Methodology · Savings estimator
How the estimator calculates your indirect spend savings
Every figure the estimator shows comes from a formula I publish here in full: the sector ratios, the 10 questions, the maturity bands, the structural adjustment and the sources. Along with what the tool does not do.
Alexandre Lio, founder of The Procurementor
01 · The formula
What the tool calculates, in one formula
Five lines are enough. You can redo the calculation by hand with the tables on this page.
- total spend
- = revenue × sector ratio of total spend to revenue
- indirect spend
- = total spend × sector indirect share, or your own figure
- score
- = sum of the 10 answers, each from 1 to 5, so 10 to 50
- range
- = indirect spend × [min rate ; max rate] of your band
- central estimate
- = indirect spend × central rate × structural adjustment, kept inside the range
Worked example
- 1Industrial, revenue of 100 M€: 60 M€ of total spend (60% of revenue), of which 12 M€ is indirect (20% of spend).
- 210 answers at 3: a score of 30 out of 50, Advanced band, rates from 3% to 6%.
- 3Range: 360 k€ to 720 k€ per year.
- 4Decentralised with no procurement team: × 1.30 on the central rate of 4.5%, a central estimate of 702 k€.
02 · Step 1
From revenue to indirect spend
Two ratios per sector. Their product gives indirect spend as a share of revenue, the figure that weighs most on the result. Sectors that buy a lot of direct spend (materials, goods for resale, subcontracting) land at 11 to 15% of revenue in indirect. Services, finance and the public sector buy less in total, but almost all of it is indirect: 21 to 24% of revenue.
| Sector | Total spend / revenue | Indirect share of spend | Indirect / revenue |
|---|---|---|---|
| Industrial / ManufacturingMost spend goes to materials and subcontracting. Indirect concentrates on MRO, IT, energy, temporary labour and facilities. | 60% | 20% | 12% |
| Services / Tech / SaaSLittle direct spend. Payroll aside, almost everything bought is indirect: cloud, IT, marketing, consulting, offices. | 30% | 70% | 21% |
| Banking / Insurance / FinanceNo material cost. External spend is almost entirely indirect: IT, market data, consulting, real estate, marketing. | 30% | 80% | 24% |
| Retail / Consumer goodscross-checked with McKinseyGoods for resale dominate the total. Indirect covers support logistics, IT, marketing and store maintenance. | 75% | 15% | 11.2% |
| Telecom / MediaNetwork equipment and rights on the direct side. A broad indirect base: energy, sites, IT, field subcontracting. | 45% | 30% | 13.5% |
| Energy / UtilitiesFuel and network investment on the direct side. Indirect covers maintenance, IT, engineering and services. | 60% | 25% | 15% |
| Healthcare / PharmaActive ingredients and consumables are direct. Indirect covers outsourced R&D, IT, trials and site services. | 50% | 30% | 15% |
| Construction / Real estateMaterials and subcontracting dominate. Indirect concentrates on equipment, IT, insurance and temporary labour. | 80% | 15% | 12% |
| Transport / LogisticsFuel, fleet and purchased transport are direct. Indirect covers maintenance, IT, warehousing and services. | 65% | 20% | 13% |
| Public sector / Non-profitLittle direct spend in the industrial sense. Capital projects aside, most public procurement is indirect. | 40% | 60% | 24% |
| OtherAn average profile, for want of a closer sector. Replace it with your own figure as soon as you have it. | 50% | 25% | 12.5% |
These ratios are Procurementor's calibration, cross-checked against published figures where they exist: McKinsey puts retail indirect costs at 10 to 15% of sales, and our implied ratio is 11.2%. For the other sectors, no public source gives this split: these are field benchmarks. If you know your indirect spend, enter it in the tool: it replaces the calculation.
03 · Step 2
The 10 questions and the 5 axes
Nine common questions and a tenth chosen by your role. Each answer is worth 1 to 5, so the total score runs from 10 to 50. Each question feeds one of the five axes shown in your results.
Visibility, sourcing, demand and tooling each rest on two common questions. Category strategy rests on one, which combines ownership, planning and contract coverage, and gains the tenth question for a procurement respondent. The tenth question changes with your role: the total score stays comparable across roles, while the shape of the radar follows your angle.
