Get the most out of your SaaS Spends: A Guide to SaaS Cost Optimization
Companies are increasingly relying on SaaS products. The transition from clunky downloadable software to cloud software becoming more common. But despite this shift in dependencies, companies are still wasting an estimated $90 billion each year on their SaaS products. That’s where SaaS cost optimization comes into play — to ensure that companies get the most out of their SaaS products with minimal wastage and the best value for money. We have prepared a comprehensive guide so that you can optimize your SaaS spend.
Companies, on average, spend 25% of their overall budgets on SaaS products. That’s a fourth of the budget! It wouldn’t be a lot to worry about if this was being done efficiently. Money spent on SaaS products is not always used optimally. Gartner estimates that as much as 30% of SaaS spend isn’t utilized appropriately or goes to waste.
Since SaaS solutions are being purchased or subscribed to across departments, managing all of them in a centralized manner is proving to be more and more difficult, leading to more SaaS waste. SaaS wastage comes in many forms:
- Limited visibility into the use of SaaS tools internally. No way to have a holistic view of all products, features, duplicates, etc.
- Unplanned purchase of SaaS product without accounting for products and features that companies are already subscribed to.
- Repeated purchase of similar products in situations where different departments don’t collaborate and there is no centralized repository of SaaS tools being used internally.
- Redundant licenses where companies missed discontinuing subscriptions for employees who left the company. In such situations, you may be paying for inactive users, making the cloud infrastructure more difficult to manage.
- Missed renewal or cancellation dates lead to annual subscriptions for SaaS solutions that companies don’t need anymore.
Are you facing any of the above? These symptoms suggest that companies are in need of SaaS spend optimization to understand the SaaS stack and reduce redundancies and wastages. Optimize your SaaS stack today with Spendflo.
What is SaaS Cost Optimization exactly?
Cost optimization is an undertaking wherein a business makes decisions to reduce unnecessary spending and make smarter choices. In the case of cloud cost optimization, these decisions pertain to the purchase and maintenance of SaaS products. The goal is to reduce cloud costs on SaaS products while ensuring that employees have all the applications they need. It is a balance between understanding the SaaS requirements of the business while also being mindful of the financial constraints of the budget, and building for efficiency as companies scale.
Every company wants to be more efficient in their purchases and save money wherever possible, without compromising on features or functionalities. In a world where most businesses are purchasing SaaS products across departments, spend optimization is crucial. In essence, SaaS cost optimization is a cost-saving mechanism to ensure that the company saves money along with the time and energy of its employees.
Why though? More and more companies are opting out of on-premise software and moving to completely cloud-first infrastructures. This is making the cost management of software more critical. The SaaS Spend Optimization process plays a very important role in usage, to avoid situations where companies are over-licensed but under-utilizing SaaS applications and eliminate all unnecessary security gaps and SaaS waste.
The SaaS app that is retained are the ones that fit the bill of the company. The entire process is to streamline the workflow of buying, renewing, and retaining SaaS products to save money and make employees' experiences better. Happier employees also lead to teams that work cohesively together and improved standards of working. Let’s further look into what this means in today’s financial environment.
SaaS cost optimization in the current economic climate
Beware of little expenses. A small leak can sink a great ship - Benjamin Franklin
Good intentions may not always lead to the desired implementation and results. Companies start with a plan in mind and as it scales up, it often becomes harder to keep track of the budgets and SaaS spend. We have established that there is significant overspending when it comes to SaaS products and their purchase and the subsequent maintenance of the license.
But what does SaaS cost optimization look like in the current financial scenario exactly? Let’s look at some factors.
1. The current macro environment
The macro-environment refers to the larger-scale macroeconomic influences that the economy and government have on businesses. At this point, the world is seeing unprecedented inflation - a combined result of a slowdown in the economy from various economic and socio-political issues. The environment is uncertain, and businesses need to save as much as they can and be more efficient.
In some scenarios, this could be in the form of a hiring freeze or mass lay-offs. But one simple way to save money is to look at the company's practices internally and see where it is hemorrhaging money. More often than not, it is a process like SaaS purchasing that requires SaaS optimization to save money. It's a simple internal workflow that can help the company in the long run.
2. Cash flow planning is a priority
As a result of the macroeconomic influences, companies need to cut unnecessary SaaS spend and reduce the burden of IT spending. Companies need to take a hard look at the IT software they use, but more importantly, the ones that they do not. Redundant software eats into the company's budget and can be easily optimized and removed. A critical inventory is the need of the hour so that companies can get a handle on their spending and understand where funds are being wasted. The result of such changes will be a cash-rich business.
3. Keeping the burn rate low
The burn rate is the rate at which a company is "burning" through its funds to acquire new customers. The aim of keeping a low burn rate is to reduce the amount of money the company is spending to run its day-to-day operations. To keep a low burn rate, the company needs to remove extra expenditures. In this case, unused SaaS purchases and renewals eat more cash than you may realize. A simple act of SaaS optimization ensures that cash isn't burnt through by IT and can be re-utilized elsewhere.
