John is a Principal with Expense Reduction Analysts, He delivers increased profitability and financial control to clients in mid-size and large companies.
John and his team of experts in over 40 supplier categories use their deep industry knowledge and proven methodology to provide cost savings on expenses beyond what a client’s in-house vendor management organization can realize and maintain.
John holds a Bachelor of Science in Computer Science from Union College and, an Airline Transport Pilot’s License.
For nearly 30 years, Expense Reduction Analysts (ERA) have helped thousands of clients find extra cash flow and improve operational efficiency in more than 40 expense categories. Our consultants provide specialized expertise, real-time industry benchmark data, and practical insider knowledge for dozens of supplier industries. Our risk-free model means the cost of doing business with us comes from a portion of the savings we find. If we do not find savings, there is no fee for our services.
In this episode
John Carpenter of Expense Reduction Analysts observes that topline sales is a powerful growth engine for business, but controlling expense is an often neglected but highly effective way to grow. Nothing is more efficient at increasing profit, EBITDA, and valuation than a dollar of savings on expenses. A dollar in savings will increase EBITDA and profit by one dollar. On the other hand, only 20 cents of a dollar in sales will make it to EBITDA and profit. Likewise, when it comes to valuation, a dollar in savings is over five times more efficient than a dollar in sales.
John provides a 4 step process for wringing every extra dollar out of your expenses without hurting your capability to deliver your service. Listen to the end to get the details of his gift to our listeners.
A glimpse of what you'll hear
03:38 You can’t only focus on expense control when times are tough - you do it across the economic cycle.
05:52 You have to combine an effective procurement process with a continuous read of where market terms and conditions are.
07:02 Controlling expenses is the most efficient way to increase EBITDA.
09:39 Example of how a focused expense management program contributes to profitability.
11:23 What a good expense management program does for the CEO/CFO decision maker.
12:40 A 4-step implementation process for expense management.
17:57 Learn about John. Email John at firstname.lastname@example.org or call at +1.908.803.2885.
(Note: this was transcribed using transcription software and may not reflect the exact words used in the podcast.)
00:00:04:13 - 00:00:22:18
Welcome to the best kept secret video cast and podcast from Centricity. If you are a B2B service professional, use our five step process to go from the grind of chasing every sale to keeping your pipeline full with prospects knocking on your door to buy from you. We give you the freedom of time and a life outside of your business.
Each episode features an executive from our B2B services company sharing their provocative perspective on an opportunity that many of their clients are missing out on. It's how we teach our clients to get executive decision makers to buy without being salesy or spammy. Here's our host, the co-founder and CEO of Centricity Jay Kingley.
00:00:43:01 - 00:01:14:08
I'm Jay Kingley, co-founder and CEO of Centricity. Welcome to our show where our guests share their provocative perspective on what their target market is missing out on. I'm happy to welcome John Carpenter, principal with expense reduction analyst John and his team of experts combined industry knowledge with a proven methodology to provide cost savings beyond what a mid to large sized corporation's in-house vendor management organization can realize and maintain.
00:01:14:17 - 00:01:19:09
John is based in Basking Ridge, New Jersey. Welcome to the show, John.
00:01:19:09 - 00:01:22:18
Jay Thank you very much for that introduction. It's a pleasure to be with you today.
00:01:23:04 - 00:01:52:00
One of the things that I have observed in the last 35 years or so that I have been in the working world is how companies behave across an economic cycle. And when times are good, you might say they get a little fat, dumb and happy. Expenses tend to expand. No one's watching the cost side of the house because the revenue side is powering growth.
And then we get into periods where things get stagnant and on occasion we have recessions and economic downturns. And when that happens, you see businesses go into panic mode. They are trying to slash everything that they can because they can't grow their revenues, so they better start cutting costs. This behavior always struck me as kind of schizophrenic, and I have always believed and learned that the best way to solve a problem is to prevent the problem from occurring in the first place.
So it would seem to me, John, that on a consistent basis, keeping an eye on your expenses, never letting them get out of control, obviously a source of potential competitive advantage to know that your costs are better and certainly not worse than any of your main competitors. And when these inevitable periods of stagnation and decline in the economy happen, you're sitting there saying, I've already done what I need to do to manage my expenses and now I can focus on other critical areas of my business so that I can come out of whatever downturn in a much stronger position.
