SaaS cost management is all about keeping track of all the fees associated with your software and services
Have you ever felt like you're drowning in an ocean of SaaS subscriptions?
Sadly, this is just an indication that you’ve lost thousands of dollars on SaaS subscriptions.
But hey! It’s never too late. You can still upgrade your cost management strategies!
After all, subscription-based applications seem like an easy way to save money - until your business is unexpectedly spending thousands on the software you forgot to cancel!
In this guide, we'll share,
Ready ? Lets dive in.
Whether carried out in a spreadsheet or a SaaS application, SaaS cost management is simply a company's tracking and controlling its spending on SaaS subscriptions.
Understanding the Return on Investment (ROI) of each SaaS subscription is the goal of SaaS cost management to ensure you receive the best value for your money. As a result, you can spend money on expensive SaaS products as long as you can prove their worth.
According to research, 80% of IT professionals say their company overspends on SaaS applications. This shows that better SaaS cost management strategies are required to optimize spending. It plays a crucial role in businesses.
Depending on the structure of your firm, SaaS purchasing decisions might not be restricted to the IT or procuring departments. Different departments' end users choose SaaS providers and may also negotiate deals.
This is normal because more and more experts are working from their homes. Nevertheless, since they don't frequently purchase SaaS full-time, these end users might not be familiar with SaaS contracts and expense management.
Suppliers provide a range of SaaS pricing plans, which has to be periodically examined to reduce problems like expired licenses or overages. It might be unreasonable to anticipate that every end-user department will have the time and resources to manage those agreements. A SaaS expense management approach can assist customers by giving them the necessary resources.
Here’s an example of Cvent to look at:
Cvent, a leading event-management platform, found that many departments within their organization were purchasing software subscriptions without coordinating with each other. As a result, they had overlapping licenses and duplicate purchases which was causing them to spend more than necessary. To address this issue, Cvent implemented the following strategies:
1. Establishing clear ownership for each subscription: Cvent set up an internal system where each department has a designated owner who is responsible for managing their respective software subscriptions. This enables them to keep track of who is using what and cut down unnecessary expenses due to license overlap.
2. Requiring approval processes for all software purchases: Cvent put in place an approval process for any new software purchases, ensuring that all subscription requests are reviewed by the designated owners before being approved. This helps them to identify any potential license overlap and prevent redundant costs.
3. Establishing a centralized budget: They then set up a centralized budget for software subscriptions to ensure that all departments are aware of their spending limits and adhere to them. This allows them to keep an eye on their expenses and make sure they don’t go over their allocated budget.
4. Utilizing usage-based pricing plans: Cvent also negotiated with vendors to get usage-based pricing plans for their services so that they only pay for what they use. This reduces the risk of paying for unnecessary licenses or unused services, helping them save money in the long run.
SaaS cost management includes comparing licensed users to active accounts for all subscriptions. For example, a business can pay 100 users, but only 50 use the service. If so, you are paying too much for 50 licenses your business isn't using.
In some instances, a subscription may be used by more users than you planned. Depending on the SaaS provider and the agreement, you might need to upgrade to a higher pricing tier. But, if you aren't constantly aware of your spending in relation to your budget, this could easily result in overspending.
Here’s a leading example of how your business can save on unused saas subscriptions like Netflix did.
Netflix, as the leading OTT company definitely has a myriad of services subscriptions, and SaaS for their daily operations. However, due to the ever-changing business landscape, each department is continuously subscribing/canceling a lot of services as needed. To address this issue, Netflix has set up an internal system to monitor the usage of services and their associated costs. Here are some ways how Netflix saved on unused SaaS subscriptions:
1. Establishing clear ownership for each subscription: Netflix separated its subscriptions into two categories: core and non-core. Each department has a designated owner to manage each subscription, with the core ones requiring a higher level of ownership.
2. Centralized billing system: Netflix has set up a centralized billing system for all SaaS subscriptions to ensure that every subscription is billed correctly and timely. This helps them to be more aware of their spending on SaaS services and cut down unnecessary expenses.
