SaaS spend optimization: proven ways to reduce software costs
Aimee Manning | SEP 21, 2022
Cloud-based subscription platforms have fast become integral to business growth, thanks to their scalability, affordability, security measures, and even their reduced demands on IT teams.
As a result, the amount being spent on these SaaS applications has increased substantially. So much so that Gartner forecasts end-user spending on cloud application services to surpass $171 billion in 2022. That’s up 42% from 2020.
Is this any surprise, given that there are now around 25,000 SaaS companies across the globe?
But with organizations now using an average of 110 software applications, not to mention wasting $2.32 million per year on unused SaaS licenses, it’s evident that SaaS usage can rapidly scale, and that SaaS spend can very quickly become unmanageable.
Especially when many tools are purchased without IT and finance teams being made aware.
So the question is, how as a business can you manage this and keep your software spend in check?
In this guide, we’ll walk you through some best practices for managing SaaS spend, covering everything from procurement to renewals.
Why is SaaS spend optimization important?
So, why is it important to manage your SaaS spend?
According to Flexera’s State of ITAM 2022 report, almost a third of all SaaS software spend is wasted across organizations. Our own data further confirms this, with 33% of SaaS licenses going underutilized within the average company — as high as 52% in Sales teams.
The potential for achieving substantial cost savings by rightsizing your licenses isn’t the only reason to invest in spend management though. Without total visibility and control over your SaaS operations, you’re not only at risk of wasting a significant amount of time and money — you’re also putting your organization at risk of security and compliance issues.
Still not convinced? Here are some of the main reasons it’s so important to manage your SaaS spend and maintain oversight of your SaaS operations as a whole:
1. Loss of profits
More often than not, lack of visibility around your SaaS spend means that money is being wasted on redundant SaaS applications, excess licenses and overpriced contracts. Roughly 90% of buyers pay more than they actually need to for software.
It’s partially because buyers lack access to vendor pricing — 55% of SaaS vendors obscure these costs — and partially because they’re not aware that list prices are rarely set in stone.
But that’s not the only way SaaS spend is wasted.
There’s also the software that is going unused within your organization, whether that be entire SaaS applications or simply unused, but costly, licenses. Then, there are those that overlap, meaning you’re essentially paying for multiple pieces of software that essentially do the same thing. In other words, redundant SaaS tools.
2. Lack of visibility into software renewals
Another reason it’s so important to create a SaaS spend management strategy is to keep on top of your software renewals.
All too often, businesses don’t give themselves enough time to manage these software renewals or simply don’t have the time to negotiate a better deal. This can result in unfavorable or all-around unwanted auto renewals.
With full visibility into your SaaS stack — and your impending deadlines — you can change this narrative for your company.
3. Risk of shadow IT
Lack of SaaS governance can also result in shadow IT — defined as the use of software applications, or other information technology systems, without the explicit approval of the IT department.
Shadow IT is happening a lot.
To put it into perspective, 80% of workers claim to be using SaaS applications without getting approval from their IT or finance teams. Overall, it’s estimated that shadow IT is equivalent to 10x the size of known cloud usage.
That’s a huge amount of software being purchased without relevant teams being made aware — teams that are responsible not only for SaaS spend, but also for preventing security and compliance issues.
How to optimize SaaS spend
Here are the steps for gaining control over your organization’s SaaS spend and, more importantly, steps for maintaining that control going forward.
1. Discover and catalog your existing software
Before you can effectively manage your software spend and centralize your SaaS purchasing process, you need complete oversight of what software is being used across your organization.
It sounds like an obvious place to start, but for some this first step can be a giant hurdle. The larger your organization is, the more people, departments and applications you will need to take into consideration.
According to research from BetterCloud, companies with fewer than 50 employees use an average of 16 SaaS applications. Naturally, organizations take on more software as their head counts rise.
So, what are your options for discovering and cataloging all of the software your business is using?
One way to start tracking your SaaS subscriptions is by asking your employees to log their subscriptions in a shared spreadsheet. This should ideally include information such as:
- Quantity of licenses
- Price per license
- The department using the software (if possible, specific stakeholders)
- Purpose of the software application
- The contract start date
- Renewal date
- Auto renewal date
- Notice period for terminating the contract
- Annual cost
- Billing frequency
Despite being a relatively simple approach, this is by no means the best approach.
As with any manual process, it’s open to error in the form of inaccuracies. There’s no guarantee that every single subscription will be logged, nor is there any guarantee that the details provided will be correct.
There’s also a high chance that the spreadsheet won’t be updated going forward.
Single Sign-On tools
Single Sign-On (SSO) tools can also facilitate SaaS application tracking by providing you with user names, device times, access times, and even usage.
But while this can help paint a better picture of organization-wide software usage, it doesn’t paint the full picture. After all, there are many software purchases occurring without IT oversight, and there may also be applications that aren’t using SSO.
