[Complete guide] How to audit providers to keep your strategy in place

“The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.” Those are words from Peter Drucker, and today it feels more relevant than ever, especially in business.

We are living in times defined by change. Tech advancements, market dynamics, and business goals all are subject to it.

This also trails down to your service providers. As much as you need to adapt to new tech and changing markets, they need to follow. And when your strategy adapts, it’s crucial that you make sure you’re both aligned with your strategic objectives.

All this means that, when it comes to your business, falling behind is not an option. And one thing that ensures you avoid just that is a provider audit, an important element in your business stack that is both good practice and good due diligence.

Competitors that audit their providers frequently can offer better services at competitive prices. That’s why we put together this guide—to help you take the first step in the right direction. By conducting these audits, your brand not only ensures compliance and service quality but also stays ahead in the industry, leading with only the best business partners around.

In this article

The importance of strategic provider audits

You need not have us tell you: business doesn’t play well with those that fall behind.

That’s why conducting strategic provider audits is vital for maintaining a competitive edge and ensuring that your service providers are meeting the standards necessary for your business’s success.

And summer is a ripe moment to do that.

Regular audits allow companies to verify that their providers are delivering on their promises, adhering to contractual obligations, and aligning with your business’ strategic goals.

Audits can reveal inefficiencies, uncover new opportunities for improvement, and see that providers are keeping up with industry standards and innovations.

This means you can stay competitive and ensure that providers remain aligned with evolving business needs and technological advancements.

We surveyed 200 CEOs and business owners and found that 7 out of 10 audit their providers over the summer period. And the most common reason they do so was to ensure they adapt to the current strategy (56%).

This is how they make sure their companies keep high standards and adapt to changes in the market, consistently delivering excellent service to clients.

Remember: the primary purpose of an audit is to ensure that your service providers align with your company’s strategic objectives.

Audits help in optimizing provider performance, identifying areas for improvement (especially regarding any agency-client conflict), and discovering new partnership opportunities that can enhance service delivery and operational efficiency.

Optimal provider audit timing

Conducting audits during periods of downtime, such as the summer, can be particularly advantageous.

Naturally, your business can experience a bit of a slowdown during the summer months. Customers are on holiday. Executives take days off. That means this seasonal dip in activity provides you with the bandwidth to focus on internal processes without the pressure of peak operational demands.

Perhaps more importantly, the summer period often coincides with the planning period for the end of the fiscal year for many companies. This timing is ideal for evaluating past performance and setting benchmarks for the coming year.

Key stakeholders also become more available during this period. With fewer high-priority projects in the pipeline, senior management and other critical decision-makers are more likely to be available to actively participate in the audit process.

How to prepare for the audit

Setting objectives

After gathering all the relevant documentation, proceed to define clear goals and expectations for the audit.

This could mean ensuring strategic alignment with providers, evaluating performance metrics, and identifying areas for improvement or new opportunities.

Clear objectives will guide the audit process and ensure that it remains focused and effective.

Consider the case for ACME, a financial consulting firm. ACME has been working with an events company for the last year to help it host corporate events with expert panels and Q&A sessions.

Now, in summer, they have decided to audit their events provider to benchmark performance and costs against what the rest of the market offers.

For ACME, evaluating their events company might have the following objective for the audit, broken down using the SMART framework:

Thus, the final form this objective would take is: “Complete a detailed report on the event company’s performance and cost-efficiency for the past 10 events conducted in the last year, focusing on attendance, participant feedback scores, and budget adherence, within two weeks.”

Other objectives that ACME could have for evaluating their event provider are:

• Provide a score on logistics and project management capabilities of the event company by reviewing the planning and execution details of at least 5 major events, focusing on timelines, resource allocation, and problem resolution, in one  month.
• Conduct a cost-benefit analysis of the services provided by the event company by comparing costs and benefits of at least 5 major events, with actionable recommendations within one month.
• Provide an attendee engagement and satisfaction score of the last 5 major events by analyzing feedback from at least 300 attendees, within 3 weeks.

You can use this template from ProjectManager as a framework for drafting your own auditing objectives.

Data gathering

Afterwards, analyze both quantitative and qualitative data to form a comprehensive view of provider performance.

Look at financial performance, ROI, project-specific results, and qualitative feedback from internal teams. Tools like performance dashboards and data analytics software can be instrumental in this process.

For your brand, key areas to analyze include financial metrics such as cost efficiency and ROI; operational metrics such as service uptime and response times; and qualitative feedback from staff and customers.

