Perform Spend Analysis in 7 Steps

This article was originally published on the Order.co blog. Read the full article here.

To get the most out of your budget, it’s crucial to understand where and how each dollar is being spent. A structured procurement spend analysis process not only reveals valuable insights but also sets the foundation for smarter, data-driven financial decisions that improve operational efficiency and profitability.

In this article, we break down the seven steps to master spend analysis and share three best practices for maximizing savings and driving procurement improvements.?

Ready to build a more informed, efficient spend management strategy? Get started with these steps and best practices.?

7 steps to strong spend analysis

Spend analysis is a key part of creating efficient, data-driven procurement processes. By following a structured approach, organizations can gain valuable insights into their purchasing patterns, uncover savings opportunities, and establish stronger budget controls. Here’s a breakdown of seven essential steps for effective spend analysis:

1. Define clear goals

Establishing clear objectives is the foundation of any successful spend analysis. Start by identifying the specific data points that will influence your spending strategies. Your goals should be tightly linked to key performance indicators (KPIs) that help track how effectively spending supports broader business objectives. For example, a KPI might be to reduce spending on low-priority supplies by 15% or to consolidate vendor contracts for better bulk pricing.

By clarifying these targets, you create a framework that focuses data collection and ensures a consistent metric for measuring success over time.

2. List all relevant data sources

Comprehensive spend analysis requires input from various departments, each contributing relevant data. Work with stakeholders to ensure you’re capturing data across enterprise resource planning (ERP), finance, marketing, customer relationship management (CRM) systems, and any other data repository relevant to procurement. This broad collection is key to ensuring the analysis reflects true spending patterns across the organization and doesn’t overlook any critical categories.

3. Consolidate and cleanse data

With data collected, the next step is to bring it together in a centralized platform. Using procurement or spend management software to consolidate data not only streamlines data access but also enables easy data cleansing processes, such as eliminating duplicates and filling in any gaps. Clean, accurate data is critical to ensuring integrity throughout the analysis process. By establishing an accurate, clutter-free record, your team can confidently base purchasing decisions on reliable data.

4. Organize data by category

Organize spend data by core categories, whether by department, supplier, or cost type (fixed vs. variable). A logical, categorized structure allows for a detailed review of spending trends and helps spotlight high-cost areas that could benefit from renegotiation or budget adjustments.

5. Link and categorize spending

Link each spending category to its respective business unit, project, or financial goal to gain a clearer understanding of how funds are allocated across the organization. This will allow for more effective budget planning and ensure that all spending is directly connected to desired business outcomes.

6. Analyze and iterate

Prepare analysis and reporting relevant to your goal. Establish a workflow to verify and report on the data and conduct regular analysis to improve spend optimization over time.?

7. Track performance over time

Once all data is collected and analyzed, teams can track finance performance KPIs over time. There are plenty of useful metrics to track, such as cost per unit, spend-to-budget variance, and projected cash flow. Monitoring these metrics ensures that changes made to the financial process and spending approach have the intended outcomes.?

It also makes it easier to identify areas of spending that still need refinement or those that will experience change over time. It provides sufficient data for performing vendor lifecycle analysis and ensures those relationships remain competitive and beneficial.

Best practices for performing spend analysis

Even with a structured approach, certain best practices can help enhance your spend analysis program:

1. Establish a solid process

A successful spend analysis program relies on a transparent, repeatable process. Begin your analysis at the purchase requisition stage, setting standards for approved spending and building an effective approval workflow. Consistency is crucial—without it, data can become fragmented or unreliable, weakening the value of the insights gathered.

2. Assign a project champion

Spend analysis is a cross-departmental initiative that requires dedicated oversight. Designate a project champion who will lead the program, coordinate data collection, and act as a central point of contact. This person is responsible for data integrity and ensures each department has the tools needed to contribute accurate and relevant data.

3. Use data strategically

With insights from spend data, focus on areas where adjustments can make a meaningful difference. Use real-time data to prioritize spend categories, streamline vendor lists, and leverage bulk discounts where possible. A proactive approach to data insights allows for dynamic budget adjustments and smarter, data-driven financial decisions.

By following these seven steps and implementing these best practices, your organization can improve spend analysis processes and make more informed, strategic decisions.

Common challenges to analyzing spend

Spend analysis can get tricky when your data is scattered, everyone’s using different standards, and departments aren’t on the same page. To cut through these challenges, try centralizing all your data in one place, setting clear data entry standards, and building teamwork across departments—this way, all the information you need flows smoothly into your spend analysis. And don’t forget, automating those repetitive data-entry tasks can save time and help keep your data accurate.

These seven steps and best practices form the foundation of a strong spend analysis strategy. For a deeper dive into components, types, and a real-life example, check out The Complete Guide to Procurement Spend Analysis.?