Visibility & governance
How clear is your view of where indirect spend goes (by category, supplier, business unit)?Axis · Spend visibility
- 1No clear view — we discover supplier by supplier when bills come in
- 2Top suppliers and categories tracked; the rest is opaque
- 3Consolidated view, refreshed quarterly, by category and BU
- 4Live dashboards for leadership, drilldowns by category × supplier × BU
- 5Real-time view + market benchmarks (we know if we pay above or below market)
Who owns indirect spend at executive level, and how often is it on the agenda?Axis · Tooling & governance
- 1Nobody explicitly — it lives across scattered budgets
- 2Finance reports it occasionally, no active steering
- 3A formal owner runs a quarterly committee with shared KPIs
- 4Active steering at ExCom level with cross-functional targets
- 5A board-level KPI integrated with the financial strategy
When somebody needs to buy something, is the need questioned before the purchase?Axis · Demand & specs
- 1We buy what is requested, no questions asked
- 2Informal challenge on big purchases only
- 3Formal review (justification, alternatives) above a threshold
- 4Pre-approval workflows + standard catalogues for recurring purchases
- 5Continuous optimisation — specs, frequency, consumption all challenged
Sourcing & contracts
Do your key indirect categories have a named owner, a plan, and contract coverage?Axis · Category strategy
- 1No owner, no plan by category · under 20% of recurring spend under contract
- 2A few categories owned by default by whoever buys · 20 to 40% under contract
- 3Main categories have an identified owner · 40 to 60% under contract
- 4Owner and annual plan on most categories · 60 to 80% under contract
- 5Every key category has an owner, a multi-year plan and a savings target · over 80% under contract
How systematically do you renegotiate or go back to market?Axis · Sourcing discipline
- 1Tacit renewal almost always — we negotiate when something breaks
- 2Occasional bid on big contracts every few years
- 3Renewals trigger a structured consultation (brief, shortlist, negotiation)
- 4Multi-year sourcing plan, pre-emptive renegotiation before renewal
- 5Market intelligence drives our cycle, not contract end dates
How well are your contracts protected against price hikes and bad service?Axis · Sourcing discipline
- 1We sign supplier templates with little pushback
- 2We negotiate headline price; the rest of the contract is supplier-favoured
- 3Standard procurement-side terms enforced (indexation cap, audit, exit)
- 4Bespoke terms by category with credible alternatives behind us
- 5Best-in-class terms (capped indexation, performance-tied pricing, switch capability)
Tooling & demand
How are orders, approvals and invoices handled today?Axis · Tooling & governance
- 1Mostly manual — emails, PDFs, paper signatures
- 2Basic ERP only, no procurement-specific tool
- 3Procurement platform deployed, adoption is patchy
- 4Integrated source-to-pay with strong adoption
- 5End-to-end digital + AI / agents on no-value-added tasks
Can employees buy what they need without writing a free-form request?Axis · Demand & specs
- 1Every purchase is a free-text email or ticket
- 2Some standard forms, everything else manual
- 3Catalogues for top categories (IT, travel, office)
- 4Catalogues + punchout to supplier sites, SSO
- 5Curated, role-based catalogue + AI-assisted requesting
Can you answer "how much did we spend on X last year?" within a few minutes?Axis · Spend visibility
- 1It would take days of manual work
- 2Yes for top categories, the rest is murky
- 3We can pull data from the system, but it needs cleaning
- 4Clean dashboards, refreshed monthly
- 5Real-time data, cross-cut by any axis (category × supplier × BU × period)
The 10th question, by role
CEO / General ManagementHow does indirect spend feature in your strategic planning?Axis · Tooling & governance
- 1Invisible — off the radar in strategic discussions
- 2Mentioned occasionally, no targets attached
- 3Tracked as a cost line with annual targets
- 4A recognised lever for margin and resilience, with multi-year goals
- 5A board-level lever integrated with growth and capital allocation
CFO / FinanceHow tightly is identified savings reconciled to actual P&L impact?Axis · Tooling & governance
- 1We don’t track identified vs realised savings
- 2Procurement reports savings; Finance doesn’t reconcile them
- 3Quarterly reconciliation between identified and budget impact
- 4Live tracking of run-rate vs P&L hit, audited annually
- 5Automated reconciliation — savings are a P&L line co-owned by Finance and Procurement
Procurement / AchatsHow would you describe procurement’s seat at the decision table?Axis · Category strategy
- 1End-of-line buyer — called once the spec is already locked
- 2Tactical involvement on big contracts only
- 3Brought in early on key categories
- 4Strategic partner on most categories, with shared KPIs
- 5Business partner from day one, including innovation and ESG
OperationsHow much friction do indirect purchases create for your teams (delays, quality, hidden costs)?Axis · Demand & specs
- 1Constant friction — delays, wrong specs, quality issues
- 2Frequent escalations on critical purchases
- 3Some friction on the long tail; key categories are smooth
- 4Mostly seamless, rare exceptions
- 5Invisible — purchases happen, the right things arrive on time
04 · Step 3
The maturity bands
The score places your organisation in one of four bands. Each band carries a savings rate on indirect spend. The higher the maturity, the narrower the remaining headroom: part of the gains is already captured. This is the conservative direction, a mature profile gets a smaller figure.
