Six crippling SaaS expenses and how to cut them
What organizations want? Speed and agility. To achieve that, what organizations need? Tools and automation. Everyone is looking for a simpler, faster, smarter way to do their job. Today, with software eating the world, that search has dozens of potential destinations. So, it’s no surprise that an average company uses 254 SaaS tools.
Except, there’s no such thing as a free SaaS tool. The monthly subscriptions might seem deceptively small, say $8.99 or $12.99. But imagine a 100 people organization, with each person using ten tools, at $12.99 a month — the cost on the P&L is $144,000!
When you’re growing massively in a bullish economy, this doesn’t seem like a high price to pay. But the economy is rapidly making a downturn — SaaS funding is down, startups are raising down rounds, IPOs have fallen in number and value, and listed companies are losing in public markets.
So, in 2023, every penny counts. CFOs don’t have the luxury of unmonitored and uncontrolled expenses in pursuit of rapid growth. In this blog post, we’ll get you started on your cost-cutting journey — here are six ways you’re burning cash and how you can avoid them.
#1 Paying the list price
It’s very common these days for employees to buy SaaS tools with their own credit cards and reimburse them to the organization. This means they are paying the list price meant for consumers — not a well-negotiated enterprise price, which can be 20-50% cheaper.
How to cut costs: Centralize SaaS buying without making it a logistical nightmare for employees. Optimize process flows and get the procurement teams to negotiate better deals.
#2 Tolerating wastage
Some estimates show that over 55% of apps that organizations subscribe to go unused. This could be because someone bought an app and forgot about it. Or different teams having different tools for the same use case, creating duplicates. Or you signed up for the entire team, but only a small part of them need it. Or licenses for those who are no longer with the team/org continue to remain active because no one bothered canceling etc. These costs are criminal.
How to cut costs: Monitor SaaS ownership and usage in real-time. Conduct regular checks to make sure wastage is curbed to a bare minimum.
#3 Setting up auto-renewals
Entering a credit card number and letting the subscription run is like keeping the ticker on all the time. Often, if you haven’t paid close attention to the contract, there might even be a price increase clause that charges you more every subsequent year. This way, you lose the opportunity to negotiate better terms and curb costs.
How to cut costs: Simple. Cancel auto-renewals and negotiate terms for each year. Get into longer-term contracts and pay lesser prices.
#4 Confusing pricing models
The most common pricing model is user-based, where you pay $x for every user. Within this, there are tiers like essential, premium, or advanced, with specific features for each tier. However, most SaaS companies won’t let you upgrade for a limited set of users — when one user needs more features, let’s say analytics, you’ll have to upgrade for all users, whether they need analytics or not.
The other pricing model, which is even more confusing, is the usage-based one. You pay for what you use, which is common in cloud infrastructure subscriptions. This makes it unpredictable and opens you up to unwelcome surprises.
How to cut costs: Get expert advice on the exact nature of pricing models.. Forecast usage based on past consumption and negotiate subscriptions within preset limits.
#5 Negotiating without the right levers
SaaS negotiations are unlike traditional software buying. Yet, procurement teams don’t have all the information/tools they need to negotiate effectively. They don’t have benchmarks for the prices they’re paying, they are unaware of the right time/place to have negotiation conversations.
How to cut costs: Develop organizational intelligence for SaaS negotiations. Build benchmark pricing models and identify negotiation levers. Create SaaS experts within procurement teams.
#6 Not performing ROI evaluations
Even organizations that conduct thorough analysis and comparisons before buying a SaaS tool treat it as a given immediately after. This is a huge mistake. The advantage of SaaS is the low cost of switching providers — it is the responsibility of every CFO to leverage this proactively.
How to cut costs: Track ROI and performance metrics regularly. Conduct audits to identify duplicates. Survey employees to understand satisfaction. Use this information to negotiate future deals.
If that sounds like a lot, you’re right. While it’s evident that SaaS expenses need to be controlled, putting that into action can be a steep climb.
The good news is: We’ve brought help. Read our latest ebook — Cost savings for the Downturn CFO. It includes step-by-step details about how costs mount and pointed advice on how to curb them.
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