How do you reduce SaaS spend?
Software as a service has become a core part of almost every organization worldwide.
The ease and automation it offers to business owners can not be overstated. Unlike the previous software versions, SaaS reduces the expenses involved in purchase/installation and ongoing costs like maintenance and upgrading in the future. It is also cloud-based, implying the absence of on-premise physical servers.
Every organization has its SaaS profile. This comprises all the software the company uses and can give an insight into its goals, culture, and demand. Sometimes, however, businesses tend to overspend on SaaS for many reasons. SaaS purchases and renewals can cost an organization anywhere from thousands to billions of dollars.
This is where SaaS spend management comes in. No matter how the software was selected for purchase or which industry your business operates in, there are general ways to reduce SaaS spending.
This article discusses ways to reduce SaaS spending while the business still runs optimally.
What is SaaS spend management?
SaaS spend management is the practice of monitoring and controlling spending on SaaS applications. It includes identifying all SaaS subscriptions active in the organization, analyzing the licenses and entitlements that provide the correct value, and cutting costs due to wastage or unplanned renewals.
SaaS spend management may also come in the form of selecting the right subscription plan in a bid to cut extra costs. Any practice carried out that ultimately reduces the spending on software without reducing the quality of work is termed SaaS spend management.
As companies grow, the number of SaaS applications utilized across different departments increases. This makes it relatively easy to lose track of the applications purchased without proper management.
Some software is no longer in use but still has active subscriptions, while others have cheaper and more effective alternatives. These are some reasons businesses lose lots of money to SaaS spending. Hence, every organization must take SaaS to spend management as a priority.
How do companies overspend?
Before we discuss how to cut extra SaaS costs, let us first explore how businesses overspend on SaaS
1 – Shadow IT
Shadow IT is the use of SaaS applications by departments or individuals without the knowledge of the IT department within the organization. This results in different departments using different applications to solve the same problem, ultimately resulting in increased SaaS spending. It doesn’t stop there however, unsupervised purchase of SaaS applications exposes the organization to security and compliance threats that attract heavy fines.
2 – Forgotten cancellations
The IT department is generally responsible for procuring and managing software licenses. When individuals or departments go rogue and purchase software at their discretion, there’s a high chance they forget to cancel the subscription once they are done with it. Also, poor management of software licenses by responsible departments leads to the company paying for unused applications.
3 – Un-revoked licenses
In cases where an employee leaves the company, the standard procedure is to revoke all of their licenses. However, some companies fail to do this, causing them to keep paying for unused software. Also, if the employee in question has subscribed to shadow apps, it is difficult for the IT department to know.
4 – Off-the-shelf pricing and unoptimized licenses
SaaS providers generally offer attractive pricing models to large businesses. This is logical since their software usage is higher in businesses than in individuals. This makes SaaS companies sell at lesser prices to businesses than single users. However, in cases of shadow IT, an employee may choose the individual plan. This results in the organization paying more for what could’ve been bought for less.
5 – Growth assumption
Start-ups and developing companies sometimes assume that they will grow rapidly in a short time. This assumption makes them buy more licenses for the future than they need in the present. Assuming that your company will grow is exemplary and inspirational. However, spending on unused licenses is not advisable. Also, many SaaS platforms now allow businesses to scale up and add new licenses, should the need arrive.
Why SaaS spend management is important
Large organizations, startups, and small businesses can all benefit from having effective SaaS spend management. The list below highlights some of the importance of reducing spending on SaaS.
1 – To eliminate SaaS wastage
You save a huge amount of your organization’s budget by having effective SaaS spend management. A good spend management practice ensures the elimination of underused, unused, duplicate, and unrevoked software.
2 – To save time
SaaS spend management helps you save time on the day of the next audit. You must have eliminated all the unnecessary software meaning you’ll be auditing less software in a short amount of time.
