How CFO’s Slash Costs and Boost Profits With Spending Controls
In this presentation, Sachin Sharma outlines how spend management practices evolve as companies grow from small startups to large enterprises and how CFOs can leverage these practices to improve cash allocation, increase visibility, and negotiate better prices. He defines three core objectives—better cash allocation, visibility into spending, and price optimization—and explains how they translate into cultural and procedural changes at different company scales. Sharma emphasizes the importance of a spend‑conscious culture where stakeholders question expenditures before they occur, supported by transparent dashboards and disciplined approval processes. He differentiates between cost‑control (avoiding spend) and cost‑reduction (negotiated savings), providing benchmark ranges (2‑3% for avoidance, 5‑10% or higher for negotiated savings) and introduces the concept of addressable spend to help organizations set realistic savings targets. Practical tactics include standardizing specifications, leveraging volume for negotiations, and CFOs acting as challengers to vendor choices to achieve comparable outcomes at lower cost. The talk concludes with the assertion that mature spend management can deliver 5‑10% overall expense reductions when properly scoped and executed.
Chapters
When you think about spend management, it varies a lot. When you look from companies which are smaller to medium sized to large, right? So it's a very broad, I would say term and the level of depth you go into would vary upon how big the company is. So in smaller companies, spend management is generally more in terms of do I know what bills I have to pay and do I have the money to pay it? Right. And that's kind of, it starts from here and ends there because it's probably few employees and very few people getting into paying those bills and so on. But as you start growing like you know, typically at a scale of I would say 20, 20, 30 employees plus, you should start thinking about effective spend management. And what I mean by spend management is not just think about this as a broader term in terms of, you know, when you're, you have certain income and you're deciding where you're going to spend that income, you have your fixed assets, fixed expenses and then you have your variable expenses and so on. Right now, fixed expenses you can't do much about, but variable, you have the authority to kind of review and just say where I'm going to spend my money. A company is no different, right? You have a sudden available, sudden funds available, which you kind of decide on where you want to allocate those funds. And spend management as a practice is more focused on understanding how do we allocate the capital better and get the best bang for the world. So I think that's kind of at a broader level on if you think about, from that perspective, then you think about how do we make sure people are making good use of the money, how do we make sure, do we have enough visibility into our spending, where are we spending with whom we are spending? And third is, then you start getting into am I getting the best price for what we need to do. Think about you have a house and you want to get your roof replaced, you're probably going to get to three people to get a coat and see the best price and so on. Business is no different. You're buying either product or services. So having that practice, right? So thinking about overall better cash allocation, thinking about processes in terms of managing the cash and thinking about getting the best price, right? So that's kind of three areas when you think about for between medium size, As I said, 20 to 30 employees onwards, going to mid and then enterprise, right? So mid market would be, I would say anywhere between, you know, 50 to 150 million from a revenue standpoint. And I'm still counting SMB as you know, going from maybe 5 to 10 million up to 50, right. So the. And then 150 plus is what I'm calling enterprise. And now somebody might not agree with my definitions because it's so such a broad range and everybody has their own classification. So that doesn't matter. What matters is what you should think about at each stage, right. So from a, when you are a small to medium sized company, I think when you think about spend management, there are the first two is where you should focus on so having like an effective process to track where you're spending and having a process, right. To kind of control that. So you can decide are we making better use of our money? Right. From a cost allocation or a cash allocation standpoint, when you get into medium or enterprise companies, right there you get more into understanding what's really going on, right. From a not just cash allocation standpoint, but are we negotiating the cost? I think if I have to visualize, imagine, you know, from a. Overall, when you say spend management, right. Culture, what does that mean? I would define that as a culture of understanding where you're spending and having the right set of processes to vet the spending before you actually spend the money. Right. So those are the two key aspects of spend management. And if you have those things in place, you automatically build a culture where people question the spending before it actually happened, right. So there's a lot of talk, but people say we want to create a spend conscious culture or spend, you know, effective spend management and so on. And that has to come up with as the company start growing. I think you got to start building. I mean it's, it's no different from people say, you know, it's part of the culture, right? And it is part of the culture. Like if, if the CEO of the company basically just say, oh yeah, send it to me and I'll, you know, we'll go ahead and buy it, right? Like I'll give you two examples and that kind of clarify what I mean by spend conscious culture, right? So SEO of a company has all the power to spend where they want to spend the money, right? And let's say a VP of marketing comes and said we need to invest in this CRM tool, right? This is the best tool in the market. This is going to help us understand our customer betters and so on. And CEO might just go ahead and say, yeah, go ahead and do it, no problem at all, right. And then the finance team come to know about it and then it's like, okay, you know, it's going to cost this much. Do we have the budget and all they're doing this, all this before, after somebody has signed the contract or bought the service. Right. That's one example of it. And the second example is this USA is great. Absolutely. Just check with finance, make sure we have the right budget, we have allocated the cash for a certain number of months, whatever, and then we'll kind of move forward with it. Right. So two different scenarios. You'd land up buying maybe the same CRM software. You didn't do much. But it's a matter of making sure that everybody who needs to be involved is reviewing it. So there are data, no surprises. End of the day, you know, when you're closing books, Right. One of the things people always see is like, I had my forecast and what is my, you know, actuals, Right. As for the plan and where is the variance? You're trying to understand why there's a variance. Now, obviously there are factors in terms of revenue. You know, could go up and down. Your expenses could go and up and down. Now spend management cannot control your revenue side of it, but it can definitely avoid surprises when it comes to the expense part of it. So