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Introduction
Procurement processes are inherently complex - and prone to inefficiency.
Without suitable levels of transparency, automation and data use (which only 1 in 6 have managed to so far achieve), procurement's own processes erode the function's positive impact.
Meaning that even before a SaaS contract is signed, it has already lost tremendous value - which it needs to make up before it can hope to deliver a return.
Exposing the problems
With help from procurement experts from across the industry, our Advisory Board, and our own team, we’ve uncovered the 12 most common SaaS procurement oversights that sap Total Contract Value (TCV).
To go deeper, we’ve ordered them by their degree of threat to TCV - and also compared this to how much of a threat CPOs assume they are.
(Spoiler alert: In most cases, CPOs hugely underestimate just how much damage these errors can do)
the 12 missteps
True threat to TCV
CPOs' Assumption
Without proper benchmarks and up-to-date pricing data, negotiations may as well be shots in the dark.
Benchmarks give customers leverage and a fair financial starting point - reducing the risk of overpaying.
Although industry pricing trends move quickly, and vary by company size, user numbers, product tier and region.
So the best benchmark data covers more than pricing. It also includes intel on vendors’ sales initiatives, how ends of quarters or financial years affect their negotiation, or their current priorities in terms of the products and features they are currently incentivised to push, or the types of businesses they are keen to sell into.
Based on the scores, CPOs appreciate the importance and power of these frames of reference, and yet too often fail to access them.
True threat to TCV
CPOs' Assumption
The later you start negotiations, the less likely you are to secure a good discount. And if it’s down to the wire, you’re unlikely to get much more discount than a vendor’s standard offer.
Our data shows that companies can earn, on average, 1.49x more discount if they start discussions more than 90 days before renewal, versus what they can secure in the typical scenario of starting negotiations less than 30 days before.
This drops dramatically to an average of only 1.19x more discount if negotiations start between 30 and 90 days before renewal. More time for negotiations equals more savings.
Additional savings achieved compared to contract negotiations started <30 days before renewal
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Yet CPOs don’t recognize delays as too much of a problem. Probably through a misplaced confidence that they can still negotiate a strong discount - and how much more they could have secured.
But time gives you so much - time to research the market and obtain competitor quotes, more chance of coinciding with a vendor’s quarter end, and time to investigate your historic SaaS utilization metrics and make sure you are negotiating for the right number of licences.
True threat to TCV
CPOs' Assumption
Unused SaaS Applications
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Nearly half (45.7%) of all SaaS licences are underused or not used at all. Which means almost $1 in every $2 of SaaS budget is being thrown away on:
Judging by the gap between the true and assumed threat levels, it is CPOs’ over-optimism that is killing their SaaS budgets.
Whether due to mis-projections of the company’s growth, or an over-confidence in business unit leaders’ assessment of the need and fit of proposed tools, CPOs are totally underestimating the danger of underutilization.
And in fact, the opposite scenario is often true too: SaaS budgets and TCVs are often eaten away by under-provisioning, and being stung by punitive charges for going over user limits.
The solution is simple: full and strategic scrutiny of the business case for every tool and every licence - which for ease, can be automated at intake - combined with real-time visibility over true SaaS stack and usage. This is realistically the only way to provision your licences and SaaS tools correctly, and avoid damaging TCV.
True threat to TCV
CPOs' Assumption
While not the most common problem, its impact can be devastating when it does occur.
Unplanned deployment requirements such as data migrations or integrations are notorious for creating not only hard costs, but also leading to:
“I once joined a B2B SaaS business in the midst of a CRM switch. The internal team had already burned 6 months trying to migrate the data and manage integrations themselves. They had now given up and were bringing in external expertise to fix it - another 3 month project.
It was a full year before the new CRM was up and running, on a 24 month initial contract! All this because the full scale of the project had not been properly examined before committing.”
True threat to TCV
CPOs' Assumption
Not choosing the right tool for the stage your business is currently at, or about to reach, can be extremely restrictive and inefficient.
If you’re trying to use a platform designed for later-stage businesses (think Salesforce) in a startup/scale-up environment, you are paying a premium for tools and features that you simply will not use.
Conversely, if you are an enterprise business using a more early-stage tool, it likely will not have the full range of capabilities you need.
Plus, the type of industry needs to be taken into account. Using a generic tool when your industry requires specific functionality slows down productivity and frustrates users, while costs skyrocket as the team creates makeshift customizations.
Of course, you need to ensure there is a balance between your current needs and how these may evolve during the contract term.
In some cases, this may require counter-intuitive decisions, such as deliberately forfeiting attractive multi-year discounts in favour of giving the business the flexibility to switch to a more suitable provider sooner.
True threat to TCV
CPOs' Assumption
When a tool is unsuitable for the team or company, it will often lead to underutilization, the tool’s redundancy or expensive customization - or even restricting the growth and ambitions of the business as a whole.
The knock-on effects then spiral.
Teams step outside the approved procurement process to purchase replacement tools. Security and data compliance are put at risk. The unapproved purchases create budget wastage, in turn chipping away further at the tool’s TCV.
The solution is two-fold:
Firstly, procurement needs detailed context of the business’ current and future needs in order to scrutinize requests fully.
Secondly, the intake process - whether through the initial intake form or the immediate next steps - needs to verify that the request is in line with business goals, and use automation for pre-(dis)qualification or automatic routing based on inputs.
“Choose software that truly fits your team; every missed requirement chips away at Total Contract Value. A poor match invites security gaps, compliance questions, and rogue spending that will resurface later as even larger costs that could have been avoided.”