So, John, you are an expert on expense management. So why is it that companies seem to really struggle with how to handle this? And what are the issues that companies have when it comes to managing their expenses to get them at a competitive level but not so low that they hurt the ability of the business to thrive?
00:03:48:06 - 00:04:12:14
Well, that's a fantastic point. You know, it's really difficult to successfully manage a business in crisis mode all the time. And I think that businesses often get out of phase when times are good, sales are going great, and when it comes to talking about expenses, there's not that much interest. Everyone wants to talk about how to grow top line sales, and when times are tough, people still focus on sales.
But when the market goes down, what's one of the first things that gets cut? That's the sales budget. So they accept that they're going to be reduced income and everyone looks inward and starts talking about expenses. You know, in my career, I've worked at places where, jeez, when times get tough, they turn it off every other light in the hall thinking that that was going to be impactful.
We always used to spend our research dollars in the first half of the year because we knew that, you know, challenges would come in the second half of the year, projects would be canceled or declined. And then, of course, I'm sure you've experienced this in your career. What's one of the first things that goes away when times get tough travel and then the coffee?
Right. But we've seen all these things. It's ridiculous in large, multi-billion dollar corporation, seeing every other light in the hall turned off or just comical. And of course, I was a young man at the time and I had no idea what was going on. You can't manage like that. And, you know, I've had similar experiences in politics. When crises arrive, it's difficult to be making your best decisions and you have fewer options when the pressure is on.
So the time to to be looking at expenses is all the time, so that when times get tough, you're already poised to do the best that you can.
00:05:26:13 - 00:06:00:18
And John, let me let me talk to you about what I'm going to call the knowledge deficit. So in your experience working with mid to large companies, when you look at the procurement side, they understand, I'm assuming, process pretty well. Have you found that they have good knowledge on what are competitive prices that they should be paying? Do they have knowledge on how to structure agreements so that they're you know, they have some freedom and flexibility across an economic cycle?
Or is it their process experts? But they don't have what I'm going to call that technical knowledge that would make them as effective as they need to be.
00:06:10:19 - 00:06:38:18
Well, that's quite often the case, and they do have a certain kind of technical knowledge, and that's how to process orders and paper. They understand their process. That's their technical expertize. Quite often in especially in larger companies, you know, in procurement, you'll see more strategic thinkers in the very largest companies. But as companies, you know, there's a funny dynamic that occurs as companies look down in size a bit, you'll find that that strategic outlook is lacking.
So yeah, not every procurement person has a strategic outlook. And I dare say most don't mean only those in the larger companies do.
00:06:46:21 - 00:07:20:03
Let's talk about that strategic point of view. So given the magnitude of the problem and I think, as you say, the imperative to do this uniformly across the cycle, not ignore it, get fat, dumb and happy, and then I go into crisis mode. Cut not only the fat, but cut the bone right along with that. So what is the right way for a mid-sized and large solely to the massive companies that have the strategic insight?
But how do they how should they be looking at it strategically?
00:07:23:17 - 00:07:48:12
Well, it's they need to follow a practice in in every season, in the good times and in the bad times. And they need to really focus on controlling their expenses on an on a regular basis that we've been saying. And here's one of the reasons why. And this is something that most people don't think of. Most leaders are focused on growing top line sales as a way to grow their business, their profit and their value of their company.
But in fact, if you want to do it as efficiently as possible, you really ought to be focusing on expenses, because every dollar that you save results in an increased dollar of EBIDTA and an increased dollar in profit. So save a dollar, you're 100% efficient in terms of growing EBIT and profit. And moreover, when it comes to growing the valuation of your company, if you assume a multiple of five, say that $1 that goes to profit results in a five fold growth in the value of the company.
So save a dollar and expenses, grow a dollar in profit, grow the value of your company, $5, that's a 500% yield. Conversely, if you're only focused on top line sales, here's where you're coming up short. A dollar of top line sales often results in and that 20%, $0.20 of profit. So that's 20% efficient versus the 100% efficiency of a dollar in savings, growing profit by a dollar and when you look at the growth in valuation, it's only it's much lower it's 500% for growing as dollar saved in terms of the value of your company.