that's, you know, it's, I think, is up to the leadership to kind of build that culture. Just having a process is not going to help. Right. So if you have a process where, yeah, finance needs to approve it, but then you, next time, you know, you see it and you're in a hurry and say, yeah, go ahead and buy, don't worry about it, doesn't work. I would say the core benefit that I've seen and how companies kind of implement something or the outcome of that, let's put it that way, is the transparency. It's the transparency of expenses and understanding who's spending where there are certain things which you might say, not everybody should know. So people talk about having a transparent culture and talk about sharing everything you can except salaries, which kind of. I agree with Pen Management helps you with that. So think about having a central dashboard where you're tracking all the spending and anybody, all department owners can actually go and look at it. So guess what it does, right? It provides transparency to all the senior leadership team in terms of where the company is spending the money. And there's no kind of rumor mill going on and said, okay, one department is favored, another is not favored. Marketing always get the money and you know, facilities never get the money. Right. So it's a common joke. So yes, that might be the case. That might be for A reason. But then it's not about, you know, how much money they're not getting. Right. You can just see whether you're spending the money. Obviously it's in budget, but I think it's more than that. It just brings the transparency and second is it just brings in better discipline around how you spend your money because, you know, people are questioning it. Right. And so, so let me kind of give you an example. I think I can't find the attribution to where I read about it, but there was an example of reducing expenses. And the example in there was rather than asking the procurement team, they picked a few people in operations and said, your job is to review the expenses and come up with a couple of cost saving opportunities. And I believe that company was profit sharing, if I'm not wrong. So obviously the more, you know, cost you save, it just lead to more profits. And when people start looking at expenses, right. They just looked at, okay, you know, why we're spending this, why are we spending this? Maybe we can save here or there and so on, and they realize a good chunk of money they could save. So the point I'm trying to make is sometimes we get into this run off. We need specialization, we need somebody to kind of look into maybe a specialized department who should be looking at it, which I don't disagree with. At a certain scale, you absolutely need it. But if you think about when you're growing and you're starting having a process or having a culture of questioning your expenses and you know, not only at the time of cutting the cost, but just doing when you're, when you're actually spending, it goes a long way. So those are, I would say, kind of good side effects of having a good spend management process. So companies can save anywhere between 5 to 10% with a effective spend management process. Right. And I gave you a range and it varies on various factors. So let's look at some of them. What I mean by that. So when you think about savings, there are two type of savings. One is your, what we call typically in procurement world, cost control or, you know, cost avoidance. And second is actual cost savings. So let me differentiate a bit. So cost control refers to your ability to decide not to spend the money. It's avoiding, basically. Right. So you know, you got, you know, engine light on and you decide to kind of ride the car for another month. Right. Probably one bad example of that, but an example of it's an avoidance. Right. So, or, you know, you decided not to upgrade the, the company computers for another year. Right. It's a, you're making a conscious decision, but it's a trade off at that time. I'm not going to spend. So their benchmarks varies. In my experience, I've seen anywhere between 2 to 3% on the lower end of cost control. So that is not, I'm not talking about cost savings right now, but just your ability to say, nah, I'm not going to spend on this. Right. So if you're spending, you know, let's say 100 million a year, right, you could save up to 2 million with just having strong controls on the processes and so on. But the main cost savings comes from your ability to reduce your spend by effectively negotiating it. So now carry forwarding the same example of the laptop, let's say now you decided to upgrade everybody, right? So that is where having the ability to go to the market to finalize the specs. Do you want max for everybody or Lenovo would do? Right? Well, not that one is cheaper now, but it just as an example, you standardize specifications, you go out, you decide on how much warranty you need and then you negotiate the cost. That could vary from, I've seen anywhere between 10 to 15% also depending upon the volume, depending upon how often you have negotiated that cost. Like, have you ever negotiated a rate for a laptop? I'm just thinking about, like, how do you compare the cost? Right? I gave you a number, average number of 5 to 10%. But by using these strategies, you can get to 5 to 10% easily. But there are a lot of caveats you should look for. So I would advise not to use this as a, yeah, we have spent management, we'll say 5 to 10%. I would say use this math to kind of work backwards and said, okay, we spend this much with external vendors, let's say 10 million, all right, 5 million. We are spending on services which you have never negotiated. So guess what, your leverage on those might be higher. So you could take like 10 to 15% assumption. But let's say you buy a laptop every year, you negotiated a rate, you already have a predefined rate and now you want to save some money on that. Your opportunity on reducing the cost is low because you have already looked at it, right? So in, in procurement world, you call it addressable spend. So how much of a spend is addressable in a year? And that is how you kind of decide your savings target. I'm talking about more mature organizations where you have procurement teams and their job is to reduce costs and they look at this as okay, how much of the spend is addressable and then come up with a number. But those are some of the caveats. So start with that 5 to 10% on a high level. But then go do your math, look at the data, and then drive some numbers from there. For example, you're hiring somebody to do a certain job, right? You're hiring a consultant, and you're going to get different grades of people depending on where you go. So if you hire from X versus Y based on their brand name might be more expensive and so on. So the opportunity is, okay, can I quickly look at what work needs to be done and if the lower cost vendor, do they have the ability to provide it? So am I paying more for the brand and getting the same amount of work? If that is the case, I will work with my stakeholder to kind of get the consensus. So a CFO's role, even in smaller companies can go a long way in terms of being the person who's questioning these decisions and then said, okay. Rather than taking the angle of why do you need to go with this person, you ask in terms of what are you trying to achieve and can we get to the same outcome, maybe in a slightly different way or with a different vendor? So that's probably the number one tactic or hack I would use.