3. Utilizing automation: Netflix leverages automation to help them quickly identify and deal with unused subscriptions. Automation can be used to set up alerts for any potential expired services, automatically pause or cancel a subscription when it has been inactive for a certain period of time, and more.
4. Automatically renegotiate contracts: Netflix also set up a policy to automatically renegotiate contracts based on usage. This allows them to get the best prices for their subscriptions, while still staying within budget.
SaaS companies typically offer a choice of price options to accommodate a variety of consumers. The level of access typically determines these pricing structures and the customization consumers require.
SaaS suppliers frequently offer integrations and customization options and the ability to build/modify the program to meet your needs. You may receive a different invoice for this, but you will only be charged for the features you require.
Consider the scenario where you are attempting to optimize marketing expenditures at a SaaS business.
SaaS providers allow you to move between various pricing models based on your current demands. This level of adaptability aids in achieving both your financial and business objectives.
One example for businesses to learn from is MailChimp and how they reduced their overall SaaS expenses across all departments.
MailChimp identifies as a company that caters to small and medium businesses. As most of their services are for the purpose of marketing, they found that each department was using SaaS subscriptions differently, with some departments needing more than others. To address this issue, MailChimp implemented a few strategies to save on SaaS expenses:
1. Identifying high-cost services: MailChimp identified which SaaS services were costing them the most and worked on reducing costs for those particular services first.
2. Utilizing budget forecasting: Using their automated billing system, MailChimp was able to forecast their upcoming expenses and create budgets accordingly. This allowed them to be more mindful of their spending and adjust where needed.
3. Consolidating subscription plans: Instead of having multiple individual subscriptions for each department, MailChimp consolidated these into one master plan that can be used by all departments when needed. This enabled them to save on redundant costs of individual subscriptions
4. Negotiating better deals with vendors: In order to get the best prices for their SaaS subscriptions, MailChimp negotiated with vendors to get better deals. This allowed them to reduce costs while still getting the services they needed.
SaaS can seem so inexpensive that most businesses forgo putting in place proper cost-control measures early. That is a serious error! Cost management advantages could result in savings of millions of dollars. Even if nothing else, a corporation can reduce its SaaS spending by adhering to the 5 guidelines below:
SaaS procurement typically happens within departments in businesses that are experiencing rapid growth.
However, the organization needs a centralized decision-making process to manage expenditures efficiently. Your business will be able to discover and reduce redundancy while making sure it is also maximizing savings with a centralized Saas management platform.
IDC estimates that business-unit budgets already account for 70% of US technology investment and that this percentage will rise over the coming years. Companies will be troubled by budget overruns and lost opportunities if they can't figure out how to organize their SaaS procurement.
Paying for licenses that are not being used is arguably the most frequent SaaS error businesses make. For instance, if your organization only has 70 salespeople and you're paying your CRM supplier for 100 licenses, 30 of those licenses are sitting idle.
The issue usually arises from fluctuations in the team size. However, this issue can be resolved by vigilantly monitoring license utilization.
Unmanaged SaaS software costs significantly more than people realize. According to Gartner's analysis, until 2022, over 30% of the rising cost of "software and cloud services" will go underutilized in any given month. Much money is being spent on technology that isn't even being used.
The next step is simple. Just cancel or archive any unused licenses you come across. It is yet another illustration of how crucial it is for spend management to centralize the management of SaaS applications and subscriptions.
Administrators are hesitant to archive or cancel licenses that they believe are inactive without centralized control. What if someone in a separate department is still using the license?
When SaaS licenses are managed centrally, you can do this via Spendflo, a single team or group inside the organization gets complete access to data on SaaS usage, including
Terminating or archiving unused licenses is simpler the sooner you can consolidate SaaS expenditure management at your business.
Using SaaS involves more than just giving licenses to customers who require them and archiving licenses for people who don't. There are instances where one user needs a lower degree of service while another needs a higher level. In many instances, ensuring that each user of a SaaS application receives the proper quality of service can result in significant savings.
Demands will undoubtedly vary if you use SaaS applications across multiple departments. Your sales and support teams might require a low degree of service and fewer features, whilst your product and development teams might want a high level of service and more features. If you are an enterprise-level user, you could be able to combine savings for the many requirements across several departments into one contract.