But it's 100% because we took the dollar of sales, reduced it to $0.20. Multiply that by five, which is the valuation of your company and your back up at a dollar 100%. So really the most efficient way to get results and growing your profit and the value of your company is through savings. And that's something that I think a lot of people lose sight of because they're there and we're all in business chasing the almighty dollar, but they are chasing the top line dollar.
00:09:18:02 - 00:09:45:09
And John, I have to say, it's not often I say to one of my guests, I think you're understating the strategic benefit because I think, you know, it's not so much a five multiple. I think, you know, your average is probably in the 1015 and depending on industry could even be a 20 multiple, which is going to make your case even stronger for the leverage that you get by cutting your expenses.
And let's just continue along this theme of benefit. So you've given me sort of a strategic benefit, but let's take it down to the real world. I'm interested for companies that keep a focus on their expense lines. What can you share in terms of how that approach impacts the bottom line?
00:10:07:04 - 00:10:28:23
We had a client who had a $6 million outbound freight expense that was net of fees after we saved them, saved them. The money on that, that savings went right to their bottom line. So you take $1 billion savings in outbound freight expense. That adds $1,000,000 to your profit, but it adds $5 million to the value of your company.
Or, as you pointed out, maybe $15 million to the value of your company. I mean, it's a real expense. That's the kind of thing that's available all the time. Freight is a great example because it's kind of like your cable TV bill or your cell phone bill. We all bought the 4999 package for something, but it's not 4999 today and we don't have any idea why and we don't know what to do about it.
00:10:49:12 - 00:11:23:03
Well, and I think, John, that every CEO, every CFO out there is always looking for leverage of how you can do something and get a return that's magnified in this idea of focusing on expenses and getting 5 to 1, 10 to 1, maybe even upwards of 20 to 1 leverage is going to be very, very appealing. And so what I what I'd like you to do is take in the instance of, you know, I guess a quite a large company that would have their own procurement department.
Think about the head of that procurement department or slightly smaller. It's going to be the CFO. Smaller still will be the CEO. Talk about what they're feeling like when they go from this. I don't really manage my expenses except in crisis mode. I don't really know where I should be in terms of what is a fair price to pay for things, what's the right way to structure to.
Now they have this under control across the economic cycle. How is it going to impact them on an emotional basis?
00:11:56:18 - 00:12:17:06
The words I like to use our confidence and peace of mind because when you know that you're in a good place with your expenses, you know that you've done what you can do with them and you're not left in the dark without the manpower to find out about what you might be able to do with them. The confidence of knowing that you're doing the best you can do there is really invaluable.
And when you can stop worrying about those things and focus on the more strategic aspects of your business, you're just like, come out ahead. And people often feel like when they figure this out, finally I've seen them. They feel like they've received a gift. Well, you mean I don't have to blow my blow my mind every time wondering what's going on and having to explain maybe to my my boss, the CEO, why expenses are where they are and what can we do about them.
I could turn to them and say, we're doing everything we can about them right now. Here's where we stand. Here's one we last reviewed them. This was a results. And we have an ongoing process to me to make sure that we're in a good spot all the time.
00:12:51:17 - 00:13:17:13
Both offensively in terms of the leverage you get from keeping your expenses under control. And also defensively from when the economy goes flat to down, you're not being in crisis and panic mode. I think it's quite compelling. So I would think a lot of people in our audience are saying this is all great, John. What is it that I need to do to actually implement which your recommending?
00:13:17:18 - 00:13:50:21
There's a pretty rigorous but direct process to follow that anyone can follow. The first is when you're trying to wring profit and savings out of your expenses, make sure that you have a great relationship with your suppliers, especially your top suppliers. You want to make sure that your partners in your business dealings and that you know where you stand with them and you don't want to be, you know, engaging with them at renewal time, introducing stress into that relationship, trying to get the best value that you can from them.
At that point, you don't really have a context or any history with them to know whether you had a good value before or whether you did get right with your suppliers and treat them as partners. That's the first step to do. The second step is you need to introduce competitive tension into the relationship with your suppliers. Now, a lot of times companies are very happy with their suppliers.
