Cutting waste in third-party contracts by renegotiating for outcomes (or costs)

Supplier spend doesn't explode - it creeps.

In most established SMBs, third-party spend grows quietly.

A tool gets added to solve a short-term problem.An agency is hired to ‘buy time.’A supplier contract renews because nobody wants to deal with it this quarter.A retainer continues because ‘they know our business.’

None of that is irrational. Running a business is busy. Renewals and supplier reviews often feel like admin.

But over time, the result is predictable: you start paying for activity, availability, and habit, not outcomes.

When growth slows or margins tighten, that quiet creep becomes a very loud problem.

The two types of contract waste

Most supplier waste falls into two buckets, and the right approach depends on which one you're facing.

1) Cost waste (you're paying too much for the same thing)

This happens when:

• the supplier market has become more competitive

• you've grown, but never reset terms

• usage is lower than expected (seats, licences, hours)

• the service is commoditised and easy to replace

• pricing has increased year after year without a value step-up

Here the goal is simple: reduce the cost without disrupting delivery.

2) Outcome waste (you're paying for something vague)

This is more subtle and usually more expensive.

It shows up when:

• scope is broad i.e. support, strategy, optimisation

• there's no shared definition of success

• the supplier produces activity, not results

• people internally spend time managing the supplier just to keep things moving

In this scenario, the aim shouldn't just be cheaper spend, it should be spend tied to outcomes, so value becomes measurable and the relationship becomes easier to manage.

Why most renegotiations disappoint

Many renegotiations get stuck in line items:

• day rates

• hours

• licence counts

• discounts

• ‘what can you do for us on price?’

Those matter, but they're rarely the real issue.

The real issue is this:What are we buying and is it delivering the result we need?

If you can't answer that clearly, any savings you achieve tend to be short-lived because you haven't removed the underlying waste. You've just changed the price tag.

A practical framework: renegotiate for cost or outcomes

Here's a structure that works whether you're reducing cost or shifting to performance.

Step 1: Categorise suppliers by impact

Not all suppliers should be treated the same.

Split them into:

• Commodity suppliers: replaceable, market-priced, low strategic risk (many tools and routine services)

• Strategic suppliers: tied to revenue, customer experience, delivery performance, or operational resilience

This prevents the common mistake of trying to ‘cost cut’ a supplier that is actually holding together a critical part of performance.

Step 2: Define the outcome in plain business terms

For strategic suppliers, define value as an outcome that matters to the P&L and customer experience.

Examples:

• improved sales conversion

• reduced cost to serve

• faster lead response times

• improved customer satisfaction/NPS

• reduced churn or complaints

• reduced time-to-delivery

• reduced error rates

• improved cash collection cycle

This doesn't require complex measurement, but it does require clarity:what would ‘success’ look like if this supplier was genuinely worth the money?

Step 3: Find the leakage points (where money slips away)

Most third-party waste comes from a handful of patterns:

Unused capacity

• licences/seats you don't use

• contracted hours you don't consume

Over-specified tiers

• paying for premium features you rarely touch

• bundles where 30-50% of the scope isn't relevant

Evergreen retainers

• monthly ‘peace of mind’ fees with little measurable output

Scope drift

• work gets added but nothing is removed, so cost grows without a value reset

Management burden

• internal staff spend lots of time chasing, clarifying, and fixing supplier work

That last one is important. A supplier can look okay on cost, but still be wasteful if they create hours of internal friction.

Step 4: Choose the right commercial model

Now you decide whether this is a ‘cost reset’ or an ‘outcome reset.’

If it's a cost reset (commodity spend)

Your levers tend to be:

• right-sizing (seats, tiers, scope)

• contract term changes (shorter terms for flexibility)

• consolidation (fewer suppliers doing more)

• competitive benchmark (establish market rate)

• removing ‘nice-to-have’ scope

If it's an outcome reset (strategic spend)

This is where many businesses unlock the biggest value.

Outcome-aligned models include:

Fixed fee plus performance component

• lower base cost

• upside paid only if outcomes are achieved

Milestone-based payments

• pay for defined deliverables/milestones, not time spent

Tiered pricing tied to scale

• cost increases only when usage or outcomes increase

Service credits / scope reset clauses

• a mechanism to reset scope or cost if results don't materialise

The goal isn't to be aggressive. It's to be specific.

Real-life example: moving a voice channel to 100% outcome-based partners

To make this practical, here's a real example from when I ran a Sales Contact Centre.

Challenge

We were under significant P&L pressure to reduce operational costs while still improving:

• sales efficiency and conversion

• acquisition economics (CAC)

• churn outcomes

• and customer experience (NPS)

This is the tension many leadership teams face: cost needs to come out, but performance cannot slip.

Objective

Cut operational expenditure while boosting sales conversion and customer experience in the voice channel.

So not to reduce cost in isolation but reduce cost while improving outcomes.

Approach

We ran a tender process to appoint best-in-class partners and restructured the commercials so the suppliers were rewarded for outcomes, not activity.

Key moves:

• Moved to 100% outcome-based commercial models (so value became measurable and contractual)

• Outsourced core operations where specialist partners could deliver better efficiency

• Implemented technical improvements to improve advisor efficiency and the customer experience end-to-end

What mattered most wasn't outsourcing for the sake of it. It was changing the relationship from hours and inputs to measurable outcomes.

Results

• £22M Opex savings achieved

• Significant uplift in sales performance across 1.2M transactions

  
  

The point of this example isn't that every SMB should outsource a contact centre.

It's that when a supplier relationship is structured around outcomes, two things happen:

1. waste becomes visible quickly

2. suppliers have a clear incentive to improve performance, not just deliver activity

That combination is what makes savings sustainable rather than one-off.

The hidden upside: renegotiation reduces internal waste too

There's a second-order benefit to getting supplier contracts right.

When supplier scope is vague, internal teams spend time:

• chasing deliverables

• clarifying what was ‘included’

• managing misunderstandings

• doing rework when outputs don't fit requirements

That internal management burden is a form of waste most businesses don't measure but it's often substantial.

Outcome-based agreements reduce that friction because expectations are clearer and performance is tracked.

What good looks like after a supplier reset

When third-party spend is managed properly, you typically see:

• immediate savings from right-sizing and removing unused scope

• fewer autopilot renewals

• improved supplier performance because expectations are clear

• reduced internal time spent managing suppliers

• higher confidence that spend is linked to business results

• improved profit and cash flow without destabilising operations

  
  

In other words: less leakage, more leverage, and a business that feels easier to run.