3 – Helps in compliance maintenance
Once you successfully track and manage all software your company owns, it becomes easy to comply with the software license agreement rules. Hence, your company avoids hefty fines and legal troubles that result from non-compliance.
4 – Quality of service and internal processes
Spending more than needed on unnecessary software solutions impacts your ability to spend on other important sections of the business, including customer service, the product, or marketing. It also affects your ability to provide the necessary resources to keep internal processes running smoothly. Unused, duplicated, and other unnecessary software can suck up your budget and give you less room for other expenditures.
Ways to reduce SaaS spend
SaaS spend management is a relatively new concept derived from the old concept of spend management. This practice has become increasingly popular among businesses as they now use several SaaS solutions to ease the workflow of their daily activities.
However, most of these businesses rack up a lot of unused or underutilized software. This leads to wasteful spending and ultimately impacts the total budget negatively. Below is a list of practical ways in which your company can reduce SaaS spending.
1 – Incorporate SaaS operations into your business
Until the pandemic, many organizations did not consider SaaS operations (SaasOps). The bloom of remote work has forced them to set up some form of SaaS operations system. SaaS operations involve procurement of the right set of SaaS apps, managing access to these apps by users/departments, monitoring their usage, and canceling their subscriptions properly when they are no longer needed.
SaaS ops management helps businesses to manage, track, comply and secure their SaaS applications. Having a SaaS operations system in place in your organization helps cut extra costs as you now have a clear view of all your organization’s SaaS tools.
2 – Identify all SaaS tools
Now that you’ve designed a SaaS operation system in place for your firm, it’s time to flush out the old wasteful practices. To begin, you must track every single SaaS application your organization owns.
All transactions generated in cost categories, importantly individual business credit cards, procuring cards, and employee expense reports, should be included in this analysis. Also, direct supplier spends are identified in Accounts Payable or purchase orders.
3 – Organize the software
After tracking every SaaS software your business owns, the next step is organizing them. The organization gives you an insight into which apps are well-used and underused. Chances are your company is using multiple software that does the same work, or you might even be paying for software that nobody uses at all. Design a list that answers the following questions
- What functions does each application provide?
- Is the software updated?
- How much do you pay for them?
- How many employees use them?
- Is it a duplicate of another software?
- When does the license contract expire?
Once you have organized them based on these questions, you can move to the next step.
4 – Eliminate unnecessary software
The answers to the above questions assist in determining which products you need and which can be eliminated. If you discover that two departments are using different tools to achieve the same goal, decide which of the software is better and eliminate the duplicate.
The subscriptions of unused applications should be terminated immediately. Revoke the licenses of employees that have left your organization. Also, get a workaround to underused software like rightsizing. Rightsizing involves matching up licenses and features with the most appropriate number of employees.
Once all of these excesses are shed, it significantly reduces the amount of the SaaS budget.
5 – Invest in a SaaS Spend management tool
Software as a service spend management tools are employed to manage and regulate SaaS costs. These technologies aid in streamlining SaaS subscription usage and centralizing visibility over SaaS subscriptions. Users can then determine wasteful spending by comparing utilization data to the subscription fee.
If an application is rarely used or users deliver widely negative feedback, administrators will receive alerts and likely opt out of renewals. This software also assists businesses in identifying overlap, preventing needless subscriptions to several identical applications.
You won’t be caught off guard with surprise renewals with a SaaS spend management tool. You are alerted days before your renewal. A good spend management software can also give you recommendations for cost-effective, and better SaaS apps
Start saving today
Effective SaaS spend management saves you thousands and millions that would be wasted on unnecessary software. SaaS applications ease the day-to-day activities of employees, no doubt. However, only those that are necessary should be paid for. Excesses like unused, underused, duplicate and un-revoked software should be constantly monitored and attended to.
Lydia Iseh is a writer with years of experience in writing SEO content that provides value to the reader. As someone who believes in the power of SEO to transform businesses, she enjoys being part of the process that helps websites rank high on search engines.