Speaking of, you know, budget season, you wrote a really interesting, a really insightful article a few weeks ago about budgeting.
And and one of the first steps, as you described, was, kind of setting an established budget. You talked about zero based budget. You talked about run rate budgeting. Can you talk a little bit more about you know, I I'm assuming the first step is the is the pull, you know, the data out of ERP, but but then what's next?
Yeah. I mean, really, whether you're going with zero based or run rate budgeting, you have to establish a baseline.
Okay. Otherwise, you're gonna be putting a lot of work on the budget owners. That baseline can come from the ERP, meaning, you can just look at where you're spending money today, who are the vendors, you know, what which suppliers, and how much money did you spend.
But often, that's that's lacking information that you ultimately need because what you really need to understand is contract start dates, end dates, obligations. You may have expenditures that you can action next year, meaning and when I when I say action, I mean, you could contract, you could expand, you could churn that particular supplier.
And you have There's some that you can't though.
Right? There's some that are locked in, there's some that you can't.
That's the And there's others that you can do nothing about.
You're obligated to spend and and that's not obvious in the ERP, so you need a tool that can give you that that accurate baseline.
Very interesting. I and and I think that probably a lot of companies have access to, you know, simple metadata like that. But what are you maybe digging a little bit deeper, are you looking for historical trends to kind of figure out, like, what your spend run rate is? Or or maybe maybe share some thoughts there.
Historical trend is relevant. I mean, especially if you're seeing sequential increases in user count, seat count. It depends on the pricing model for the particular supplier whether or not history is a good proxy.
But history could also show you that a supplier has a pattern of every year, every other year increasing pricing by ten to fifteen percent. So the historics are useful in that regard, but not not just historics.
Okay. So so beyond historics. Let's keep going.
Yeah. So what would be even more interesting to understand is what are what are the trends in the marketplace around that supplier? Are we seeing the supplier is changing their pricing strategy? Are they differentiating from just a per seat or per user model over to a consumption or transaction model? And do we need to factor that into our budget process?
Are they rolling out new capabilities that today are free or embedded in your current, you know, subscription, but in the future, they're going to start charging for it? So, really, the need to be out in front of all the different ways that suppliers are innovating. And the reason is they're all undergoing market pressure, contraction. People are looking to trim budgets.
Well, they still have to grow revenue.
So suppliers are looking for ways to grow revenue. Pricing strategy is one of those ways.
And so the budget process intersects very specifically with pricing strategy.
And and historically, has that data beyond the historical trends, has that data been easy to get?
No. That data is not easy to get.
So so how are you getting that data today?
I get that data from Tropic.
Okay. And and has that been impactful then?
Oh, absolutely. I mean, it it it's it's interesting because at our fingertips is all of this information about how much we're spending, how much we used to spend, when our contracts are up, you know, which ones we can action in the following year, where are we spending too much money, where can we save money, Negotiation strategies, it's it's really, it's it's a a gold mine of insights for someone trying to save money for a company.
Well, and it's not just saving money. Obviously, it's really important, but I have to imagine that in this market specifically, being able to come up with an accurate budget is probably more important than it's ever been. And so what I hear you saying is historically, maybe if companies looked at historical trends, maybe they've looked at, you know, maybe some utilization data if they get their hands on that. That doesn't tell the full picture what really to to be able to control your cost, to be able to, you know, forecast accurately, you need to understand what's changed ex externally, the supplier pricing, the the uplifts, the the packaging changes. And then and then probably combine that with knowing what price is even competitive. Because just because you've paid a certain price historically, doesn't mean that that's what you should be paying. So maybe maybe a follow-up question as I'm kinda speaking out loud here.
At this point in the budgeting process, are you focused on, you know, starting to evaluate competing solutions at this point, or you're just really trying to look at the incumbents from a supplier perspective?
No. We are looking at the alternatives, but but also tech stack consolidation opportunities. But going back real quickly, another thing to consider is suppliers often do this true up thing where you pay for a certain number of seats or users or at a certain level of consumption and they they don't they don't charge you differently during the year. And then at the anniversary period, then there's an uptick. If you just look back historically, you would not in your budget process capture that potential uptick unless you're using a robust enough tool that can flag that for you.
Because it it would look flat and the and what you're saying is the assumption would be that, you know, hey, it's been flat so it's probably gonna continue to be flat or maybe a small uptick. But but but what you're saying is there's kind of this like got you where you could potentially be way off if you have that kind of true up moment in your contract. Really interesting.
That's right. And that would be an embarrassing miss in the budget process. But to your other question, what I call tech stack rationalization is really it and it it's running rampant because so many companies have gone through changes in leadership, changes in strategy, asynchronous work, the proliferation of tools running rampant. And so the upside is lots of opportunity for new tools to crop up. The downside is we see those tools enter a company's footprint either through, purpose, like, we intended to go acquire that tool or people just stand them up on their own.
And you do every year constantly need to review that to figure out where you can can cut spoilage.
Yeah. This is reminding me of another point in your article.
