Daily Archives: July 3, 2023

Per Year, How Much Should You Outlay for Source to Pay? 120K!

That’s right! We’re putting a stake in the ground on a real, actual, number! ( With caveats, of course, but still, a real number. !)

The one question everyone asks, but no one wants to answer, especially in North America, is how much? Most vendors want to get as much as possible, so most obscure their (true) pricing. Their analyst clients want them to get as much as possible (as they all dream of the day they get that Million-Dollar PO from a vendor in exchange for simply keeping the vendor at the top of the charts). Clients who think they got a deal don’t want you to underpay (and then have their renewal prices hiked up as the vendor seeks to maintain it’s profit margins) … and clients who think they’ve overpaid don’t want to tell you. And when some of the bigger vendors won’t even talk to you unless they think you’re good for seven (7) figures (i.e. One Million Dollars) a year or more, you might be tempted to think good (DIY) suites are out of your grasp.

They’re not. And if you’re smart, they can be quite affordable, and lead to not just an identified, but realized, ROI in a short time frame.

But first, here the first set of caveats around the 120K number:

[01] You are a true mid-market company, which we’re defining as a company more-or-less between 500 Million and One Billion in Revenues and an addressable spend of 250 Million to 500 Million (as you can’t address payroll, government controlled utilities, mortgages/long term lease rates, etc.).

[02] You have an average sized procurement team of under 30 people. (In a 2019 Benchmark, average organizations had 33.5 Procurement personnel per 1 Billion in revenue.)

[03] You’re doing an average number of projects per year for those people (and likely only strategically addressing 20% to 30% of the addressable spend per year).

[04] As you have (next to) nothing in terms of modern source-to-pay technology, your primary focus is the baseline capabilities (as defined in our Source-to-Pay series). You might want a few of the more advanced capabilities, but right now, getting the baseline (which will likely provide 80% of the value by allowing you to get all of your processes, and costs, under control) is the primary goal.

In other words, you [1] aren’t a large multi-national global enterprise (or small business with less than 100M / year going through Procurement), [2] don’t have a large team, [3] aren’t going to be driving the CPU utilization through the roof, and [4] aren’t expecting the top technology across the board (as industry average functionality or better is enough). In this situation, the vendor’s stack and (virtual) data center delivery costs are not ridiculous, it’s support requirements are not high, and it’s maintenance costs are predictable (as it’s not doing anything super complicated and novel in the tech that could require scarce talent). 120K is not only affordable, but sufficiently profitable (with a few more caveats that we’ll get to below).

But I’ve never seen a quote that low!

Where are you looking? Oracle? SAP? Those are primarily ERPs, selling on an old locked-in-for-life model (thanks to ridiculous up-front costs that accountants need at last 10 years to amortize). Coupa? That’s one of the largest super suites on the market with S2P, Finance, Supply Chain, Power-Apps, and very advanced capabilities (through one of it’s almost two dozen acquisitions) that many companies don’t need and may never use.

The reality is there are perfectly good (and sometimes best-in-class) solutions for:

  • Spend Analysis that are less than 24K/year for enterprise licenses
  • e-Sourcing (RFX/Auction) that are less than 24K/year for enterprise licenses
  • CLM (primarily Governance and some Negotiation support) that are less than 24K/year for enterprise licenses
  • Supplier Management (primarily Information/Relationship with some Compliance/Performance/Risk) that are less than 24K/year for enterprise licenses
  • P2P that are less than 24K/year for enterprise licenses

which adds up to 120K. Plus, there are some smaller, lesser known, complete S2P suites that have all of these core baseline modules for subscriptions less than 10K/month (120K/year), which, for a multi year deal, will even slide in slightly under 100K for a quick deal (i.e. 8K/month vs. 10K/month).

The other caveats are:

[05] This does not include integration costs, training costs beyond access to all of the online-training materials/virtual academy, and the implementation costs are limited to flicking the switch to activate the license and any necessary setup configuration.

[06] The sales cycle is mostly virtual (web demos, video conference meetings, etc.). You won’t get to meet the sales rep in person more than once during the sales cycle (and that’s only if you’re buying a mini-suite or a multi-year deal; these vendors stay affordable by keeping their costs down, and multiple on-site demos and meetings do nothing but drive up overhead and costs).

[07] Most vendors will help you with the initial data load (provided you are loading data from a supported system in a supported format), but refreshes will typically not be included in the ongoing support, which will mainly be limited to online help and workaround support for identified bugs while the bugs are being fixed.

[08] This will typically not include any data enrichment offerings also offered by the vendor, especially if those data enrichments are coming from third parties, but these will be pre-integrated and you will only pay the third party fee if you want to turn them on.

However, [05] it’s SaaS, and most integrations should just be data loads, and since most modern tools have fully documented, fully open APIs, this is something that, if not out-of-the-box, you can open quote among your verified service providers and get reasonable rates on. [06] the pandemic finally proved to stragglers that you can do business online, even if you don’t like it; and when you consider that insisting on everything in person when every 3 person trip adds at least 10K of cost to what could be a lower cost product, why insist on in-person when not necessary. [07] once the initial data is loaded, most of the data will be created, and live, in the system. [08] you’d always be going to a third party for data enrichment anyway, so it’s unreasonable to think the SaaS provider should include it in their price.

So, even though there are a lot of caveats, none are unreasonable and none should impact the value you can generate. And as per our recent piece on Five Easy Mistakes Source-to-Pay Tech Buyers Can Avoid , given that you’ll realize quite a bit of up-front value just by getting a tech-enabled process in place and capturing all the spend (which you can then analyze for true opportunities), you don’t need to spend more (until you identify which advanced functionalities will actually provide more value and then you can go out and buy those modules / augmentations one-by-one as you need them, and chances are there won’t be that many that the organization will actually get enough use of to justify the purchase).

And what if you already have a first (or second generation) solution and are ready to upgrade to a leading third generation solution with multiple (fourth generation) advanced capabilities? Or you just hired an experienced Procurement team used to working with advanced technology and are ready for / need multiple advanced offerings? (Or are borderline enterprise?) What should you pay then?

To be continued.