Earnings improvement: a procurement-led guide

How to improve earnings: cost is the fastest lever

A £1 of saved cost is worth roughly the same as £4-6 of new revenue at typical mid-market margins. That maths is why cost work is usually the first earnings lever a new CFO or PE sponsor pulls - and why margin improvement consultants tend to start with the cost base rather than pricing. The evidence backs the approach: Digital World Class procurement organisations deliver 96% higher spend cost-reduction savings and operate at 21% lower procurement cost (The Hackett Group) ^{[1, 2]}, and the same companies show 83% higher net margins and 29% lower cost of operations (The Hackett Group) ^{[1, 2]}.

Where earnings usually hides

• Indirect spend that has not been re-tendered in 3+ years
• Tail suppliers that have quietly multiplied post-acquisition
• Freight and logistics rates drifting above market
• Software and SaaS overlap from historical decisions
• Energy contracts on legacy pricing structures
• Marketing spend without a clear pipeline attribution

A realistic Earnings improvement plan

A structured plan usually runs in three waves. Wave one is the political window - the first 90 days when a diagnostic and quick wins are expected. Wave two is the harder category work. Wave three is the operating model change that keeps the savings from reappearing.

Wave 1 - diagnose and stabilise (0-3 months)

• Spend baseline, top-category benchmarks, sized prize
• Quick-win renegotiations on the clearest overpayments
• Approval and PO threshold policy reset

Wave 2 - deliver (3-9 months)

• Category-by-category sourcing on indirect and direct
• Supplier consolidation where fragmentation is high
• Contract renewals aligned to actual usage and volume

Wave 3 - hold (9-18 months)

• Category ownership and governance
• Savings tracked to the P&L, not the tracker
• Demand management and specification discipline

What Earnings uplift is realistic?

For UK mid-market businesses that have not run a serious cost programme in 3+ years, a well-executed procurement-led programme typically delivers 8-15% of addressable spend as savings over 12-18 months. On a business with £40m of addressable spend, that is £3-6m of earnings uplift. The same logic applies in deal situations: procurement synergies often represent 25-40% of total merger cost-saving potential, underscoring how much earnings leverage sits in external spend rather than in the revenue line (McKinsey & Company) ^[3].

Where this connects

This sits alongside our cost reduction consultancy and procurement consultancy services, and pairs with the 100 day cost plan for post-deal situations.