Step-by-step: How to do a spend analysis
We’re going to quickly take you through the steps you’ll need to take to conduct your own spend analysis. Click on the dropdowns to read more.
Step 1: Set goals
Make sure you know what you’re trying to achieve from this process. A common goal is visibility. You need to see who’s spending what, and why. Where is your money going? Which suppliers are you spending the most money with? What are your main categories when it comes to expenses?
Step 2: Know where your spend data is
As a small business owner, it’s likely you’ll have main admin access to the data you need, but where your time will be spent is in bringing it all together (a centralised spending platform could offer ongoing ease here). To make the right financial decisions, you need to use every tool at your disposal. The most successful companies drive their productivity (and even profitability in the current economy) by connecting disparate sources of spend data for greater access and visibility into company spending. They are connecting the dots to make the best data-driven decisions.
Subject to how you’ve structured your company spending, some common places to access your spending data include:
- Company credit cards and associated bank accounts
- Invoice processing
- Procurement tools
- Payroll tools
- Your ERP (enterprise resource planning)
- Any other finance spreadsheets/documents in place
A study by Aberdeen Research of 606 companies around the world with 1,000 employees or fewer, (commissioned by SAP Concur – a travel and expense management service), shows that ‘best-in-class’ performers are managing 74% of company spend using digital expense and invoice management technology, with more having integrated these systems with back-end ERP and other finance and accounting tools. As well as managing cash, improving budget forecasting and categorising spend, these companies are 31% more likely to be using this data to track and manage budgets, helping to redirect money to top business priorities. The study claims that these companies are 18%-34% more likely to report improvements in:
- Budget visibility
- Workforce productivity
- Customer satisfaction
- Speed of decision-making
- Data sharing and collaboration
- Employee trust in data
- Simplified analytics
According to the study, over a period of two years, best-in-class companies reported improvements of more than 26.1% in productivity and 24.3% in profitability. (Compared to -2.4% and -1.7% for others.) The data suggests that digital spend management really can help make the best spend decisions for your business.
With uncertain times ahead, it’s worth having a read of the full report, which dives into detail about how digital spend and budget management has helped top companies thrive, with Aberdeen Research making recommendations for comprehensively managing company spend to achieve superior results.
Step 3: Bring everything together
It’s time to pull your data together into one central database (or Excel sheet), listing all of your company spending. While this can be a slow and tedious process, it’s essential in establishing one source of trust, so you can accurately analyse your spend. There’s no fast-track alternative. Finding a tool or database that works with your payment methods is worthwhile, as you’ll always have up-to-date information when you need it.
Step 4: Time for a tidy up
You might discover that certain data doesn’t look right, or uniform. This might be due to a mix of time zones, formats, currencies, languages, etc. For example, time zones can complicate spend analysis quite significantly. Checking spending month-to-month, you need to know when your business month begins and ends. The month doesn’t end at the exact same time in different countries. Set rules when compiling your data to avoid any confusion here, as it will mean your analysis is consistent every time you complete it.
Step 5: Categorise and group
Categorising and grouping your spend data makes it easier to analyse. Tabs and columns can help to organise your categories, such as business team, supplier, spend category e.g. travel, agency fees and frequency (one-off, monthly, annual?). Plus any other key categories specific to your business.
Step 6: Analyse
Now that your data is clean, categorised and accessible, it’s time to work out what it’s telling you. Your specific analysis will depend on your set goals, but let’s assume you’re looking for areas to be frugal. Some common areas to tighten your belt:
- Redundant subscriptions
- Upcoming renewals – review use before automatically renewing for another year
- Prepare renewal negotiations with subscriptions you intend to keep
- Large one-off payments can represent a significant percentage of your company’s These need to be highlighted in your spend analysis. Could it build a business case for more tax/compliance training to avoid another shock spend?
- Miscellaneous ‘unnecessaries’. Whether it’s a certain brand of expensive tea bags or regular team lunches, it all adds
Once your payments are categorised, you need to assess which percentage of total spending went into incidentals. If it’s looking high, it’s time to reassess and cut back. For example, you may be spending an unnecessarily high sum on your product postage and packaging; could the quality of the packaging be reviewed without detracting from the overall customer experience? This process will highlight potential trouble areas that need to be spotlighted in your spend report.
Step 7: Build your spend report
As a small business owner, it might be only you that’s in the position to action these spending changes (or in conjunction with your accountant if you’re working with one). While it might only be you who currently views your report and takes action, building it is good practice, as it’s something that can later be shared with senior team members as your business starts to grow. It’s also a useful process to set up for the long term, and a useful document to outline the changes you’d like to see in the future.
Marketing costs can make up a significant proportion of a business’s overall spend – and can be a good indication of a business’s ambition for growth and seizing opportunities. It’s a key area to evaluate your spending.
Don’t go silent
It’s a common reaction to tighten your marketing budget during times of uncertainty, as many consider this to be a non-essential cost. However, it’s important not to halt your marketing activity entirely, otherwise, you risk losing leads and new business opportunities. You even risk losing return customers by going silent, as you’re communicating a lack of stability. Your competition is also being given the opportunity to overshadow you.
You can still be frugal with your marketing budget by making every penny count. This is where smart data insight comes in. Ensure your data is driving the structure of your marketing budget – how much you spend, where, and even when! Have an idea of the return on investment (ROI) per channel, while keeping a regular eye on your results to ensure you’re continuing to invest in what works, and quickly responding to areas that take a dip. For example, Google Analytics can tell you which of your marketing channels is most effective in driving traffic to your website.
Throwing money at marketing isn’t going to guarantee results – a well-informed strategy that is monitored regularly will ensure you get the most value for your money.
Test, learn, refine
Never stop testing, learning, and refining. While you might have built a successful marketing strategy through a test-and-refine approach, there are always new channels to explore and untapped customers to connect with. Be mindful of future-proofing your marketing strategy – something that might work for you now, might not remain as effective down the line. Trends and audiences can shift, new marketing channels emerge, algorithms are released, etc, so ensure you’ve got a hawk eye on your results as well as the latest innovations in technology that could be your next key marketing channel or tool. Invest in the channels that are working the best, but if you can, put some budget aside to test new opportunities also.
Be mindful with your messaging
This will depend on the industry you’re in and the products/services you provide, but think about your audience and how the cost of living crisis is affecting them as well.
- Is your offering considered a luxury?
- Or are there aspects you could highlight in your marketing that connect with how your audience is feeling right now, and their priorities?
- Can you solve a problem for them?
- Do you need to consider pivoting your business offering (or part of it?) to meet customer demand (or lack of demand?)?