What does a good software procurement process look like?
Aimee Manning | OCT 11, 2023
8 min read
As new technologies continue to emerge and companies look for ways to innovate and gain competitive advantage, it comes as little surprise that the average organization’s software stack is growing by as much as 18% each year.
But while procurement leaders are under increasing pressure to manage the sheer volume of tools now being subscribed to across the business, it’s not the only challenge they have to contend with.
Another major hurdle is the spiraling cost of these tools, with annual prices rising by an average of 12% and four times faster than general market inflation.
Then, there’s the increasing occurrence of maverick spending, an issue that’s not only contributing to wasted spend, but also putting many companies at risk of security and compliance issues.
The bottom line is, SaaS purchasing has become incredibly complex, time-consuming and often more expensive than it needs to be.
So, what’s the solution? What does a good software procurement process actually look like?
Here’s everything you need to know.
What makes a good software procurement process?
While each organization’s approach to SaaS procurement will vary depending on their unique requirements, there are a number of best practices that can – and should – be adopted in order to secure the very best deal on any purchase or renewal.
1. Decide if you want consolidation-led or best-of-breed software
When deciding on a new SaaS tool, your first decision should be whether to go for a best-of-breed platform or a consolidation-led solution.
While there’s no right or wrong answer, it’s worth noting that best-of-breed software will provide specialized features and robust functionality within its niche.
To give you an example, many security solutions tend to be best-of-breed, with organizations often opting to use individual solutions for their different security requirements, whether that be email security, web security or even multi-factor authentication.
Consolidation-led software, on the other hand, refers to an application that combines various types of functionality and services into a comprehensive suite. Common examples often include:
- Enterprise Resource Planning (ERP) Systems
ERP systems tend to consolidate numerous business functions including finance, HR, supply chain and even CRM into a unified platform. Specific examples include SAP, Oracle ERP Cloud and NetSuite.
- Customer Relationship Management (CRM) Platforms
CRM software is another example of a consolidation-led solution, with many combining customer data, sales, marketing and customer service functionality. Examples of CRM platforms include Salesforce, HubSpot and Zoho.
- Human Resources Management Systems (HRMS)
Many HRMS’ will combine various HR functions, for example payroll, employee records, applicant tracking and time and attendance tracking. Examples include BambooHR, Workday and Rippling.
Take a look at the HR software providers that are providing best-in-class approaches to pricing.
2. Start your legal and compliance review as early as possible
Even once you’ve decided whether to go down the best-of-breed or consolidation-led route, it’s important that you’re getting quotes from several suppliers. Remember, the best supplier won’t always be the cheapest.
According to Vertice’s very own Head of Purchasing, Nick Riley, it’s also worth starting the legal and compliance process as early as possible.
“A good sales rep will hold off from giving you the best discount until the legal and compliance reviews have been completed. While you should still be starting negotiations before you reach this stage, it’s worth being aware that many will reserve their best offer until these checks have been done. Once you’ve been quoted the lowest possible price, you can go to your supplier of choice and use the competitive offer as leverage to get them to match or beat the quote.”
3. Continue commercial negotiations
Price isn’t the only thing you should be negotiating on and even once you’ve been quoted the best possible price, you’ll also want to ensure that you’re happy with the terms of the contract.
While at the very minimum you should be requesting the removal of auto-renewal clauses and potentially even negotiating a maximum cap on price uplifts, it’s also worth thinking about the needs of your business down the line.
“Consider what should happen if you want to cancel or change the contract in 12 months and make sure this is built into the agreement” Nick advises. “By including renegotiation clauses, or divorce terms, you will have more flexibility to modify certain aspects of your agreement based on your evolving needs or circumstances”.
To do this, think about the best and worst possible outcomes for your business. This could be high growth, requiring you to add more licenses – ideally at a more favorable rate – or redundancies, which may require you to scale back.
By factoring these into any contract, you will be in a better position to future-proof your business.