4. Extending runway is key
As you have realized, the general direction of these points is to keep SaaS spend low and secure the company's future. This future can be in terms of ensuring there are enough funds in the bank and also extending the company's runway. This simply means extending the amount of time any company, more specifically startups, can survive before they run out of money. This statement may seem alarmist, but the goal is to make smart decisions and work internally to optimize, streamline, and create a roadmap for IT and SaaS purchases. Small acts such as this can extend the company's runway and remove some of the burdens.
5. Spend smart on SaaS
When it comes to reducing spends on SaaS applications, it is smart to work within a small and fixed budget. Duplicate SaaS applications, redundant applications, and unused/discarded applications eat into the IT budget and waste money. Optimize the list of SaaS products needed by the company and be critical of what is needed for employees and what isn't. Having an analytical approach to the procurement of SaaS products can only be beneficial. Using a SaaS management tool like Spendflo can also be beneficial to save on SaaS spend.
6. The need for superior security
As the world is evolving, and companies are moving towards SaaS - one of the major needs is to reduce security risks. Using SaaS application ensures that the security, access, and risk management for each tool is the Service Level Agreement (SLA) of the SaaS provider. This reduces the burden on the IT team substantially, since most SaaS vendors ensure uptime and proper management of data, as per company needs. With hundreds of tools being used across the organization, the need for a centralized way of ensuring spend optimization and SaaS management can chart a path to superior security.
7. Get the SaaS licensing tier that works for you
Navigating SaaS licenses can be tricky as you need to gauge what works for the company. SaaS products can be licensed on many tiers, based on different requirements. You pay for what you have access to. This licensing is majorly based on the number of licenses subscribed for a set number of users. There are also multiple user-based licensing models available that the procurement team should look at before making purchases.Many companies, while procuring these licenses, get one plan for a dedicated set of users and stick to it. However, the needs of the company and its employees are constantly changing and it's smart to re-evaluate needs regularly.
Many SaaS tools are now moving to consumption based pricing. This means companies can end up spending 200% of the contracted bill on overages if they aren’t able to forecast their consumption. Having a SaaS cost optimization system in place can help estimate SaaS consumption.
Optimizing SaaS costs is the need of the hour, and something every company should adopt immediately. But, how can one go about it? Let’s take a look.
Tip: Managing all of this becomes complicated and time-consuming. But you can do all of this and more with a centralized SaaS Spend Management Solution like Spendflo.
Simple ways to optimize your SaaS costs
SaaS cost optimization is the way to move forward for most companies. It helps to understand where all the SaaS budget is being spent, and more importantly, where money is being wasted. The process of SaaS optimization involves taking stock and understanding the needs of the company and employees and in turn, deciding which SaaS applications are required or not required anymore.
A common mistake that companies make is to purchase the newest and best software - possibly the one that is in the news - only to realize that it isn't useful for their company. A little research into the applications available and the licensing tiers goes a long way toward saving money. Here are some ways in which cloud costs can be optimized -
1. Understand your SaaS stack
The first step for SaaS cost optimization is gaining visibility of the entire SaaS infrastructure in a single place. You need to collate features, compare licenses and costs, measure the success of the tools the company is currently using compared to the needs for which it was purchased, to begin with, and more.
Ask yourself some important questions here -
- What are the kind of applications you /the team requires?
- Which are the best application for the requirements?
- What are the different licenses that the company currently has?
- Which applications are not being used anymore? If they aren’t, then why? - Redundancy, Not needed, or the problem is being solved by a different tool
- Do the end-users think the tool is critical for their operations?
You would have to get feedback from teams on which apps they don’t use and why? Is it because of functionalities, user interface, or more? Asking these questions helps understand the needs of the company, and take stock of the entire SaaS portfolio and how efficient it is so far.
2. Set a list of goals and priorities
Once you have understood your SaaS inventory, you can move forward to understanding the priorities of your workforce and what their needs are vis-a-vis their SaaS requirements. This is also a good time to evaluate the needs of the workforce and prioritize them accordingly.
Understanding which SaaS applications are a priority and what needs must be addressed first helps in creating a plan of action. Having a list of priorities streamlines the process and helps in optimizing your SaaS plans and requirements. Having goals also helps eliminate any biases one might have toward certain SaaS tools
3. Optimize your contracts
Taking stock of your SaaS stack results in you having a clear understanding of the SaaS applications that you have licensed. Once there is clarity regarding the applications, it's time to deep-dive into the contracts you have already signed.
Are the tiers you have licensed working for you? Do you need less or more than the application is offering? It may seem like a time-consuming task, but looking into each contract individually saves money. Evaluate the terms and conditions of the contract and understand if it works in your favor. Then re-evaluate if the contract is worth renewing.
4. Stay away from auto-renewal
The auto-renewal billing model means that software companies automatically renew SaaS licenses on a quarterly or yearly basis. In theory, this seems easy, right? No hassle of getting back into the sales process and not having to deal with payment deadlines.
The caveat is that this causes confusion between the licenser and the licensee. Companies get sucked into the auto-renewal pattern and never take the time to re-look at licenses and understand whether they need to upgrade/downgrade/cancel entirely. Look into your SaaS contract for the renewal period. In case you have an auto-renewal clause, you can reach out to the vendor and give notice one month in advance to shift to a different plan, or cancel it.