Another method for detecting what software is being used throughout your organization is implementing a browser plugin on company devices. But keep in mind that this might not pick up everything, especially if employees are accessing software via personal devices or using incognito browsers.
Financial SaaS discovery
Looking at your financial data is one of the most reliable ways to identify software usage across the business.
By following the money, you should be able to discover all SaaS subscriptions the company is paying for. Remember to look into expenses as well, since there might be instances where employees are directly paying and being reimbursed for subscriptions.
Ultimately, finding out which SaaS subscriptions your business has is still only the first step. You also need full visibility into your total SaaS spend, licenses, contract terms, and any other crucial information.
2. Optimize your SaaS spend
Once you have total visibility of your business’ SaaS stack, you can start focusing on ways to control spend and increase efficiencies.
In other words: you can begin optimizing your SaaS spend.
What does this entail?
Build a SaaS system of record (and then maintain it)
SaaS discovery is just the first step in managing your software spend. Once you’ve cataloged your inventory, you’ll need to be able to track and maintain it effectively.
Because a continually updated system of record enables you to:
- Gain real-time visibility of your SaaS applications from a single place
- Keep tabs on upcoming software renewals, giving you more buying power and enough time to cancel subscriptions
- Track spending activity and user licenses
- Avoid both SaaS overlap and SaaS sprawl
Ultimately, SaaS spend optimization is the process of rationalizing your SaaS stack to eliminate SaaS waste, avoid security gaps and prevent cost accumulation.
Create a process to centralize all SaaS purchasing decisions
Establishing a system of record is important, but the job doesn’t stop there. You also need a process to centralize all software purchases within your company. In other words, you need complete SaaS governance.
The reality is that a decentralized purchasing model — usually one where SaaS purchases are made at the department or even employee level — puts you at risk of software overlap, duplicated subscriptions, and maverick spending. And it means that your IT team is unable to ensure application compliance and security.
By centralizing SaaS spend, you can ensure a pre-purchase review of any requested software application. This enables you to:
- Check whether there is already a similar application in use, preventing SaaS overlap
- Check for compliance
Regularly review SaaS usage and performance
By tracking all SaaS applications, you can more easily detect those that are over-licensed and underutilized. Given that a third of all SaaS spend goes to waste in the average organization, these underutilized SaaS licenses could be causing your business to hemorrhage a huge amount of cash.
Fortunately, with the right SaaS spend management platform, you can easily track the utilization of your software licenses and use the insight to:
- Identify which tools are being under-used and determine whether it’s because of limited utility, lack of awareness, lack of training or because a similar tool already exists within your SaaS stack
- Inform the negotiation of renewals and new SaaS purchases
- Flag users that may not need to be on a particular tier, providing you with an opportunity to reduce the cost of your subscription
Stay ahead of renewals
To maximize cost-savings and efficiencies, decisions around software renewals should be made well ahead of renewal dates.
At best, leaving renewals until the last minute means you have a short window to negotiate a better deal or evaluate alternative vendors. At worst, it leaves you with an unwanted auto renewal.
Here’s where the problem comes full circle. Without visibility and control over your SaaS stack, it can be incredibly difficult to know when your software contracts are up for renewal.
With an up-to-date system of record detailing these dates or, better yet, a SaaS management system that alerts you ahead of any given renewal deadline, you can maintain total control of all software applications used within your organization.
Meaning you can negotiate with leverage.
You can learn more about our top negotiation tips here, but here a few crucial things to consider:
- Arm yourself with pricing benchmarks — not just competitor quotes, but also the intel into what other similar companies are already paying
- Determine how valuable flexibility is to you, as this will determine the most appropriate term length of any contract
- Avoid auto renewal clauses
- Ensure price protection in uplifts
- Consider how costly the negotiation process will be in terms of time
Optimize spend with a SaaS purchasing platform
To gain complete control of your SaaS spend, you need a comprehensive system of record. This entails having total visibility of every piece of software being used within your organization, understanding the terms of each contract, and knowing when exactly they’re up for renewal.
Unfortunately, keeping track of this information manually is a major barrier to actualizing this level of control. At least it is in most instances.
This is only one of the reasons so many organizations are now automating this process.
At Vertice, we do just that. We give you complete visibility of your entire SaaS stack from a single place, enabling you to track all your renewals and spend.
But that’s not all we do.
We also take the burden of buying and renewing SaaS off your hands, saving you a substantial amount of time and money.
With access to the price points and transactions of more than 13,000 SaaS vendors worldwide, we can leverage our data to secure you the best possible deal on all of your contracts.
In fact, we’re entirely risk-free and guarantee that we can save you at least 20% on your annual SaaS spend.
Ready to get started? See how much you could save with our free cost savings analysis, or alternatively learn more about how a tech-enabled SaaS purchasing platform could help your business reduce its costs.