February 2, 2023

Guide for CFOs to Navigate SaaS Spending

The SaaS model has indeed been disruptive. Anytime-anywhere access makes it convenient. ‘Pay as you go,’ ‘only pay for what you use,’ ‘cancel whenever you want,’ etc. make the SaaS model of buying software immensely attractive. It gives employees the freedom to try, evaluate, select and instantly buy the software that they need — reimbursing payments later with their organization — essentially cutting through bureaucracy. Everyone is happy, it would seem.

Except! SaaS is sneaky. It has changed the paradigm so dramatically that the CFO feels out of control with the buying decision. Without control, how would a CFO even begin to optimize expenses?

To get every CFO familiarized with the SaaS model and back in control of their P&L account, we’ve brought this primer. It draws the biggest lessons and action items from our 2023 State of SaaS Buying and Spend Optimization report. Here we go.

#1 SaaS isn’t a small expense

Most SaaS tools are priced in single-digit dollars — $6$ for Time Camp, 7$ for Slack, 8$ for Jira etc. This often creates an illusion that it’s cheaper than erstwhile enterprise software. Most often, this isn’t true. In fact, our study shows that nearly 40% of organizations spend over a million dollars on SaaS and 14% spend over five million.

it isn't that simple when an organization has to buy software#2 SaaS isn’t a monolith

Enterprise software is no longer 3-5 large software used by a handful of employees. Today, every organization is digital, using dozens of software for nearly every task. According to our survey, ~40% of organizations use over 50 SaaS tools; ~5% use 250+ tools! 250 tools used by thousands of users paying usage-based pricing adds multiple layers of complexity to cost management, giving CFOs sleepless nights.

#3 SaaS buying isn’t instant

Every SaaS tool allows users to sign up, pay and start using instantly. However, when an organization has to buy software, it isn’t that simple. Through various levels of approvals, compliance, contracts etc., an organization can take as long as two months to complete SaaS procurement. In most cases, five different teams — department heads, legal, IT, information security and procurement — are involved, taking 5x the time necessary.

#4 SaaS expenses aren’t reviewed often enough

16% of organizations we surveyed don’t have an established cadence for reviewing SaaS expenses at all, even when it runs into millions of dollars. Even half of the organizations don’t review it monthly. As a result, at the end of the year, it surprises CFOs that SaaS expenses add up to the sum it does. 

#5 SaaS procurement isn’t proactive

The SaaS model changed the way software is bought and sold. Procurement teams haven’t yet caught up with the new model and the skills needed for successful optimization. 10% of our respondents used no negotiation levers at all in their SaaS procurement. Without visibility or expert buyers, organizations identify ‘reactive SaaS buying’ as one of their top challenges for the future.

#6 SaaS spending isn’t optimized, obviously

Yet, if there is one thing business and finance leaders are clear on, it is that SaaS expenses are screaming to be optimized. 68% of leaders identify SaaS spend optimization as their most significant area of improvement. They are seeking to reduce wastage and negotiate better deals, without losing out on the obvious advantages that SaaS tools offer for productivity and efficiency.

#7 SaaS optimization needs benchmarks, expert buyers, data and automation

Leaders identify opaque pricing as the primary reason for overpaying. This recognizes the fact that organizations have a pressing need for better benchmarking and more clued-in SaaS buyers. 63% of leaders also want to automate spend tracking, which presupposes better visibility into spending and ownership.

As a rapidly evolving business model, it is no surprise that SaaS expenses are worrying CFO across organizations. The best way to navigate this quagmire of SaaS spending is to learn from peers. Spendflo’s State of SaaS Buying and Spend Optimization 2023 is an effort in that direction. For details on how business and finance leaders are approaching their SaaS spending, download the report now.

You Can Save As Much As 30% on SaaS Spends

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Ajay Ramamoorthy
Karthikeyan Manivannan

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