Various users may have different subscription packages based on their functional and technical requirements. In some circumstances, your business can save money by assigning some licenses to customers who don't require high-level capabilities and a reduced service level. SaaS providers frequently let you mix plans according to your unique needs and preferences.
Spending on enterprise software has continually expanded, particularly in cloud software and related services - and SaaS controls the greatest investment in the cloud industry. While subscription software may dominate the market on a macro level, its presence in individual enterprises and organizations has progressively expanded for numerous reasons:
Money on enterprise software has continually expanded, particularly in cloud applications and associated services - and SaaS controls the greatest investment in the cloud industry.
Software for enterprise-sized firms was often thought to be a one-size-fits-all affair. Applications are becoming increasingly sophisticated to business unit operations as cloud-based software has removed barriers to software access and deployment.
Marketing, Human Resources, Accounting, Law, and other business divisions now access technologies specifically designed for their operations.
To support this fact, in less than a decade, online applications for marketing teams have increased 45-fold, from roughly 150 to over 7,000.
Workers are now in charge of software decisions. The success of SaaS exemplifies the concept of product-led growth, in which software products are first created to maximize their attractiveness and value for the end-user and then spread more or less organically.
Its end-user focus shifts decision-making from conventional software development and sales to employees themselves, going beyond business unit purchases.
In practice, the same characteristics that make
…may lead to runaway expenses and unmanaged spending, making SaaS cost management a must for enterprises.
Because SaaS programs are so simple to obtain and implement, they typically go undetected. SaaS quickly becomes a hidden cost within enterprises without a mechanism to track these expenditures and correct issues such as cost attribution or ownership.
According to a BMC, up to 40% of technological products are spent on shadow IT. Even when these trades do appear in financial systems, they are typically labeled or classified incorrectly.
Employees typically obtain SaaS apps without regard for a centralized procurement or sourcing strategy, thanks to freemium choices and inexpensive monthly recurring payments.
A single worker subscribing to a $9.99 monthly SaaS program is unlikely to influence the bottom line substantially. Still, hundreds or thousands of employees in an organization, each paying $9.99 monthly, can quickly result in cost overruns.
Considering the same example, the same circumstance increases expenses due to unleveraged purchasing power.
Assume the company has to buy 100 user licenses for a project collaboration program.
The company can save money by obtaining end-user licenses in bulk. End users, on the other hand, would most certainly pay market rates if they acquired the same license.
In the same circumstance as before, the company purchases 100 seats for a project collaboration application through Accounts Payable or a direct supplier purchase. Yet, the identical application is now purchased by an employee via credit card reimbursement. The company now has two instances:
The money is wasted when application licenses or other acquired features are not used to their full potential, regardless of the acquisition source. According to research, over 40% of all SaaS application licenses are underutilized in a typical 30-day period.
Subscription software relies heavily on automatic renewals. They ostensibly ensure continuous access to an application's services. However, because most applications require notification periods of 30, 60, or 90 days to express non-renewal intent, automatic renewals can be unexpected.
Automatic renewal of underutilized or unneeded applications might result in considerable financial implications.
A company's SaaS makeup shifts, like a digital fingerprint, to reflect business goals, demands, and culture. To discover and remove excessive spending, analyzing the cost variations that occur with each change is critical. There are standard activities that every company may take to reduce SaaS costs, independent of industry or SaaS solutions used.
The first step towards lowering the cost of SaaS apps and resources is identifying the current inventory.
This study should include all transfers created in cost categories, particularly:
Direct supplier expenditures are also identified in Accounts Payable or purchase orders.
To reduce SaaS costs, organizations must evaluate the following criteria for each new, previously unknown application as it becomes visible or known:
A. Which cloud-based software-as-a-service (SaaS) applications are used:
Usage metrics provide a snapshot of the general value of a subscription. If only a few people use a SaaS service, finding a better option or eliminating the underutilized application may be appropriate.
B. Which organizations, groups, or employees use the apps:
Combining under a single application can save money if one team chooses a tool, but a high-priced SaaS service provides the same functionality.