5. Set objectives for subscription internally
A surefire way of recognizing whether you have duplicate applications offering the same functions is to understand what each subscription is used for. When you question the use of a subscription - who it is used by and for what purpose - its use or uselessness comes to light.
You're able to best understand the value of the subscription for the company and whether it is worth spending money on. This is also a good time to understand what the subscription can or not do for your company and whether other subscriptions can do it for less.
6. Analyze where you can cut costs
There is always room to save money. In all of the steps above, you will soon come to realize that there are cost-saving measures at each step. Whether it is getting rid of unused applications, redundant licenses, and incorrect tiers; or avoiding the auto-renewal trap. For SaaS that is billed based on consumption, you will be able to predict consumption better and adjust the pricing tier accordingly.
There is money to be saved at every step of the way. The aim is to look at your SaaS stack properly and be honest about what is needed and what is excessive. Thinking critically and analytically is the most important step.
7. Consolidate your licenses
License consolidation involves taking multiple invoices from the different teams for the same SaaS product and consolidating them into one invoice for the organization. Different teams end up buying their own SaaS and the lack of an overview of SaaS orgwide leads to different invoices for the same SaaS tool.
Having all your licenses in one place makes it easier to understand how you can consolidate them and get better pricing from SaaS vendors. It also helps in keeping track of renewals and avoiding the trap of auto-renewals. It's best to use software or programs that consolidate your licenses. Imagine having all your licenses for you in one place, easily accessible, and streamlined. It makes taking stock of licenses simple and helps you understand what you require and what can be done away with.
8. Review your SaaS stack regularly
SaaS subscriptions should be reviewed often. This could seem like an unnecessary suggestion, however, look at it from a different perspective. The market and economy are constantly changing, as are the needs of the company. People are hired and fired and their needs are also changing. The SaaS products on the market also change at a fast pace. In a world where change is the only constant, why are SaaS subscriptions not constantly reviewed and re-evaluated?
A systematic review of the company's SaaS products will be helpful in cost-cutting and will keep you aware of your company's needs and requirements. There are also key efforts that need to be made to keep a check on Cloud costs. Now that you have gone through the list of ways to optimize, let’s quickly go through some best practices that you can implement immediately.
Best practices to optimize SaaS spend
SaaS solutions have been around for years, and as cloud environments have evolved, so have the practices to manage them well. While we have covered many of these above, it is not just about making hundreds of spreadsheets to manage SaaS tools haphazardly. You can adopt advanced integrations and SaaS management tools to make this easier.
- Do a spring clean to remove unused or forgotten SaaS apps and licenses. This cleaning will provide clarity on which applications are needed, and not needed. Check for licenses that are no longer being used and remove them. It’s only normal for employees or teams to forget to cancel or transfer ownership of the license. Also, go through your use cases and actual usage. SaaS applications are likely being under-utilized, so establish a utilization benchmark rate and cancel unused applications.
- Remove redundant SaaS applications. Across departments or even within departments, there might be different applications with some overlapping functionality. Many applications are purchased independently without keeping the finance or procurement teams' efforts. Such misses can burn holes in a company’s spending capacity. Remove all functional overlaps from your SaaS inventory and reduce SaaS spend.
- Ensure you right-size SaaS applications or licenses. The SaaS subscription models are easily scalable, but it is likely that among hundreds of solutions, you might be overspending for your need. If users haven’t logged into an application in over 30 days, it is not being used enough, and perhaps you can downgrade to a smaller plan.
- Negotiate while signing SaaS contracts. Keeping track of the right things while signing a contract can help companies optimize their spends substantially. Be on the same page regarding pricing, SLAs, tier boundaries, data security, back-ups, and more. Here are some guiding principles for negotiating SaaS agreements. In case you are already in a contract, wait for the renewal date and try to research alternate providers or better pricing simultaneously.
- Automate wherever possible. Doing all of the above steps is challenging. Excel sheets miss out on gaps, and it is humanly not possible to track 100+ SaaS tools manually. Get a SaaS Buying and Optimization Platform like Spendflo which automates all of this and more.
- Be proactive with your auto-renewals. Keep an eye out for renewal time, and re-evaluate the effectiveness and impact of the SaaS solution.
Sounds too complicated? Understandable. Completely overhauling the SaaS stack, purchasing process, and license management internally is no small feat. Solution? Fix your SaaS buying and management process.
Automate SaaS Cost Optimization and Save up to 30% with Spendflo
Spendflo is a SaaS buying and management solution that helps you manage all aspects of your SaaS subscriptions. It tracks your purchases and renewals so you can stay on top of your SaaS stack and have clarity about your applications. It also helps you understand which applications you need and which you don't, helping you save money.
Moreover, Spendflo compiles all the documentation and checklists from vendors for procurement teams based on pricing, making SaaS software purchase easier. Spendflo even purchases and renews SaaS tools to your advantage. With a team of expert buyers, Spendflo negotiates on your behalf and centralizes the purchase and management process.
Shift to thoughtful and smart procurement today and reduce SaaS wastage.
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