Thank you to Jamille Bell for authoring this guest post contribution.
If you're trying to get a handle on where you stand with spending at your company, it's a good idea to begin by identifying some key performance indicators (KPIs) that can help. Evaluating where you can do better at managing costs for procurement, customer acquisition, and more will allow you to fix existing issues, avoid new ones, and generally optimize company spending moving forward.
To help you with this, and to hopefully make the next year your most financially efficient one to date, we're presenting some important KPIs to keep in mind heading into 2020.
In a 2017 piece on procurement KPIs posted on Tradogram, cost variations were mentioned as significant indicators. Regarding procurement, this essentially referred to recognizing and acting on any difference between advance target costs for purchasing items and the actual costs at the time of purchase. Broadening this idea though, cost avoidance in general is a major KPI for spending management. When you're analyzing cost variations, you may be looking at savings or excess expenses regarding any individual product or action. Measuring cost avoidance is more about seeing what expenses you may already be avoiding in your efforts to cut costs and improve efficiency. A clear picture of cost avoidance lets you know what's working and enables you to optimize additional practices accordingly.
Percent of Total Expense
Simply put, this is about checking to see how much of your company's total budgeted expenses each department accounts for. While some functions of the business are always going to need to require a larger portion of the budget, you can still better understand and improve your strategies with a clear idea of the spending breakdown. In this case, you won't just be helping the overall company either - your employees will probably thank you. Gaining more insight into each department's specific spending situation should allow you to adjust expectations in a way that's more efficient for everybody.Customer Acquisition CostDigital marketing spending on things like SEO and social media outreach can comprise a significant portion of the cost of acquiring customers. However, by taking a more comprehensive approach to digital marketing - not just conducting outreach, but conducting technical analysis of your company's content, needs, and SEO performance - you can gain more perspective on what your marketing budget is affecting. If, as is the case with many businesses, you find that you're spending efficiently on customer acquisition and online outreach, you can adjust your SEO and marketing practices accordingly.
You probably already have a system for approving expenditures. But you may also have some employees who view these as loose guidelines - or some who simply make mistakes. Naturally, this leads to some rogue purchases, and only by identifying them can you begin to get a handle on them. This doesn't mean there has to be a significant crackdown on employee actions, at least at first. But if you identify any clear or repeated relating to rogue purchases, you can then address the related employees or even hold company-wide meetings explaining the issue and discussing new (or just clearer) plans moving forward.
Number Of Suppliers
It's something a lot of people don't think about until they're running a business or analyzing finances. But the number of suppliers you're using - for anything from consumer products to office supplies - can matter more than the actual cost of goods. Basically, if you have too many suppliers, or redundant ones, you can actually be spending more across the board, and missing out on savings you might get from bulk sales, continual business, or even a good relationship. Entrepreneur's take on how to build good relationships with your suppliers is worth keeping in mind here, once you've identified and assessed this particular KPI. If you feel you could cut back on your suppliers, you can first begin to ensure that you have a strong relationship with the ones you want to keep doing business with.
There are of course plenty more KPIs to consider with regard to specific aspects of any business. Some that are important for one person may not be quite as much so for the next, and so on. But the above indicators can help you to gain a brand understanding of your spending management, and by extension set you up for an efficient, profitable 2020!
Written for Tradogram.com by Jamille Bell