C. Each software subscription costs the following:
A cost comparison, together with revenue forecasting, can help determine subscription ROI and evaluate the efficiency of a product or service.
It is critical for the combination of SaaS contract management and SaaS expenditure management to keep track of renewal periods and termination conditions.
Imagine you skip renewal periods and merely renew your SaaS services once a year. Regrettably, you also miss opportunities to reduce waste, negotiate better agreements, and amend the agreement to fit current expectations.
The same is true for cancellation policies. Again, if you know whenever the renewal date is, you may end up paying a subscription price for an extra year that you do not require.
Persuading functional units to agree on integrated enterprise software for the same purpose, or at the very least reducing the number of options with overlapping functionality, goes a long way towards cost management and risk reduction. Below are a few talking points to help you convince your firm to adopt standards:
SaaS pricing models can be complicated, and they vary greatly between providers. For example, several companies offer tiered licensing based on the number of services used. Certain users may need complete access to all functions. The majority, on the other hand, can typically get by with only a few features.
Before signing the contract, carefully evaluate your users and determine their desired features. You will not be charged for features that are not used.
Understanding the context and goal of cost-cutting conversations with vendors may result in a more cooperative and accommodating bargaining strategy.
If your company's leaders have mandated a cost-cutting initiative, ensure that any SaaS vendors involved are informed. This notification outlines the company's formal position, stating that cost-cutting operations are ongoing across the supplier inventories and that all vendors are being assessed.
A SaaS expenditure management solution helps firms track and control their SaaS spending. A spreadsheet is a good place to start and can provide a quick fix, but a SaaS cost management platform like Spendflo can assist with taking your expense management to the next level.
Suppose you're currently managing numerous SaaS subscriptions on a spreadsheet. In that case, one of the most enticing benefits of spend management software is the ability to eliminate the need for manual tracking. As a result, you won't have to rely on manual spreadsheets or set a reminder in your Microsoft Outlook calendar to finish SaaS evaluations.
With all SaaS application expenditure and cost information discovered and all essential data and attributes documented for each application, it is possible to undertake holistic cost reduction actions.
If the SaaS application discovery method significantly answers the question, "What applications does the business truly have? The next natural question to be addressed is, which applications should the organization keep?
A. Identify Redundant Functions
Examine the entire inventory for SaaS tools that have a high number of functional overlaps with other tools. Collaboration tools, such as workplace messaging services like Slack, are common tool categories for functional overlap. Companies can find Slack-bot integrated into Spendflo for a seamless user experience.
File storage and sharing solutions, such as Box, Dropbox, and Sharefile, and project management software, such as Spendflo’s dashboard, are one go-to application for primary function overlaps.
B. Standardize and Document Approved SaaS Tools
Where possible, reduce the amount of tools with functional overlaps. Examine the SaaS inventory for non-approved tools in use if the company has already selected specific tools to accomplish specific activities.
Suppose application standards have not yet been established. In that case,
Consolidation saves money by standardizing tools and going "all in" on a single program instead of maintaining many apps for the same function.
When a standardized application is chosen, make the list of approved tools available to the entire organization. If new standards are implemented to prevent future shadow IT, provide training on optimal practices for software acquisition in the future.
C. Compare Renewal Dates and Billing Terms
Renewal dates are another important factor when prioritizing application functional overlap reduction.
D. Terminate Unnecessary Applications
Remove programs that aren't necessary or mission-critical to the organization. Applications that do not complete the rationalization process should be removed. When necessary, notify the vendor using the appropriate means.
Ensure that any legal clauses pertaining to business data are verified before termination to ensure that any company-owned or customer-specific data is restored to the business or appropriately erased.
Another SaaS cost management approach that minimizes expense is removing applications that are no longer needed due to personnel leaving the company. This technique is based on a strong discovery mechanism that can identify application authorship at the employee level.
Check your program inventory against the list of employees who have left the organization using a list provided by Human Resources. Examine the matches with the departed employee's management to discover whether the larger team still uses the application or if it is a mission-critical "keep the lights on" tool.
Over 56% of SaaS licenses in a typical SaaS application inventory are underutilized, so it's critical to establish mechanisms to reclaim lost revenue owing to unwanted or underutilized licenses.