Internal interviews

That last bit about staff feedback is crucial – you want to know the perspective from those internal teams that interact with the provider.

Your internal teams’ firsthand experiences are crucial for an accurate assessment of provider performance.

Methods for collecting internal feedback include staff surveys, focus group discussions, and one-on-one interviews with key personnel.

Sample questions for your team can include:

Engaging stakeholders

After you’ve set your objectives for the audit, start by involving key internal stakeholders in the audit process to ensure a thorough and comprehensive assessment.

Their insights and feedback are invaluable in painting a complete picture of provider performance and alignment. Engaging stakeholders can be done through:

• Regular meetings and workshops
• Surveys and feedback forms
• Inclusion in the audit planning process

As a guide, you can use the RACI matrix to define team roles across 4 categories: responsible, accountable, consulted, and informed

These categories indicate whether a team member is responsible for an action item, accountable for it, should be consulted on it, or simply be Informed of the action, milestone, or decision. These are the four roles that stakeholders might play at any point during the evaluation.

The RACI matrix presupposes that you need specific team’s feedback on providers’ performance in order to properly audit them. For this, determine who is responsible for carrying out the audit, who is accountable for the results, who needs to be consulted for input, and who needs to be informed of the progress and findings.

Download the above template of the RACI matrix from SlideModel here.

How to undertake the audit

When evaluating a service provider, it is crucial to consider various factors that contribute to the success of the partnership.

Although focusing on hard metrics such as revenue growth and customer acquisition is a common thing to do, it’s equally important to account for external factors and the quality of the relationship between both parties.

Achieving a balance among these three categories of metrics – hard, medium, and soft – allows for a comprehensive understanding of the service provider’s performance and highlights areas for improvement.

For this, we recommend using the 20/60/20 method of evaluating service providers.

20/60/20 evaluation method

In designing the evaluation, it’s essential to avoid giving equal weight to each metric. The service provider’s work is subject to varying degrees of impact from factors outside of your control. Assigning 20% weight to hard metrics, 60% to medium metrics, and 20% to soft metrics ensures that the evaluation prioritizes the metrics that reflect the service provider’s primary efforts and contributions.

We have a full article dedicated to this evaluation method, but we’ll explore it a bit in this guide as well. In a few words, this approach helps the evaluation accurately reflect the service provider’s performance based on the most relevant metrics for their role.

Hard metrics (20%)

Hard metrics are quantifiable indicators providing valuable insights into a service provider’s performance within the broader business context.

Hard metrics include measurable factors reflecting the overall progress and performance of a business, such as:

• Overall return on investment (ROI)
• Sales volume
• Sales growth
• Market/brand share
• Cost efficiency

In evaluating a service provider, it’s advisable to limit the weighting of hard metrics to 20%. This accommodates uncontrollable factors like economic fluctuations, evolving markets, and other organizational projects beyond the provider’s control.

Medium metrics (60%)

Medium metrics (or robust metrics) should form the backbone of the evaluation.

These metrics are specific to the project undertaken by the service provider.They can be financial metrics, such as:

• Adherence to budget
• Effective cost management
• Return on investment (ROI) for specific campaigns against industry benchmarks

They can also be marketing metrics such as:

• PPC
• SERP rankings
• Effectiveness of campaigns

Additionally, assess how the provider managed other external factors. Instead of evaluating based on fluctuations, focus on their handling of external shifts, such as economic changes or market volatility.

Soft metrics (20%)

While hard and medium metrics focus on tangible results, soft metrics consider the qualitative aspects of the partnership.

These relate to the quality of the relationship between you and the service provider, including effective communication, responsiveness, transparency, and trust.

Evaluating soft metrics helps assess overall satisfaction, the working experience, and the long-term potential of the partnership, reflecting on the intangible elements that contribute to a productive relationship.

How to evaluate soft, medium, and hard metrics

Once you identify the aspects to evaluate, determining specific criteria for these points can be challenging.

For hard and medium metrics, start with benchmarking using the Balanced Scorecard. Then, use scorecards to calculate overall results.

The Balanced Scorecard method

The Balanced Scorecard approach is particularly useful, allowing you to set strategic goals and monitor performance from four perspectives: finance, customers, internal processes, and learning and growth.

These perspectives operate independently but are interconnected. For instance, ROI depends on customer satisfaction, which is influenced by efficient internal processes. Efficient processes rely on factors such as human capital, organizational capital, and information capital.

However, the Balanced Scorecard would need to be tailored specifically for a project undertaken with a service provider.

