Purchasing: The Most Underestimated Performance Driver for Small and Medium-Sized Businesses
In every company, there’s a function that no one mentions during strategic meetings. It’s relegated to the bottom of the balance sheet and treated as a cost center—a necessary evil. Meanwhile, it accounts for half of the revenue. What if the next margin opportunity you’ve been searching high and low for is hiding right there?
Purchases: The Unloved Item on the Balance Sheet
In short: Marketing shines, sales are celebrated, and finance is listened to. Purchasing, on the other hand, has always been waiting for its turn. It’s a costly mistake.
Marketing shines. Sales is celebrated. Finance is listened to. And what about procurement? Procurement waits its turn. It has always waited—viewed as nothing more than an administrative chore, an expense line to monitor, never as a source of value creation.
Yet the procurement function is one of the few that has a direct and immediate impact on profitability. The problem isn't its potential. The problem is that no one pays attention to it.
The number no one wants to face
In short: Total procurement accounts for 50 to 60% of revenue. Indirect procurement, which is often overlooked, accounts for up to 20% on its own.
According to the consulting firm Cegos, purchasing accounts for an average of 50 to 60 percent of a company’s revenue. McKinsey even puts that figure as high as 70 percent, depending on the industry. At the very least, half of your revenue is slipping through a door that you hardly monitor at all.
You spend your days figuring out how to sell more, squeeze out an extra point on your selling prices, and optimize your conversion funnel down to the last decimal point. These are legitimate efforts. But meanwhile, the other half slips away without any real control.
Hidden within this half is an even deeper blind spot: indirect procurement. Energy, telecommunications, insurance, supplies, maintenance, transportation, and general services. According to studies, these non-production expenses account for up to 20% of revenue. We pay them out of necessity; we don’t question them because they’re “not a priority.” Except that 20% of your revenue is no small matter. It’s your profit margin.
A euro saved is worth much more than a euro earned
In short: Unspent euros directly impact the margin. Saving 10% on indirect purchases can increase the gross margin by at least 50%.
Here’s the truth that the procurement world knows but that too many executives forget: every euro saved on a purchase increases your profit margin.
To earn that same euro through sales, you have to sell a lot more, because every sale involves costs, VAT, commissions, and sales time. A euro not spent, on the other hand, is net. Direct. Immediate. It’s simple math, and yet it’s the lever we activate last—if at all.
According to the Stratégie Achats portal, saving just 10% on an organization’s indirect purchases alone representsat least a50% increasein gross margin. That’s the leverage that most companies are failing to tap into.
The numbers speak for themselves: 23% profit margin generated
In short: At Widoo, the collaborative purchasing group generated an average margin of 23% for its members last year, based on actual invoices.
At Widoo, we don't just theorize. We measure. Last year, our collaborative purchasing group generated an average margin of 23% for its members. Not on paper, not in a simulation: on actual invoices, at real companies, for line items that most people considered “already optimized.”
Twenty-three percent—on expenses these companies were already paying every month without giving it a second thought. That’s how much was hidden in their purchases.
The potential is there. So why do so few companies take advantage of it?
Three obstacles explain this inaction, and there is some good news to go along with them. In the second part, we move from observation to action: why we continue to put up with this, and how to take back control without wasting any time.
Read Part 2 →
