Pendrill & Associates · Practice briefing
What is profit recovery?
Profit recovery is a review of existing expenditure and eligible recoveries to identify overcharges, billing discrepancies, unclaimed credits, or opportunities to improve commercial terms. A finding becomes a financial result only when it is validated and implemented.
What does performance-based mean?
The advisor’s fee is linked to a defined financial benefit. The agreement should specify which savings count, how the baseline is calculated, when a benefit is recognized, and the period over which fees apply. A headline percentage is not enough to compare proposals.
Before you appoint an advisor
- Define the scope. List the categories, entities, locations, and contracts included.
- Establish the baseline. Identify the period, volumes, and charges used to measure a change.
- Clarify the fee. Specify the rate, duration, payment timing, exclusions, and any additional costs.
- Understand operational changes. Separate billing corrections from supplier, service, or plan changes.
- Assign approvals. Name who can authorize vendor contact and implementation.
- Agree data handling. Confirm what information is necessary and how it will be transferred and retained.
- Define follow-up. Agree how implemented savings will be checked and any monitoring period.
Read a result correctly
| Term | What to establish |
|---|---|
| Identified savings | An opportunity under analysis, not necessarily agreed or implemented. |
| Implemented savings | A change has been made; confirm when the benefit begins. |
| Realized savings | The benefit has been observed against an agreed baseline. |
| Annualized savings | A full-year projection, which may differ from the cash benefit received this year. |
| Net benefit | Savings after the relevant fees and costs. Ask exactly what has been deducted. |
A transparent worked example
For $250,000 of annual expenditure, an assumed 5% reduction produces $12,500 of gross annual savings. This is before privately agreed fees, implementation costs, and tax effects. Commercial terms are discussed directly before an engagement begins.
This is an arithmetic example, not a client result, forecast, or fee quote. Use your own assumptions in the scenario tool.
How can savings affect business value?
Recurring savings can improve operating profit—and, where valuation multiples hold, increase the value of your business. The effect depends on whether those savings improve the earnings measure used in the valuation and whether they are sustainable.
One-time refunds and credits should be assessed separately from recurring earnings. Enterprise value and the value of an owner’s equity are also different: debt and cash affect the latter.
Will suppliers have to change?
Not every opportunity requires a supplier change. Billing corrections and revised terms may be possible within existing relationships. Structural changes may have broader consequences. Have the advisor identify those implications before approving an action.
What should you prepare?
Typically, start with a spreadsheet of all vendor costs. We use that overview to identify priority areas for review, then request relevant invoices, contracts, renewal dates, and volume or usage information. Identify a point of contact who can coordinate access and approvals. Keep sensitive records out of introductory enquiry forms.
This briefing explains how to evaluate an engagement. Tax, benefits, insurance, and legal decisions require advice appropriate to your organization.
pendrill.com · andrew@pendrill.com · +1 508 348 9518