For example, if you collaborated with a social media agency to develop social media campaigns for your company, the scorecard would reflect different metrics and objectives aligned with this specific partnership.

So how do you apply the Balanced Scorecard to your evaluation?

When working with an agency, it is crucial to consider both the ‘before’ and ‘after’ perspectives. Initially, your organization has a baseline of existing results, and during or after the project with the service provider, you expect to see new or different outcomes that can be compared to the initial ones.

To develop the Balanced Scorecard methodology for evaluating the provider’s work, you need to include information about:

• The vision for what you want the project to achieve
• The strategy the project will follow
• The target and current results concerning finance, customers, internal processes, and learning and growth

Continuing with the example of collaborating with a social media agency, this approach helps ensure that the project aligns with your overall objectives and allows for a clear comparison of performance before and after the engagement.

Don’t forget: the Balanced Scorecard method assumes that some elements of the company work together while others may overlap, as in the example below:

Evaluating a provider’s soft skills

Evaluating soft metrics often involves qualitative rather than quantitative aspects, making them more challenging to assess. To effectively evaluate these metrics, include the following criteria and questions in a scorecard, rating each item on a scale from 1 to 5, where 1 means “not at all” and 5 means “exceeds expectations.”

1) Communication skills

• How well does the service provider convey information and ideas to clients, colleagues, and stakeholders?
• How effectively does the service provider communicate in challenging or difficult situations?

2) Teamwork and collaboration

• How effectively does the service provider contribute to overall team goals and objectives?
• Does the service provider actively participate in team discussions and offer constructive ideas?

3) Adaptability and flexibility

• How well does the service provider adapt to changes in project requirements or unexpected challenges?
• How effectively does the service provider handle unexpected or last-minute requests?

4) Problem-solving and decision-making

• How proficient is the service provider in identifying and analyzing problems to find effective solutions?
• Does the service provider consistently make informed and timely decisions?

5) Time management and organization

• How well does the service provider prioritize tasks and meet deadlines?
• Can the service provider manage multiple responsibilities without compromising work quality?

6) Professionalism and ethics

• Does the service provider demonstrate professionalism and ethical behavior?
• How effectively does the service provider maintain confidentiality and handle sensitive information?

7) Emotional intelligence

• How well does the service provider handle stressful or high-pressure situations while maintaining composure?

Market comparison

Conducting a market comparison is a crucial step in the provider audit process, regardless of the type of provider you rely on. This process involves evaluating your current providers against industry benchmarks and alternative service providers to ensure you are receiving the best possible services and value.

This tends to be one of the more challenging, unclear, and time-consuming parts of the process, with back-and-forth that can become a major time drain. And that’s why many don’t take action and stick with what they’ve got.

To unlock the gains of your audit, you can use a service like Sortlist to get vetted proposals in hours, not weeks: with the research, vetting, reviews, and other due diligence put on autopilot.

Roughly, here are more details about the steps you should take to do this efficiently:

Step 1: define objectives and requirements

• Identify your needs: begin by clearly defining what services you require from an expert provider. This includes the scope, scale, and specific features of the service.
• Set objectives: establish what you aim to achieve with the collaboration. Objectives should be specific, measurable, achievable, relevant, and time-bound (SMART).

Step 2: initial market research

• Identify potential service providers: compile a list of potential service providers. This can be done through Sortlist, online searches, industry publications, and professional networks.
• Gather preliminary information: collect basic information about each provider, such as their range of services, market reputation, years in business, and any awards or recognitions they have received.

Step 3: detailed provider profiling

• Company background and stability: research the company’s history, financial stability, ownership, and management team. A stable company is less likely to disrupt your operations due to internal issues.
• Service portfolio and expertise: evaluate the breadth and depth of the provider’s service portfolio. Examine case studies, whitepapers, and any documented expertise in the field.
• Technological capabilities: assess the technology and tools the providers use. Ensure they are up-to-date and capable of meeting your technical requirements.
• Compliance and certifications: verify the provider’s compliance with relevant industry standards and certifications, such as ISO, GDPR, or specific regulatory compliances pertinent to your industry.

Step 4: client references and case studies

• Client testimonials and reviews: look for client testimonials on the provider’s website and independent review sites. Pay attention to recurring themes, both positive and negative.
• Request case studies: obtain case studies that are similar to your use case. Evaluate the success stories and how they align with your objectives.
• Contact references: ask the provider for references and contact them. Prepare a detailed questionnaire to ask about their experience, challenges faced, and the results achieved.