They feel they get good service, good quality. Those are all great things. Maybe there's even a personal relationship involved with the supplier. Depending on the size of the business, whether it's public or private, that could be an area of concern just because you play golf with your top supplier doesn't mean that you're not entitled to your top suppliers best price.
You know the way to do that, the way to get that is competitive tension. I'm a firm believer that you should if you have a supplier you're happy with, you get good service with, you should stay with them. But you should introduce this competitive tension to make sure that their prices are in line with the market. And if there really are good suppliers, they won't have any problem with that at all.
So that's the second thing. You need to have this RFP process in place. In order to get that competitive tension, you might have to go out to five, sometimes ten different vendors and get an understanding of what the market is, is is like these days. It's it's this kind of a rigorous process. But, you know, you need to you need to do the diligence, do the work, get a bid package together for everybody, invest in that, understand who these people are that you're going out to bid with.
Third, to be effective at it, you need a really deep knowledge of the market. You need to have people that understand the market that they're buying from, and you need to have access to some benchmark data so you'll have some clue as to whether a price is reasonable. You know, when I was in politics, we would go out on competitive bid projects all the time for a major infrastructure for the municipality and the project would be maybe a $5 million project and we'd get bids back that range anywhere from 2 to $10 million.
You're required to take the low bid under public bidding laws, but is that a good idea if it's a $5 million project, in your estimation, is someone saying they can do it for two? You just don't have any idea. You don't have a reference, you know. So without benchmark data, you're just left wondering. And so that's important to have.
And finally, you need to stay on top of all the invoices. It's one thing to work out a great agreement, but if you're not really tracking invoices, people make mistakes sometimes. You know, they make intentional mistakes in invoices. And sometimes, as you know, most of the time, that's honest mistakes. But if no one's tracking that, you could be getting double bill for things on occasion.
You could be missing. Discounts are available to you. Commodity increases pass through as a lot of times vendors will take a 5% cost of goods, increase to them and turn it into a seven or 8% cost of goods increase to you. So unless you have someone who understands the market, the space that this vendor works in, you're at the mercy of the vendor.
And, you know, you're just you start right back where you started from, where you just don't know too often.
00:16:53:00 - 00:17:24:11
Companies have looked at expense management as a necessary evil. It was the backwater to be in a company. You could never be a hero until it became a crisis. And then that has its own set of issues. And I think what you have really pointed out to us today is that managing expenses on an ongoing basis is a tremendous source of leverage in terms of profitability.
It's leverage in terms of your valuation. And I think it should be obvious that it's also leverage in terms of how competitive you are in the marketplace for what you do because you run a tight ship. So what we're going to do now, though, is we're going to take a quick break. And when we come back, we're going to learn a bit more about John.
00:17:47:12 - 00:18:10:14
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So email time@centricityB2B.com to schedule an 18 minute call to learn more.
00:18:46:00 - 00:19:05:13
Welcome back. We're talking to John Carpenter, a principal with expense reduction analysts. Let's find out a bit more about John. John, let me start by asking you where does that pain points that you deal or get rid of for your clients and why do they need you to get rid of that pain?
00:19:05:18 - 00:19:34:09
Okay. Thanks for asking that. You know, a great example is for a public company CFO. They're under a tremendous amount of pressure and pressure over which they often have little to no control. They could be working against profitability and EBIT mandates that are driven by the CEO, the board of directors. They could have uncertainty that they're facing about finding the funds for various initiatives that are required company expansion, sales growth, things like that.
And they just could be feeling out of control as we've been talking about that uncertainty about the cost of goods and services that they need to produce their products and run their business. So those are those are for, you know, a publicly traded company, for example, for a not for profit. They have a different set of of challenges.
And there's some very large not for profits. You know, many hospitals are not for profits. The donations have gone down to a not for profits because of changes in the tax code. Finding people to to work is extremely difficult and not for profits often are at the low end of the pay scale. So they have manpower challenges and again, they suffer from the cost of goods and services to serve their clients.
They don't make products or produce a product. They serve their clients in the language of the not for profit.