Unused licenses can occur for a variety of reasons, including:
That is why managing SaaS licenses regularly and matching the number to actual needs is critical.
Beyond cutting expenses within your organization by rationalizing the application portfolio or lowering license charges, negotiating and altering existing agreements with SaaS vendors can dramatically reduce vendor spend or help improve the business's cash flow condition.
Before contacting any SaaS vendor to negotiate, it's critical to
A. Push for More Favorable Payment Terms
If the company has to reduce the cost of SaaS applications drastically, contact SaaS vendors and request more favorable payment conditions. Enhancing cash flow health in the short term may give you the breathing room you need to get through a crisis.
This breathing room could include requesting a six- to twelve-month suspension or deferral of payment commitments until the economic position improves.
B. Lower Overall SaaS Vendor Spend
If the company has detected lower-than-expected utilization of SaaS application licenses or features, but renewal deadlines are far in the future (precluding more traditional contract negotiations), it is still possible to cut overall vendor expenses.
In some circumstances, SaaS companies may be ready to grant payment flexibility to maintain a long-term connection with their paying customers.
For example, this could involve adopting variable pricing measures depending on:
If these variable pricing criteria are already in place, consider recalibrating the terms to lower total cash exposure.
C. Research SaaS Vendors
During times of crisis, such as economic downturns, many SaaS sellers make public pronouncements about how the company would modify its approach. Consider researching news releases and other statements that define the suppliers' positioning if you want to fight for lower costs from these providers.
It's also good to examine how each vendor's business model acknowledges money and prioritizes KPIs.
For example, a vendor with a long-standing and widely publicized focus on customer loyalty may be open to discussing lowering clients' short-term costs.
D. Use Negotiation Tactics
Establishing the context and objective for cost-cutting discussions with vendors may result in a more collaborative and open negotiation approach.
If your organization's management has authorized a cost-cutting initiative, discuss that with any SaaS vendor engaged in cost reduction. This notification summarizes the company's formal position and demonstrates that cost-cutting actions are underway across the vendor spectrum and that all vendors are being reviewed.
E. Build a Stronger Vendor Partnership
Many corporate partnerships can be strengthened in times of crisis by a shared view of what constitutes long-term success. Most vendors recognize that a commercial relationship can go beyond monetary commitments.
For example, when they occur, frame the conversation about cost savings or payment flexibility payments in the context of developing a long-term relationship with the supplier. Customers of SaaS vendors can also offer to help the provider in other ways.
Managing SaaS costs and procurement processes efficiently is paramount in today's highly competitive business environment. Spendflo emerges as an excellent solution designed to streamline these aspects for your organization. Spendflo's innovative platform enables you to gain better visibility and control over your expenses by providing powerful tools for tracking, analyzing, and optimizing SaaS subscriptions.
Not only does it help identify unused or underutilized subscriptions and enables you to negotiate better terms and pricing with vendors, ultimately leading to significant savings. By automating the procurement process and centralizing documentation, Spendflo reduces manual effort and ensures that your team adheres to the company's policies and standards.
Furthermore, it facilitates better decision-making by providing valuable insights into your organization's SaaS landscape, allowing you to align your resources with your strategic objectives. Ultimately, Spendflo can greatly enhance your organization's financial efficiency and bolster your competitive edge.
In wrapping up, we can see the immense impact of SaaS cost management in shaping the landscape of modern business operations. The numerous strategies and tools it offers for deciphering and steering expenditures have proven invaluable in the face of an ever-changing cloud-focused environment. With the widespread adoption of cloud-based applications across various industries, it's more crucial than ever to stand out with a firm grip on the intricacies of SaaS cost management.
In this highly competitive corporate world, harnessing the power of SaaS cost management is the key to unlocking a company's full potential while maintaining an edge over its rivals. Spendflo can help you streamline the procurement process. By consolidating and organizing your software subscription data in one platform, Spendflo enables you to gain insights into your spending patterns, identify redundancies, and optimize software usage. To leverage the best of SaaS for businesses, Schedule a Demo today, embrace this game-changing approach, and forge ahead toward success and growth!
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