Measuring Long-Term SaaS ROI: Looking Beyond Short-term Gains
Short-term gains may give your organization the temporary boost it needs, but CFOs today need to prioritize long-term gains.
CFOs in startups today are prioritizing optimizing their SaaS investments, and rightly so, for it is the lowest-hanging fruit among their biggest expenses. There are two approaches finance leaders take to optimize their SaaS spending:
- Focusing on short-term gains: Prioritizing immediate benefits to drive efficiency and savings to derive tangible results.
- Charting out a long-term strategy: Laying out a process-oriented roadmap to maximize ROI and enable sustainable growth and profitability
While short-term gains provide the temporary boosts needed for organizations, long-term SaaS ROI serves as the metric for an accurate measure of success. Sprint races can get you a medal, but so can marathons.
With the constantly evolving business landscape, CFOs today are embracing the additional moniker of ‘Chief Future Officer’, and this blog details how they can draw the roadmap to measure and maximize long-term SaaS ROI to balance growth and profitability and win the marathon of SaaS optimization. We’ve also peppered in insights from CFOs who’ve led from the front. Read on!
Starting line: Total Cost of Ownership(TCO)
Total Cost of Ownership(TCO) is the cost incurred in owning and operating a software product in addition to the contract value or subscription fee.
While the subscription fee is a significant component of SaaS expenses, evaluating SaaS ROI goes beyond just the initial expense owing to the hidden costs that come with using SaaS products. These costs include the expenses associated with implementation, training, integration, maintenance, and support.
Opting a TCO lens gives CFOs an overall view into the overall expenses that come with using the different tools in their stack and assess them in accordance with the long-term financial viability, ROI, and cost-effectiveness, along with the impact it has on their bottom line.
CFO Insight: “If you want to get your arms around your SaaS spend, partner with your CIO and CTO. Don’t say, ‘Hey, your SaaS spending is exceeding $1 Million, cut it down by 30%’. Work with them to understand the value. Then it’s not you making the decisions” - Chris Ortega, CFO, Fresh FP & A
Marker 1: Automate
CFOs today need to go beyond just having immense financial knowledge and also enhance their technological acumen and prioritize the efficiency of their processes in order to improve their ROI.
Automation is critical to unlocking long-term SaaS ROI and boosting organizational efficiency. Finance executives can use RPA or AI-based solutions to automate operations, eliminate manual effort, and maximize resource allocation.
For example, companies often integrate their sales software with their messaging tools to streamline the process and boost productivity. Creating a streamlined, automated workflow enables sales teams to operate efficiently and focus more on their core function, thereby increasing sales velocity. According to Forrester Consulting, companies saw a 296% return on their investment in Slack due to increased sales velocity.
CFO Insight: “CFOs today need to spearhead automation efforts. A great CFO is someone that makes his organization agile and adaptable to any situation, and automation will help them get there by streamlining operations and maximizing efficiency” - Chirag Mavani, CFO, The Souled Store
Marker 2: Being Data-first
If automation is the road ahead, then data is the blueprint. Harnessing the new superpower that is data should be a priority for modern CFOs to maximize their ROI.
By adopting data-driven processes and decision-making, CFOs will be able to derive accurate and actionable insights on key performance indicators(KPIs) and optimize their performance based on real-time information. Moreover, being data-driven also enables them to chart better long-term plans by identifying trends and patterns.
Combining data and automation provides the stride and the direction for organizations to reach the finish line quicker.
A simple example of this would be to run a user-sentiment analysis within the organization to identify the important tools in your SaaS stack to identify the tools you can keep and let the tools that rank low on the sentiment analysis go.
CFO Insight: “A 5-star CFO is someone who can synthesize insights from data and communicate it compellingly and effectively” - Kiran Hebbar, CFO, Alloy
Marker 3: Scalability and flexibility
Scalability and flexibility are critical for organizations to prosper over time. Finance leaders should prioritize a SaaS solution's scalability and flexibility when evaluating it, as these features have a direct impact on the potential to achieve maximum ROI.
In a rapidly changing business landscape, organizations need the flexibility to respond quickly to market demands and seize new opportunities. A flexible SaaS platform allows for agile deployment, enabling organizations to launch new products or services faster and stay ahead of the competition while accommodating the organizations’ requirements of accommodating more users or providing more features.
There are some tools that are tailor-made to serve small-to-medium businesses and mid-market companies. While the tools themselves might be great, they might not be of any service when your company grows and expands. In this case, signing a multi-year contract to procure such a tool to expand would spell ROI doom.
Marker 4: Risk mitigation
Risk mitigation is critical for ensuring long-term SaaS ROI. Finance executives should take a proactive approach to data protection, compliance, vendor stability, and disaster recovery. Organizations may protect their investments and maintain continuous access to important SaaS technologies by employing comprehensive risk management policies.
Prevention is better than cure. Companies, at times, have ended up paying millions of dollars in fines due to compliance breaches while engaging with tools. If there was a term for the opposite of ‘Return on Investment’, the above case is what it would be defined as. Apart from avoiding fines, companies that follow effective risk mitigation strategies have shown 20% increase in revenue due to increased customer trust and satisfaction.
Measuring long-term SaaS ROI necessitates a strategic mindset, data-driven decision-making, and a focus on creating long-term value. Finance leaders can maximize the value of their SaaS investments by going beyond short-term advantages and considering variables such as TCO, automation, scalability, data-driven insights, customer success, risk management, integration, and continual optimization. Adopting these techniques positions finance directors as proactive drivers of long-term SaaS ROI, guiding their businesses to long-term growth, profitability, and competitive advantage in an ever-changing digital landscape.
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