SaaS spend optimization: a guide to managing SaaS stress
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 software-as-a-service (SaaS) applications has increased substantially. So much so that Gartner forecasts end-user spending on cloud application services to surpass $171 million 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 with more than 1,000 employees using an average of 177 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 should you manage all this SaaS stress?
In this guide, we’ll walk you through some best practices for managing SaaS spend, covering everything from procurement to renewals.
The importance of SaaS spend optimization
Why is it so important to manage your SaaS spend?
To start, the numbers above paint a pretty bleak picture of just how much money is wasted by the average large company.
But companies with 1,000+ employees are not the only ones at risk. Smaller companies certainly don’t go unscathed.
According to Flexera’s State of ITAM 2022 report, almost a third of all SaaS software spend is underutilized or wasted across organizations.
The potential for substantial cost savings is not the only reason to invest in spend management. 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:
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, SaaS duplication.
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 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.
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 manage 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.
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.
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 SaaS overlap
Ultimately, SaaS spend optimization is the process of eliminating SaaS waste, avoiding security gaps and preventing 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 detect those that are over-licensed and underutilized a lot more easily.
This is important, given that the average company wastes $135,000 annually on unused and underused tools.
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 data. Not sure where to start? Get in touch with us to access pricing and discounting data for thousands of SaaS vendors
• 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