4. Consider your existing software stack
If you’re opting for a consolidation-led SaaS solution, look at what it does and consider what it can replace. Ultimately, it’s only worth using this type of application if it can consolidate multiple tools, otherwise it’s unlikely to be cost-effective.
As an example, if you’re using HubSpot solely for your email campaigns, you may be better off using an alternative that specializes in this area. If, however, you’re making use of its CRM, sales, customer service and other capabilities, then it could be a worthwhile investment.
Regardless of whether you’re using a solution of this type or not though, it’s still a good practice to rationalize your software stack as you continue to implement new software. In other words, assess which tools should be retained or retired from your operations.
It’s also worth talking to the heads of departments, or even the individual application owners, to really understand the business benefits of any given tool.
5. Have a SaaS system of record
With the average company now using as many as 130 tools, it’s become increasingly difficult for many to stay on top of their software stack.
At least without an automated SaaS system of record in place. In other words, a central knowledge base that stores important data about each of the tools in use across the organization.
But why exactly is a system of record a fundamental part of any good SaaS procurement process?
In short, because it allows you to consolidate all your contracts in one location, while enabling you to easily track:
- The cost of each subscription
- How these tools are being utilized
- The terms of each contract, including length, clauses, user limits etc
- Renewal dates and deadlines
- Billing details such as the billing schedule and payment method
- The contract owner
“All too often, companies fail to keep on top of their low-value contracts, despite the fact that this tail spend contributes to a significant amount of their overall SaaS budget. As a best practice, every tool in use across the organization, regardless of cost, should be accounted for'' Nick explains. “Failure to do so not only puts your business at risk of security and compliance issues, but it also increases the chances of you wasting valuable budget, as a result of either unwanted auto-renewal fees or instances of overlapping functionality.”
6. Standardize and centralize your procurement process
Ultimately, a SaaS system of record is only effective if there’s a centralized procurement process in place. Yet, very few organizations actually have one.
This often means that tools are purchased without the knowledge or approval of procurement, IT and finance departments, not only resulting in a loss of purchasing power – and therefore higher subscription costs – but also the financial challenges and security risks that tend to come with maverick spending and shadow IT.
So, how can you ensure this is avoided?
While it won’t be the same for every company, one option could be to create a policy that requires any contract under the value of $5,000 to be approved and handled by the department lead, while any tool costing more is managed by the procurement team and signed off by finance.
As we’ve already mentioned though, even the lower-value contracts need to be accounted for so that all appropriate teams have complete oversight of the software in use across the organization. This is the only way you can have a fully streamlined and centralized software procurement process.
But what about the tools that already exist within your stack? How can you identify the applications in use across your organization, including those that may have already fallen victim to maverick spending and shadow IT?
In short, by using various SaaS discovery methods, including SSO platforms and your financial records.
Streamline your SaaS procurement
Ultimately, what a good software procurement process actually looks like in practice will depend on your company’s circumstances, goals and priorities. What’s important is that there’s a process in place for evaluating, purchasing and managing these SaaS tools, regardless of how much they cost and who they’ll be used by.
The problem is, as demand for these tools grows and SaaS stacks proliferate – a result of both technological advances and increasing headcount – it’s likely that as a procurement leader you won’t have the time to spend on each of the steps outlined above for every single purchase or renewal.
This is just one of the reasons why it can pay to work with a SaaS procurement partner.
In fact, by doing so, you not only free up your time to focus on more strategic procurement initiatives without having to worry about every single negotiation and renewal, but you also benefit from the expertise of a team that knows the intricacies of the purchasing process from either side of the deal – and that can leverage exclusive vendor pricing data to secure you the very best price and terms on any contract.
See for yourself how much you could be saving on your annual software spend or alternatively get a better idea of how a SaaS purchasing platform such as Vertice can help you save both time and money when buying, managing and renewing SaaS.
