For small and mid-sized businesses, buying a procurement platform is no longer just a technology decision. It’s also a strategic one, giving procurement teams the insights they need to help the Office of the CFO to make better decisions, and save money.
However, as with any software purchase, the investment needs to be justified financially. There needs to be a clear return on investment (ROI) that shows exactly what improvements to ‘efficiency’ and ‘visibility’ mean in monetary terms.
Not only that, but how long it takes to realise the ROI is just as important. Teams should see their calculations come good within months, not years.
ROI can be a powerful part of the procurement software comparison and short listing process too. It gives procurement leaders the data they need to make assessments based on the defined outcomes and values, rather than features and vendor claims alone.
This can be hugely valuable if you are weighing up the pros and cons of investing in a full procurement platform vs a Source to Contract platform. The former will inevitably take far longer to deliver a return on investment as the implementation alone will take considerably more time.
If you are looking for a solution that will have a rapid impact you should look at procurement and source to contract software platforms that are intuitive to use, have a rapid onboarding process and are scalable. With a tiered solution, you’ll only need to learn how to use the features you’ll be using when you get started rather than having to learn a full platform when much of the functionality will only become useful once your business has grown.
Introducing the BuyingStation Source to Contract ROI Calculator
The BuyingStation ROI calculator is built to help procurement teams gather the proof points they need and take their evaluation beyond high-level benefits so they can quantify savings.
How does the BuyingStation ROI calculator work?
The calculator focuses on three specific areas that deliver financial savings. These are reducing spend leakage, savings that can be made during contract renewals and the ‘sourcing uplift’ that can come from better negotiations and competitive bids to secure the best price.
Let’s start with reducing spend leakage
Spend leakage describes the money that is lost when purchases happen outside approved contracts or suppliers. Even well-run procurement teams typically see 5–10% leakage across addressable spend.
In terms of building an ROI, the BuyingStation Source to Contract ROI calculator estimates how much leaked spend could be reclaimed and assigns a monetary value to it.
Next is contract renewals and avoiding the risk of auto-renewals
Missed or poorly managed renewals often lead to auto-renewals at unfavourable rates, lost renegotiation opportunities, and the extension of non-performing contracts.
However, if you can clearly see what’s coming up for renewal, you can offset these risks. Our ROI calculator factors in savings from improved contract visibility and the impact more timely renewals can have on the bottom line.
Finally, sourcing uplift.
When sourcing activity is digitally managed, and supplier engagement is tracked, procurement teams can deliver improvements to pricing, supplier management, and governance.
That’s why the ROI calculator captures the incremental gains that can be made across a year.
What does it look like in reality?
To arrive at a pragmatic set of savings that can be used to make decisions, the ROI calculator takes the number of suppliers into account and considers how consistently and to what standard you currently follow compliance. A sliding bar will let you choose supplier totals and select where you stand on the compliance scale.
The calculator also looks at the impact team maturity will have on the outcomes you can achieve. If your team is relatively immature in its procurement practices and has loose structures in place for managing contracts, then the potential savings will be materially different to those teams with more proactive processes and data-led behaviours.
These three factors are then assessed against the company’s addressable spend (note it’s addressable not total spend).
It will also provide an overall indicative annual saving and ROI against a BuyingStation platform subscription.
Every company is individual, so the variance in range is based on the typical average across a variety of different industries.
If you’d like us to calculate a tailored return on investment aligned to typical savings for your industry, please get in touch here.
From ROI calculation to business case confidence
Selecting a source to contract procurement platform needs to be a strategic decision, so it’s important to have a complete picture including evaluation of the time savings, the financial impact and the strategic value procurement software will deliver.
The BuyingStation ROI calculator gives teams the information they need to have robust financial conversations with stakeholders and present a coherent business case. It moves discussions far beyond features to one where there’s genuine emphasis on the value that can be delivered.
If you’re weighing up procurement software options and want to understand what “good” looks like in financial terms, then try the BuyingStation ROI calculator today.
