Benchmarking: Cost Savings for Multi-Year Contracts

As the year closes, there has been a lot of discussion at our company around how we should define and track saves (i.e. cost savings) going forward. The discussion has focused around how to treat multi-year contracts in terms of savings.

Do we capture the entirety of a save up front? We generally accrue saves to match the life of the contract, but only capture the 1st 12 months as a 'save' (we call it "budget reduction") and then the remaining years are termed run-rate. Run-rate is treated as a second class save. We want to acknowledge it, but it does not count towards any targets.

We're curious about what's happening at your company, specifically;

1) Are there any unexpected discussions regarding cost savings as you perform year-end analysis?

2) How do you define savings for your multi-year contracts in goods? Services? Are there any particular categories where the definitions differ?

3) How do you capture savings for multi-year contracts? Up-front or amortized?

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