| Band | Score | Min rate | Central rate | Max rate | Support |
|---|---|---|---|---|---|
| Initial | 10 to 18 | 8% | 11.5% | 15% | Cross-checked: McKinsey reports 10 to 15% in retail, 15 to 20% with a full digital transformation. |
| Developing | 19 to 28 | 5% | 7.5% | 10% | Consistent with the same work, on a base that is already partly structured. |
| Advanced | 29 to 38 | 3% | 4.5% | 6% | Professional judgement: returns diminish once the fundamentals are in place. |
| Leading | 39 to 50 | 1% | 2% | 3% | Professional judgement, same logic. |
I separate what is cross-checked from what is judgement. The Advanced and Leading bands have no public source: they reflect diminishing returns observed in the field.
05 · Step 4
The structural adjustment
Fragmentation and the absence of a negotiating team are independent of process maturity. At the same score, a decentralised group with no procurement team keeps more headroom than a centralised group with a real team.
| Procurement model | Dedicated procurement team | Adjustment to the central rate |
|---|---|---|
| Centralised | Yes | × 0.90 |
| Centralised | No | × 1.05 |
| Decentralised | Yes | × 1.15 |
| Decentralised | No | × 1.30 |
The adjustment multiplies the central rate, then the estimate stays inside the band's range: it moves the central estimate within the range. Between the two extremes, the gap reaches 44%. An accepted consequence: a decentralised profile with no team often sits near the top of its range. These four values are professional judgement.
06 · Breakdown
Where the savings sit
The central estimate is split across five levers. Each lever starts from a reference share, weighted by your headroom on that axis: weight = reference share × (6 − axis score) / 5, brought back to 100%. An axis scored 1 out of 5 weighs five times more than the same axis scored 5 out of 5. Uniform answers leave the reference shares unchanged.
| Lever | Reference share |
|---|---|
| Sourcing discipline | 40% |
| Demand & specs | 25% |
| Category strategy | 15% |
| Spend visibility | 10% |
| Tooling & governance | 10% |
The reference shares are Procurementor's calibration.
07 · Limits
What the tool does not do
- No geographic adjustmentThe ratios and bands are the same in France and elsewhere.
- No category breakdownThe tool sizes an overall potential. It does not say which category carries it.
- No identified versus realised splitThe figure is an annual potential before execution. Its P&L impact depends on implementation.
- No implementation costTools, internal time and outside help are not deducted.
- Self-reported answersThe estimate is only as good as the answers. Two people in the same company can get two profiles.
- Average sector ratiosYour own indirect spend figure, when you have it, replaces ours.
An audit covers exactly these points: actual spend, category by category, savings identified then realised. See the audit →
08 · Sources
The sources, and the figure each one supports
McKinsey & Company · 2018
Beyond procurement: Transforming indirect spending in retail ↗Indirect costs equal 10 to 15% of sales in retail, and leading retailers cut their indirect spend by 10 to 15%.
Used for the retail ratio, the Initial band and the tool's calibration sentence.
McKinsey & Company · 2019
Revolutionizing indirect procurement for the 2020s ↗15 to 20% savings with a comprehensive suite of digital solutions.
Used for the upper end of the Initial band.
APQC · 2026
How Efficient Is Your Procurement Process? Benchmarks Reveal a Wide Performance Gap ↗Fully loaded procurement process cost per purchase order: $13.85 for top performers, $29.59 at the median, $54.50 for bottom performers.
Used for the Tooling angle and the questionnaire benchmark.
The Hackett Group
Procurement benchmarking ↗The procurement benchmarking method. Its figures sit behind a paid programme: none is reproduced here.
Used for the maturity band structure.
The Hackett Group
Measuring realized savings ↗The distinction between identified and realised savings.
Used for the tool's limits.
The Procurementor
12 years in the field, €600M+ of managed spendUsed for the sector ratios outside retail, the Advanced and Leading bands, the structural adjustment and the lever shares.
From the method to your figure
Five minutes, ten questions, a euro range calibrated to your profile.