00:20:22:01 - 00:20:49:22
John, we talked earlier about the lack of what I use the term technical knowledge because this is around things like how do you know price levels, how do you know structures, how do you know who you should be doing business with that goes beyond just being able to process paperwork efficiently. So nobody obviously wants to work with a third party who's average too mediocre at that because they can handle that on their own.
So let me ask you the question of what makes you and your team at a really great at what it is that you do.
00:20:58:12 - 00:21:19:18
I think for my team, what we have is a group of people that, you know, the average 30 plus years of experience in each of these different expense areas, which is extraordinary. And, you know, they're they're it's a global team. We have resources to call on from all around the world. They're highly experienced. They really are just experts in these in these focused areas.
And for myself, I think I'm a naturally curious person. I have a pretty good sense of humor. I love to have fun in what I'm doing, and I like to when I get in on the client side, I like to really get in their shoes, understand their situation. There's so many different industries and companies within industries, and it's just fascinating how each of these businesses operates.
To me, every every one is like is like opening a new book to me. It's it's just it's exciting and interesting to see how they run their business. I'm a careful listener. I like to make sure I understand all sides in a situation that's essential because there's a lot of nuance to what we do and a lot of assumptions that are made.
You know, by listening carefully, you can you can hear the secret reasons why things are done a certain way or not not done the way they should be.
00:22:08:16 - 00:22:36:09
You've alluded to your corporate and business career and your career as an elected political official. I encourage everybody to go to your LinkedIn profile and check out, if you will, your resume. It is a unique combination of of skills and experience that I think makes you ideally suited for what it is that you do today. John And that's sort of the theme that I want to ask you about.
Do it a little bit differently. I'd like to understand what's happened in your life that would most explain why you do what you do today.
00:22:45:11 - 00:23:11:08
You know, sometimes you choose the path and sometimes the path chooses you. About 15 years ago, I got involved in local government and I discovered about myself something I didn't know, that I really enjoyed leadership. I really enjoyed collaboration and teamwork. And I really enjoyed fiscal policy. You know, we all sit home and watch the news and we read about taxes going up and we always think, well, why does that have to happen?
Or I would never do that. Well, I found myself in a position to do something about it. And what I learned was that really the only thing required to control taxes, debt and spending at the government level was a will to do so. It was a real eye opener for me. So that had a huge impact on on my life and my path forward.
You know, you couple that belief with a great team of people who know and understand the same thing that I learned in government. And you have something great.
00:23:42:11 - 00:24:10:11
You've talked eloquently about both strategic and tactical issues and the expertise and insight needed to address this issue of expenses and being sure you're effectively managing. I am sure, John, we've got people that want to continue this conversation with you and learn more and figure out how they can get ahead of the curve. What's the best way for people to contact you?
00:24:10:19 - 00:24:31:13
Well, the best way is email. There's three different ways. Probably simplest is email. And Jay Carpenter. Just like the builder. email@example.com. The second way is you can find me under my name, John Carpenter at LinkedIn. And then finally over the phone call from anyone at 908 803 2885
00:24:31:23 - 00:25:03:12
This has been incredibly educational. It's been insightful. I think you've given executives a different perspective on how to look at this area and in your first time, I guess, to the show and you're probably saying you've got through this, I'm done. Nothing more to do except have J sign off. And yet I'm sitting here saying, John, it was great, but you can do better.
And let me tell you what's on my mind. John, I'd like you to sweeten the pot for our listeners. I'd like you to be able to offer them a little extra inducement to reach out and continue their conversation with you. What can you do for our listeners?
00:25:20:12 - 00:25:39:15
Well, thanks, Jay. I'd love to hear from our listeners today. If someone reaches out to me, any of those three ways mentioned that you saw me on. The best kept secret, which I'll be happy to forward to a really interesting white paper that I have that I think will expand further expand on the topics that we've been discussing today.
00:25:40:00 - 00:26:02:06
This is an area that you absolutely have to get in front of. And if you do it correctly, it will never become an issue no matter where we are in the economic cycle. So again, John, thank you for being such a terrific guest to my audience. Let's continue to crush it out there until next time and.