Step 5: competitive analysis

• Benchmark against competitors: compare the providers’ offerings with their competitors. Look at pricing, service levels, customer service, and additional features or value-added services.
• SWOT analysis: perform a SWOT analysis for each provider to identify their unique value propositions and potential risks.

Step 6: financial and risk assessment

• Cost-benefit analysis: conduct a thorough cost-benefit analysis. Include all potential costs such as implementation, training, ongoing support, and any hidden costs.
• Risk assessment: evaluate potential risks, including financial risks, operational risks, and any risks related to data security and compliance.

Step 7: service level agreements (SLAs) and contracts

• Review SLAs: examine the service level agreements in detail. Pay attention to uptime guarantees, support response times, and penalties for non-compliance.
• Contract terms: scrutinize the contract terms and conditions. Ensure there are no unfavorable clauses and that the terms align with your expectations and legal standards.

Step 8: Decision making

• Stakeholder review: present the findings to your stakeholders. Ensure all relevant parties are involved in the decision-making process to get diverse perspectives and buy-in.

Step 9: final negotiations and onboarding

• Negotiate terms: engage in final negotiations with the selected provider. Aim for favorable terms, ensuring flexibility and safeguards are in place.
• Plan for onboarding: develop a comprehensive onboarding plan. This should include timelines, resource allocation, training schedules, and a clear communication plan.

How to use Sortlist to benchmark your providers

Companies can use various benchmarking tools and platforms to gather these kinds of data on market standards.

One of those tools is Sortlist, which provides insights into:

• Current market rates: Sortlist providers give you quotes for services you might be needing, which allows for a complete view of market rates.
• Performance benchmarks: you can also compare reviews and industry services across different providers.
• Tech trends: you can also see which providers on Sortlist are already leading in technological innovation and adopting new technologies, such as AI and big data.

After filling out a short brief, you’ll get validated quotes for your project which you can use to compare and contrast against your current providers. And if you prefer any one of them, you can hire directly.

In your workspace, that would look a bit like this 👇

You can use Sortlist data to make informed, data-driven decisions regarding your current providers, and any possible future ones.

If you want to know more about how Sortlist can help put your benchmark on autopilot, freeing you up to do what you’re best at, you can find more information here.

Other assessment criteria

Some other assessment criteria you can use to evaluate your service providers are

• Strategic Fit: Evaluate how well the provider aligns with long-term business goals and adapts to changes in strategic emphasis.
• Innovation and Adaptability: Assess the provider’s ability to innovate and adapt to market changes and emerging technologies.

How to deliver the results of the audit

Presenting findings

Structure the audit findings in a clear, actionable format. A well-organized report helps stakeholders understand the results and the necessary actions.

A typical audit report might include:

• Executive summary
• Detailed findings with supporting data
• Strengths and weaknesses of the provider
• Recommendations for improvement
• Action plan with timelines

You can use the template below from SmartSheet to illustrate the grades of satisfaction (from very satisfied to very unsatisfied) for each of the different factors (key points) evaluated.

Feedback: best practices

Your providers are also human; delivering feedback should be done from a place of mutual understanding and a collaborative spirit.

In other words, aim to deliver feedback in a constructive and actionable manner. Highlight strengths and areas for improvement, ensuring providers understand the steps needed to enhance performance. Constructive feedback fosters a collaborative environment for continuous improvement.

To deliver these audit results to your providers, it’s important to do it orderly and in a professional manner. That means scheduling a dedicated meeting solely for that purpose.

This fosters open communication and collaboration, ensuring that both parties are aligned on the next steps and improvement plans.

Key points to cover in the feedback meeting include:

• Overview of the audit process and objectives
• Summary of key findings
• Specific areas for improvement
• Joint development of an action plan

Taking action on your audit

You’ve completed your audit. You’ve successfully carried it out and delivered the results to your business partners.

But an evaluation without next steps is useless.

All the preparation and work you’ve done for the auditing process now must yield an action plan to address identified gaps and opportunities.

For this, you must assign responsibilities and set timelines for implementation. An actionable plan ensures that the audit results lead to tangible improvements.

Depending on the results of your audit, your next actions can be separated. Normally, this would be: enhancing current provider performance; improving communication and collaboration; and, if needed, changing providers altogether.

Enhancing provider performance

In the next quarter, you may want to focus on working together with your providers to boost the quality of their work for your company. This can be done via different methods:

1) Training and development

• Provide targeted training programs for the provider to improve specific skills or knowledge areas that were identified as lacking. This could involve workshops, online courses, or on-site training sessions.
• Regularly review and update training materials to keep them aligned with current industry standards and best practices.

