A primary role of a Chief Financial Officer is to oversee long-term budgetary planning and cost management; as well as oversee cash flow. It stands to reason that if an expense does not add value to a firm, it should be eliminated. Unchecked, vendor expenses can quickly become out of control. Are you spending more than you should be with your current vendors?
At different points in my career I have been asked to review the expense side of the company’s Income Statement, specifically vendor costs. The following approach has been utilized successfully many times over to achieve real savings, from vendors of all sizes –
- Analyze Vendor expenses – understand the flow, i.e. fixed, variable, and seasonal.
- Review the contracts – Are you receiving all services and/or features that you were expecting? It is not uncommon for technology agreements and/or data agreements to promise everything, but fall short of expectations.
- Review your needs – Contracts represent your needs at a point in time, i.e. when they were executed. It makes sense that an expiring three year contract will include items you no longer need.
- Understand pricing – Is pricing today different from when the agreement was established? What is the pricing from your vendors’ competitors, for new accounts? Consider in your analysis the cost of conversion, i.e. cost to substitute one vendor for another.
- Seek opportunities to bundle – At times a vendor will seek more revenue opportunities by migrating to related services. Are there cost savings for bundling, that you may benefit from?
Avoid the warranty trap with new technology. Every new piece of equipment starts with a two year warranty. When the warranty is close to expiring, you will be offered a warranty extension. Depending on the price of the equipment, extended warranties may not make sense. Consider replacement costs.
Decide based on the data you have collected what the proper fee is, for the service or product in question. Contact your Vendor’s Sales representative and request a concession/discount to obtain your target price. Do not threaten to leave or reference your data. A good sales person already knows what competitors offer. Be prepared to negotiate.
As a policy, review agreements at the time of renewal, at least every three years. Prior to signing any agreement, be sure you discuss service expectations. Require that all automatic renewal language, be removed from your agreements.
What is your experience?© Copyright 2013 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!