Cost Savings Vs Cost Avoidance in SaaS Procurements: Which One is Right For You?

When it comes to SaaS procurements, both cost savings and cost avoidance strategies (though used interchangeably) have their merits. Companies are always looking for ways to optimize their software spend, and these two approaches offer distinct paths to that goal. The reality is, the best SaaS procurement strategies often involve a mix of both cost avoidance and cost savings tactics. Finding that perfect balance is going to take a deep understanding of your software needs, usage patterns, and spend data. It requires some rigorous experimentation and iteration.  But the payoff—a more cost-efficient SaaS stack—is well worth the effort.

By the end of this article, you will be able to differentiate between cost avoidance and cost savings and choose the right mix for your spend management strategy.
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TL:DR Cost Avoidance Vs Cost Savings in SaaS Procurements

— Cost avoidance is about preventing unnecessary expenses before they happen. It's a proactive strategy that can help companies steer clear of overspending on SaaS. But it's not always easy to predict and prevent every potential cost pitfall.

— Cost savings, on the other hand, is about actively reducing existing expenses. It's a strategy that can deliver more tangible, measurable results. And in many cases, it's the more impactful approach when it comes to optimizing SaaS spend.
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What is Cost Avoidance?

When you're managing your company's expenses, cost avoidance is a strategy you can employ to prevent unnecessary costs before they even occur. It's about being proactive and identifying potential expenses that can be eliminated or reduced before they hit your budget. Usually, cost avoidance can take many forms. Let's say you're considering purchasing a new software tool for your team. Before making the purchase, you might do a thorough needs assessment to ensure that the tool is truly necessary and that there isn't a more cost-effective solution already available. Or, you might negotiate with the vendor for a lower price or more favorable contract terms.

You might also look for ways to avoid costs by optimizing your existing resources. Say, you might realize that you're paying for software licenses that aren't being used, and you could avoid that cost by redistributing those licenses to employees who need them.
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What is Cost Savings?

Cost savings is a strategic approach to optimizing your company's expenses by actively reducing existing costs. Unlike cost avoidance, which focuses on preventing unnecessary expenses before they occur, cost savings targets current spending and seeks ways to lower it.

Here's a concise outline of the steps you can follow to achieve cost savings in your organization:

1. Analyze spending:

   - Review financial statements and identify top expense categories and conduct a thorough audit of current costs

2. Set cost reduction targets:

   - Determine realistic goals for each expense category to prioritize areas with the highest potential for savings

3. Develop a cost savings plan:

   - Outline specific strategies and action items and establish metrics to measure progress
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Need a rough estimate of how much you can save before going further?

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Difference Between Cost Avoidance and Cost Savings

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Bottom line: Which is the right one for you?

— Cost avoidance is most suitable for organizations who:

1. Are experiencing rapid growth or significant changes in their business needs

2. Have a complex or dynamic SaaS ecosystem with frequently evolving requirements

3. Need to maintain a high degree of agility and flexibility in their software stack

This may include startups, scale-ups, and businesses in fast-paced or disruptive industries where SaaS needs are constantly changing.
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— Cost savings is most suitable for organizations who:

1. Have a mature and stable SaaS ecosystem with well-established processes

2. Have a clear understanding of their SaaS usage patterns and can identify areas of inefficiency

3. Want to optimize their existing SaaS spend without compromising on functionality or quality

4. Prioritize tangible, short-term cost reductions and efficiency improvements

5. Have a strong focus on bottom-line impact and ROI

This may include larger enterprises, established SMBs, and businesses in more stable or predictable industries where SaaS needs are relatively consistent over time.

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Benefits of Cost Savings

Data-led negotiation

When you start using data-led negotiation, you're not just saving money – you're gaining a competitive edge. By really understanding your SaaS usage and leveraging that data in vendor negotiations, you can optimize your licenses and pricing in a way that aligns perfectly with your business needs. 

Strategic sourcing

Strategic sourcing is another powerful way to drive cost savings, but it's about more than just getting the best deals. By consolidating your spend and building strong relationships with key vendors, you're creating opportunities for long-term value creation. You're not just cutting costs – you're optimizing your entire SaaS ecosystem to support your business goals. And when you have a holistic view of your spend, you can make smarter decisions that benefit your whole organization.

Tactical Contract renewal

Being proactive and tactical about renewals can make a huge difference. When you stay on top of deadlines and use data to guide your decisions, you're not just avoiding last-minute scrambles – you're putting yourself in a position to negotiate the best possible terms. And by rightsizing your contracts based on actual needs, you're ensuring that you're not paying for more than you actually use.

Streamlining intake

When you have a centralized, automated approach to SaaS acquisitions, you're not just reducing rogue spending – you're creating a more efficient, transparent, and compliant process that benefits everyone. And by leveraging powerful tools and integrating your procurement and financial data, you're gaining incredible visibility into your spend. That means smarter decisions and better outcomes across the board.

Limiting SaaS bloat 

SaaS Bloat is a problem for a lot of organizations. But by being proactive and data-driven about your application portfolio, you can keep things lean and mean. By regularly auditing and rationalizing your apps, you're ensuring that you're not wasting money on underutilized or redundant tools.
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How Spendflo helps effectively avoid unnecessary procurement costs and also saves on your SaaS

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Spendflo’s Assisted Buying is designed to help you take control of your SaaS ecosystem and avoid unnecessary procurement costs. It provides complete visibility into your SaaS spend, data-driven optimization recommendations, streamlined procurement workflows, proactive budget management, and continuous improvement capabilities. With Spendflo, you can eliminate hidden costs, rightsizing licenses, negotiate better deals, and set your SaaS procurements up for success.

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