2) Performance monitoring

• Implement a clear monitoring system to track the provider’s progress against agreed-upon metrics. This can include regular performance reviews, monthly progress reports, and periodic check-ins.
• Use dashboards and analytics tools to provide real-time insights into the provider’s performance.

Improving communication and collaboration

Your provider may be delivering exceptional quality work, but there are gaps in your communication flows or misunderstandings between those involved in a given project. In this case you may want to assess how to improve exactly on those aspects with your provider. You can check our article on how to communicate with providers in full detail, or take the two pointers below:

1) Establish regular meetings

• Schedule regular meetings to discuss ongoing projects, address issues, and ensure that both parties are aligned. These can be weekly or bi-weekly, depending on the project’s needs.
• Use these meetings to foster open communication, build trust, and address any concerns on time.

2) Use collaborative tools

• Use collaborative project management tools like Asana, Trello, or Slack to streamline communication and task management. These tools can help ensure that everyone is on the same page and that tasks are tracked and completed efficiently.
• Implement a shared document folder or repository to centralize all project-related documents, making it easier for both parties to access and update information.

Changing providers

Ultimately, you want your business to succeed, and sometimes that means that, after evaluating your current providers, you find that it may be more cost-effective and better in the long-term to switch to ones that are more specialized in your industry or in your needed expertise. It may be time to find new providers.

In the next section we discuss in more detail the benefits of finding new providers for your business, but for now, the following actions can help:

1) Initiate a search for new providers

• Use platforms like Sortlist to identify potential new providers that match your specific needs and budget. This tool makes sure you do your due diligence by providing vetted options quickly.
• Conduct a comprehensive market comparison to evaluate potential new providers based on their track record, client feedback, budget, and alignment with your strategic goals.

2) Transition planning

• Develop a detailed transition plan to ensure a smooth handover from the old provider to the new one. This should include timelines, key contacts, and specific tasks to be completed during the transition period.
• Communicate clearly with both the outgoing and incoming providers to manage expectations and ensure continuity.

This action plan template from DocTemplates ensures you implement the necessary changes based on the audit findings.

Sourcing new providers

Finding new service providers can be a daunting task. The process of identifying, evaluating, and onboarding new providers is time-consuming and resource-intensive.

This complexity often holds businesses back from initiating audits, fearing the potential hassle and disruption.

If you must source for new providers, you can find yourself facing some of these challenges:

1) Verifying quality

Each provider claims to be the best, but without a track record, how can you be sure? Normally, this involves checking references, past projects, and client feedback—time-consuming tasks that add to your workload.

2) Communication issues

The back-and-forth via email, the risk of being ghosted, and inefficient communication can derail your efforts. Providers that you don’t know, or that are found on Google may not always be prepared for meetings, leading to wasted time.

3) Lack of guidance

Many clients feel lost without a guide to help them compare providers effectively. They need benchmarks and confidence to make informed decisions.

4) Time constraints

Busywork associated with due diligence—managing spreadsheets, tracking conversations, validating proposals with internal stakeholders, and sitting through unproductive meetings—takes away from focusing on core business activities.

But luckily, if one of the action items in your audit plan is to look for new providers, leveraging tools like Sortlist can simplify this process significantly. Sortlist provides a marketplace of 100,000 vetted service providers, from creative agencies to IT experts. By using a combination of AI and human expertise, it matches you with the best providers suited to your business needs and budget within 48 hours.

Steps for sourcing new providers with Sortlist include:

1. Filling out a brief with the details of your project.
2. Sync with your dedicated advisor, in order to clarify needs and any questions
3. Get quotes directly from vetted providers in your Sortlist inbox
4. Evaluating potential providers
5. Meeting with providers and selecting the best fit

All this with guidance from your very own dedicated advisor!

Conclusion

Regular provider audits are essential for maintaining high standards and staying competitive.

Take action during downtime, such as the summer period, to enhance the provider network and stay competitive. Proactive audits are proven to lead to better performance and strategic alignment.

And don’t forget – Sortlist is there to guide you find providers that align with your industry, budget, and expertise needed. It can help you streamline an effective audit process and benchmark to ensure your providers are always the best fit for your company’s long-term success.

By following this guide, your brand, can effectively audit its service providers, ensuring they remain in tune with your company’s goals so that you can focus on what you do best – your business.