The Ultimate Guide to Performing a Successful Spend Analysis

As a business leader, owner, or budget analyst, spend reporting is everything. Those that do it right develop successful spend analyses that help their brands to continue in an upwards trajectory year after year while those that choose not to track their expenses are left guessing how to get the most ‘bang for their buck’ with nothing to validate their opinions.

This is exactly why 2023 should be the year in which businesses begin to take their spending seriously and track their expenses effectively. For a business owner specifically, the power of a thorough spend analysis for each quarter is immeasurable. Fortunately, with this comprehensive guide from Stimulus, you will soon know everything there is to know about tracking your spending comprehensively, using this data to your benefit, and becoming a more profitable and streamlined brand as a result.

What is a Spend Analysis?

To begin this process, you first need to know what a spend analysis actually is and what data points companies are compiling to make theirs every quarter.

Spend analysis, or spend analytics, is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of decreasing procurement costs, improving efficiency, and monitoring controls and compliance.

You must be willing and able to analyze your products, prices, suppliers, payment terms, business units, quantities, and customer retention data points in order to determine your company’s daily expenditures and their overall ROI.

For the average company, the data points that are most valuable to them include:

• What are we buying?
• How much have we paid?
• How much have we bought?
• Who are we buying from?
• How do their prices compare to other suppliers?
• Who is buying from us?
• How much goes into shipping and packaging for those items?
• What is the overall ROI of our products?
• Are the customers returning?
• Are our customer reviews comparable to the cost of our supplies?

With this data, you can get a full scope of your day-to-day expenditures and recognize any supplier relationships that are disjointed or not worth your time and money as a brand. From there, you can redefine your supplier relationships to earn more, streamline your daily operations, and benefit your customers and employees as well.

However, this is just the tip of the proverbial iceberg. To see how to truly leverage this data to your benefit as a brand, we must first break down each of these data points below.

How to Leverage the Power of a Successful Spend Analysis

Knowing what data points to track is just one part of the equation. The other part that is far more important is knowing how to use each piece of data for your benefit. To do this, let’s look closely at the value behind each of the analytics listed above.

• What are we buying?

Tracking your purchases as a brand is highly important. It allows you to take a closer look at your suppliers and inventory from a broad perspective. Once you know the basics of your company’s purchases, you can then begin to analyze each product thoroughly and determine if they are worth their price and valued by your customers in ways that are comparable to their overhead.

• How much have we paid?

This question should relate to the products you are purchasing from suppliers and the rates that they are giving you in comparison with the money you are making on each product. Essentially, it all boils down to whether or not your company is actually making enough on each of these products you sell once they’re bought, stored, purchased, packaged, shipped, and delivered in order to justify their initial purchase.

• How much have we bought?

Next, you will want to take a look at how much product you’ve actually purchased throughout the quarter. This will help you determine if your spending was aligned with your sales. If you are buying far more than you are selling, it may be time to rethink your supplier contracts and determine how you can reduce your inventory to save money but still appease your customers that are buying from you each quarter.

• Who are we buying from?

This is where you can begin to take a closer look at your suppliers directly. Who are they? Are they reputable? Are they reliable? Lastly, are they affordable? Your communication with these suppliers is crucial to success as is your analysis of their price when compared to other suppliers on the market. For this reason, take a look at other supplier options in your network and try to look at their quality, quantity capabilities, reliability, communication skills, and costs to find not only if your supplier holds up but, if not, who you can replace them with before the next quarter begins.

• Who is buying from us?

While analyzing your suppliers is important, analyzing your customers is equally vital for a successful and valuable spend analysis. Take a moment to look at your target audience, your buyer trends, and what products you may be able to eliminate from your inventory without upsetting your customers. This will help you to make decisions on your suppliers that actually reflect your company’s sales and how to increase profits and customer satisfaction as a whole.

• How much goes into storing, shipping, and packaging inventory?

When dealing with any supplier relationship and overhead costs associated with your products, you should be actively measuring these specific statistics as often as possible. This is what determines whether your efforts are truly making or costing you money.

When looking at your products and how much they cost your business, you should hope for at least 30–50%. If you are not making this on your products bare minimum, then you do not have a healthy ROI and should reconsider your suppliers and your company’s spending for the next quarter. Your employee wages should also factor into this as labor during the entire process also should be reflected in the final ROI to truly get a grasp on whether or not your company is profitable in its current state.

• Are the customers returning?

Customer retention plays a major role in the success of a company. To determine if you are keeping customers for the long haul, take a look at your sales and see if you have repeat customers each quarter. Then, compare this to your online reviews in order to determine if your company is keeping customers satisfied with the products you are selling.

In many cases, a lack of repeat customers stems from a bad experience with the products they receive. If you don’t see negative reviews online, you can also always opt to send out an email asking your past customers to rate their experience and the order they received. This can help you determine if your customers are satisfied with your suppliers as well since a good supplier shouldn’t just be affordable but should also be high-quality and reliable likewise.

Now that you understand why each of these data points is valuable and should be leveraged for the success of your brand, you may still be wondering here to find these data points. Fortunately, the process of acquiring this data is much easier than you may realize.

Where to Find Your Spend Analytics

Finding your spend data is simple — if you know where to look. Below are just a few of the best places to look for this data within your company according to the experts:

• enterprise resource planning (ERP) tools
• general ledger information (an organization’s financial data)
• purchase orders
• data shared by suppliers
• risk reviews
• credit ratings
• transaction data
• other internal systems and external sources
• The Stimulus Relationship Intelligence Platform (SRIP)

Compiling this data and then developing one true source may seem difficult but, if you begin to compile for the first quarter of 2023 on and save this data in a shared folder amongst your team, you can then utilize the expertise of your in-house data analysts at the end of the quarter to break down this data and get the most out of it for the next few months of the year.

Redefining Your Supplier Relationships to Reduce Costs

Once you’ve analyzed the data thoroughly, if you’ve discovered that your suppliers are not holding up, it may be time to redefine your relationships or develop new ones instead.

As a business, try using this guide on how to improve your supply chain management as a company. Sometimes, all it takes is a fresh perspective, turning to your local network, and trusting in the underdog to truly bring your brand to the next level and create a system where all parties win in the end.