$100K Profit Your First Year in GovCon
I wanted to talk about something that is probably very relevant to you - a person who is active in federal government contracting or as someone who is new and is about to take the exciting next step into the space.
Individuals start government contracting because they want to make money. But of course, that's no surprise.
But how much money can you really make your first year in (federal) government contracting?
I thought this was a really good question...and I don't attempt to know the answer, but in this email, I offer a way to approach answering this question for yourself :).
So, I thought one really good place to start is to plant the important mile markers into the ground and look at an example of making $100K in profit your first year in gov contracting.
Goal - $100K Profit
Profit Margin - 10% (conservative)
Contracts (Job) - Services
What level of effort will you have to perform in order to reach a strong likelihood of reaching your $100K in profit goal during your first year.
Option 1- Win 1 $1M Contract
Option 1 - The first obvious possibility is to do everything you can to win one $1M contract your first year. At 10% profit, that will yield you your $100K in earnings.
Pro- The advantage to do this option is that you can work an entire year in business development, and you only need to be awarded one $1M contract and you will reach your goal.
Con- The con of this option is as a new govcon, you might not be able to compete at the level required to win a $1M contract. As a new business, you for example, may not be able to satisfy heavy past performance requirements required of the larger contract proposal. You may also lack proposal skills that your competitors have acquired through being in the space longer than you.
Option 2- Win 5 $200K Contracts
Option 2 - A second option is that you can aim to win 5 contracts @ $200K each with 10% profit margins to reach $100K. This means you will essentially have to win a contract every other month over the next12 months.
Pro- The advantage of this approach is that now you are looking at contracts beneath the simplified acquisition threshold (SAT $250K), so the proposal requirements will not be as lengthy or comprehensive.
Con- The con of this option is that you will have to be working full-time responding to a goal of 1 contract per week. Submitting 8 contracts every 2 months put you at a win ratio of 1 out of 8 or 12.5%.
Option 3- Win 10 $100K Contracts
Option 3 - A third option is that you can aim to win 10 contracts @$100K each with 10% profit margins to reach $100K.
Pro- The advantage of this option is that the contract dollar value is only $100K, so the proposals and response will likely be even easier.
Cons- The cons of this advantage is that these contracts become more competitive the simpler the responses are, and also you will have win 10 contracts, which becomes winning a contract nearly every month, or several per month during the busy months.
Option 4- Win 20 $50K Contracts
Option 4 - A fourth option is that you can aim to win 20 contracts @50K each with 10% profit margins to reach $100K in profit.
Pro- The advantage of this is that you will likely just be bidding on supplies contracts that may only require a number and no proposal.
Cons- The first con of this advantage is that it becomes hard to be competitive on supply contracts at 10% profit margins. Supply contracts are more competitive at 5% margins, so it becomes harder to win. Secondly, 20 contracts means you are having to win nearly 2 contracts per month, and this means you will have to be bidding on 30+ contracts per month which is not feasible or reasonable for a new govcon...and can also quickly lead to burnout.
Now.
Of course, these 4 options are not exhaustive. There are many different ways here to make the numbers work to get to $100K in earnings your first year in govcon.
Of these 4 options which do you think is most feasible, Derek?
For me, I like and also advise Option 2: 5 contracts at $200K each.
I think it's a terrific goal, and you might even surprise yourself once you get going about what's possible. I think the larger contracts are going to be a lot tougher for you starting out and the smaller contracts are quickly going to burn you out, even if you do make a few hundred dollars on a few small wins.
There are also so many other variables that I didn't account for in these examples like execution of option years, contract management, or negotiating with subcontractors to optimize your margins.
I thought this was a good framework of 4 options that you could apply to your current business stage and level of effort.
-Derek James