusted vendors? Although some people love to work with vendors they already know and have a relationship with, it is also a good idea to consider new vendors for more options.
3. Create the RFQ: This is when you get to the business and create the RFQ. You could either decide to create one from scratch or use an RFQ template. An RFQ template could be a good idea if you send RFQs regularly. Either way, ensure you customize the RFQ to have the same format to make it easy to review the bids.
This next phase begins when the RFQs have been sent to the vendors. Companies have to set a deadline for this and keep to three to eight vendor bids. Less than three bids show the process is not competitive and more than 1o bid can complicate and make the process time-consuming. It includes the following activities:
4. Issue the document: This is when you send the RFQs and basically the bid preparation period. Give your vendors time to work on the quotes and be readily available and willing to answer their queries if any.
5. Review the bids: This is when all bids received are opened and evaluated based on the selection criteria such as pricing, delivery date, and product features and capabilities as well as other required supporting documents.
6. Communicate with bidders: Be sure to keep the bidders informed of all the steps of the RFQ process. Let them know the review process, the proposed method of evaluation, and when the results of the bids should be expected.
This is the final phase where the decision is made on the right vendor to choose and all finalizations are made. It includes the following activities:
7. Stakeholder Report: This is when you create a one-page summary of the RFQ process, with all important information for stakeholders and the management.
8. Selection: This is the stage when you make your final decision and select a vendor that meets your needs and requirements. Create a memo explaining why you chose the vendor for future bids.
9. Award the contract: Now that you have selected a vendor, now is the time to reach out to the vendor, inform them of their winning and get their written acceptance. Create and sign a binding contract with them. Inform other vendors of the winner, appreciate them for participating and maintain cordial relationships with them for future purposes. Find the guide for the perfect sales analysis report.
What’s included in an RFQ?
An RFQ must include the following:
- Payment terms
- Required quantities
- Estimated hours of labor
- Project length
- Contractual terms and conditions
- Quotation submission requirements
- Evaluation criteria
- Awarding and closing process
An RFQ pricing template can take different forms, shapes, and sizes. The important thing is that they must have the necessary information and requirements. Below are some of the templates:
A request for quotation is one of the most essential tools for buyers to gain insight into different suppliers’ products or services’ prices, features, and capabilities. Ensure that your RFQ contains all important information and requirements to enable suppliers to provide you with the best information that can help you save money and make better business decisions.