It was it was you called out the concept of reviewing levers and leakages. And so, if I understood you correctly, it sounds like some companies are reactively adjusting on a quarterly basis. But, you know, if you're doing this right and as much as you love fall and and budgeting season, it should be more ongoing and proactive. So I'm maybe maybe curious as reading that. Like, is that a change in our approach or or it does it require more than that?
Well, the work has gotta be done at either reactively or proactively. It's far more painful to react to a budget miss and find the team scrambling to cover a revenue gap or an expense overrun.
Because when you do that, you force unnatural things on the business. Suddenly, you're reprioritizing.
You're distracting the team from the core mission because you're trying to fill a budget gap.
Better is to have a flywheel of ideas that you're constantly keeping warm Yeah.
And that you're constantly ideating around. And those ideas are both revenue generation ideas and efficiency gain ideas. And the the realm we're talking about is more squarely perhaps on the efficiency side, but they are definitely interconnected.
And so it's really about keeping that that list warm of those levers and leakages that you can pull.
Yeah. That that makes a lot of sense. And I think, you know, I think back to my own experience, you you know, as a procurement guy, but also working with finance. And I think one thing that's changed for me is that, you know, you take these datas, you take the insights, you take the, you know, the information provided about the new suppliers popping up, whatever. I really think that having that information, from a tool like Tropic can can really empower a procurement person or finance person to not only bring ideas but to maybe be a little more forceful and I don't use that word in a negative way but you're really coming from a position of knowledge and insight as opposed to just, hey, what if? Would you say that that's true?
Yeah. I I think that the people using the tools naturally feel the pain of using multiple tools to accomplish the same task.
But as you're going about your day to day work of just running the business, it can be a little bit out of sight, out of mind, or just accepted that this is how we do business.
And so you would not want the budget process or the procurement process to be the instigation or the reason why you're rationalizing your tech stack. But Sure. It is a fantastic opportunity to do so. And it often is the main reason why a company looks under the hood and says, why are we using this tool?
And are we getting out of this tool what we intended? Or what did we hire this tool to do?
And is it accomplishing that? And are there other tools we're already paying for that can accomplish the same thing?
Yeah. I love asking those questions. I I I've I've heard you talk about that before. And and really, I think sometimes and I'm not saying you do this, and I'm not saying how but I have seen it done where new spend is treated a little bit more differently than historical or renewing spend.
And I think in this market with as much has changed with as as the emphasis have changed from, you know, focus on top line growth to obviously being very profitable as well that, you know, you really should question, hey, we've been using this, you know, tool for a long time, but is it and to to those questions that you were talking about. Is it performing sufficiently? Is it giving us the ROI that we need? And, you know, that can really open your mind to may maybe not.
Maybe just because we've used it for a long time, that doesn't mean we should keep using it.
Yeah. I mean, some tools are are are just nice to have versus must have.
And so we're trying to distinguish between the tools that were just nice to have but aren't actually serving the purpose in which we originally acquired them versus those that are absolutely mission critical to hitting the company goals and objectives.
That makes a lot of sense. So I guess what would be just kinda wrapping this up. What would be one message that if you had if you had a bullhorn and you were you were talking to the, you know, company as a whole coming from finance like and you're going into budgeting season and you're kind of hoping this is a a big team effort. What is that one message that you wanna kinda get out there that people need to know, hopefully people understand?
Yeah. Boy, what a, what a high pressure question. But I would say, stop doing things the old way because the old way doesn't work.
The old way is trying to manually track this in spreadsheets or, just giving budget owners a lump sum amount and say, spend to that amount, otherwise, we don't care, like the hands off approach.
That doesn't work anymore.
You need to leverage a tool like Tropic to manage the workflow process, to keep track of the contract start dates and end dates, to get a pulse on what the supplier trends are, to make sure you're getting a good price, to pull down all of the useful reporting that can help feed the budget cycle, to unlock those questions, those hard questions about is this tool accomplishing what we want. You know, the process is worth investing in. It will pay dividends in terms of time savings, cost reduction, but but even more so just strategy rationalization, which may be the most powerful output. And so retire the old way, step into the new way, step into the new way with Tropic would be my recommendation, but I'm a little biased.
I hear you there. And the cool thing is I've seen the troops rally, not just at Tropic, other companies. I've, you know, I've seen people say, okay. Yeah.
I get it. I I wanna help. I understand what regardless of whether they're in finance or procurement, it's more of a team effort. But maybe just lastly, I I thought of this way you're talking the why behind that.
Like, why if I'm in marketing, I'm in engineering, or that's if, you know, if maybe historically I've tended to say, hey, that's not my job. Why is that important for the company?
Because one way or another, we will be coming back to that leader and asking for funding at, you know, inevitably what happens every budget cycle, the company wants to do more than it wants to fund. So then, we have to go back to the drawing board and cut costs and figure out what we're not going to do.
If everyone partners and does this process well, you will naturally unlock efficiencies that allow you to redeploy that capital into the growth part of the business.
And so in that way, everybody actually wins. So even though it feels like it's requiring a little bit more, the requester or of the budget owner, on the backside of it, as you create that flywheel of levers and leakages, as you as you have better spend control and spend management, you are freeing up cash to spend on the things that everybody wants to spend money on.