True threat to TCV
CPOs' Assumption
Procurement professionals cannot be expected to be experts in all the individual areas they are procuring for.
But unfortunately, deep understanding of individual markets, industry areas or even specific vendors is often the key to saving the business from misguided investments.
Appreciating the strengths and weaknesses of certain vendors, their suitability for certain scenarios, the available technologies, or the advantages of point solutions versus the capabilities of broader platforms can be the difference between a well-negotiated, profitable partnership and wasted spend on an unsuitable tool.
Judging by the scores, CPOs are clearly aware of the power of having such knowledge, which is why so many choose to outsource specialist procurement to those who are constantly working and negotiating with the relevant vendors - across multiple regions and business categories.
True threat to TCV
CPOs' Assumption
Contracts need to accommodate what the business needs in the immediate term, but also throughout the duration of the contract term.
These changing needs may be in license numbers, feature sets, data allowances or integrations - and should be able to be scaled up without prohibitive additional charges, or scaled down without overpaying.
If this can’t be accommodated, then the decision becomes whether to accept the financial cost of a shorter contract so a new vendor can be brought in later, or whether to choose an alternative vendor today.
Otherwise, the business risks Vendor Lock-In - being lumbered with an unsuitable vendor, with no recourse to escape the contract.
True threat to TCV
CPOs' Assumption
The reason procurement leaders assume this threat is so minor is the same reason it occurs in the first place: blindness.
Procurement leaders typically lack visibility of the full breadth of the tools they have (especially with maverick spending), and/or the breadth of those tools’ capabilities.
This blind spot is painfully common, and the result can be catastrophic for Total Contract Value. In fact, both duplicated tools’ TCVs will likely suffer as individual preferences and use cases will lead to neither one being fully utilized.
But procurement is often also blind to a tools’ total capabilities. As vendors seek to become stickier with their customers, they are gradually increasing their functionality - leading tools that previously complemented each other to suddenly find they compete, and leaving their customers with duplicated spend.
These issues are only avoided by having total visibility over both your entire tech stack - approved and unapproved - so you can spot obvious duplications, and also each tool’s usage, so you can identify when a tool’s usage suddenly drops off: a typical warning sign of it being superseded by another product.
True threat to TCV
CPOs' Assumption
New tool requests are often triggered by new ambitions and initiatives, which will often mean new skills are required. But if the team’s capacity and willingness to go through the necessary onboarding and training is not considered as part of the procurement process, then uptake will suffer - and TCV will reduce.
The difference between CPOs’ perception of this threat’s impact and the truth highlights how underappreciated the need for skills and training often is.
When a team struggles to use or understand a tool, teams may then go elsewhere to find a more familiar or immediately usable system in order to maintain BAU - creating not only a duplication but also a compliance risk.
Or worse still, they simply ignore the tool, putting TCV in jeopardy, along with the entire initiative the software underpinned.
All of which can be avoided if procurement teams include dedicated onboarding and training plans as criteria for major investments.
True threat to TCV
CPOs' Assumption
Procurement professionals rightly place a lot of emphasis on negotiation skills - either for themselves or when building their teams.
However, the best negotiated outcomes do not come from the tactics, opening bids, anchoring or brinkmanship, but from the data and context that the team has.
These foundations - such as benchmarks and market knowledge - solidify negotiating positions and inform what to ask for and which counter-offers are most valuable.
The winning combination is of course both - insights and data plus negotiation skills to capitalize on them. But so few procurement teams are so well-equipped, which is why outsourcing such specialist procurement is becoming so common.
“Procurement leaders know the combination of negotiation expertise and data is lethal, but most teams can't get both in the room at once.
Third-party specialists help close the bottlenecks of limited capacity, patchy data, and no obvious path to scale.
They bring benchmarks, act as shuttle diplomats, take the heat, keep conversations moving, and create the air cover your team needs to land better outcomes on business-critical tools.”
True threat to TCV
CPOs' Assumption
What’s interesting here is that, while CPOs are right to rank inefficient intake highly for its negative impact on TCV - their reasons miss the point.
Largely, CPOs are concerned that poor intakes and approvals create a negative experience for stakeholders, and that the frustration leads to increased maverick spending and more compliance risks.
While this is a valid concern, the truth is that better intake and approval processes can be the key to many of the threats described above. Checks can be added for the tool’s suitability, licence numbers (or equivalent), the team’s skills, whether there’s a risk of duplication, and even if prices are accurately benchmarked.
Imagine how much TCV could be saved if all of these were mitigated - and all it takes is well-designed, customized workflows and intakes, built off best practice.
Our Platform
Vertice’s combination of technology and high-level negotiating skills can give you the firepower you need to quickly and efficiently deal with these threats.
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One view of every SaaS contract, with spend breakdowns, usage trends and accurate forecasting, so you can easily identify optimization opportunities and collaborate on fixing them.
Access data from over 16,000 vendors across 30 countries, and $10 billion in managed spend, to get the best benchmarking insights, and set up automated workflows and advanced algorithms to continuously manage and reduce your spend.
Create intakes and workflows off any of our 50+ templates - built off a combination of best practice and the best-performing live workflows we’ve seen across our 300+ customer base - and customize them to match your business needs and realities.
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Partner with dedicated, 1-1 expert buyers from the Vertice procurement team who will secure you the best deal on SaaS negotiations, advise on how to best proof your contracts from value leakage, and release your internal procurement team to work on more strategic projects.
