Cost Audits: Where to Start in a Growing Company

Three signs it's time for a cost audit

Shrinking margin despite rising sales is the most reliable warning sign. The company grows by adding new customers and suppliers, but its base rates date back to when it was two or three times smaller, and nobody ever goes back to renegotiate them.

The second sign is stale contracts: often invisible, because on paper everything still works. A company that negotiated a certain transport rate at a volume of 200 pallets a month now ships 600 pallets, but still pays the same per-unit rate from years ago, without the volume discount it genuinely deserves now.

The third sign is scattered cost data: part of it in the ERP system, part in the purchasing team's spreadsheets, part on paper invoices. Without a full picture, no renegotiation decision has a solid reference point.

What a well-run cost audit looks like

The first stage is gathering and organizing all cost data in one place: contracts, invoices, price lists, payment history. This exercise alone usually surfaces things management never saw: duplicated services, contracts nobody even remembered existed.

The second stage is a market benchmark: comparing the rates the company is paying against current market conditions. The third stage is analyzing the contracts for specific clauses: notice periods, indexation mechanisms, contractual penalties.

The final stage is prioritization: a good audit doesn't end with a hundred-page report. It ends with a list of concrete actions ranked by financial potential and ease of implementation. In a mid-sized company (100–300 employees), this process typically takes four to eight weeks.

The areas where companies most often overpay

Transport and logistics is typically the first area where an audit finds savings, and usually the largest. On top of that there's often no regular tender process: the same carrier has served the company for years with no comparison against competing offers.

Payment terms rarely make it onto anyone's list of "costs," yet they have a real effect on working capital. The difference between 30- and 60-day payment terms on annual purchases in the range of several million euros is a real, measurable effect on cash flow.

On utilities and energy, manufacturing and logistics companies are frequently still on tariffs set several years ago. IT services and SaaS subscriptions are the fastest-growing and least-controlled area: the number of licenses often doesn't match the number of actual users.

A case from practice: an audit at a manufacturing company

A manufacturer of components for the furniture industry, around 160 employees, came to us with an observation: revenue had grown by low double digits annually for three years, while operating margin had dropped by nearly 3 percentage points over the same period. The audit covered 47 supplier contracts worth more than €4,650 a year each.

The biggest area of savings turned out to be raw-material transport: the framework agreement with the main carrier accounted for neither the more than 80% increase in volume nor current competitive rates. Renegotiating it cut transport costs by 14%. The total savings potential identified in the audit came to roughly 6% of the company's operating costs, with no changes to headcount or the product offering.

The biggest surprise wasn't the amounts themselves, but how much of it came from contracts nobody at the company had read in years.

The audit is the beginning, not the end

The audit itself, even the best-run one, doesn't lower a single cost. What lowers costs is renegotiating the contract, switching suppliers, or correcting the terms: a stage that gives many companies more trouble than the analysis itself.

Sequencing matters: it's worth starting with the 2–3 areas of highest potential and lowest operational risk (usually transport, utilities, and IT contracts) before moving on to more complex renegotiations with key raw-material suppliers. The impact of an audit is best measured with one metric: how many euros a year stay in the company after the recommendations are implemented, not how many pages the final report runs to.