The Complete Guide to SaaS Procurement 2023
Parker Harris, the co-founder of Salesforce said, “Businesses can’t afford to react to what their customers want; they need to anticipate their needs.” This holds true for internal customers — i.e., employees — as well.
When a high-growth organization uses 250+ SaaS tools, it becomes extremely important to gather requirements, evaluate options, choose products, negotiate prices, conduct vendor security, sign contracts and renew them proactively. In this guide we will show you how you can optimize your SaaS procurement, one step at a time.
This guide covers:
- What are the stages of a typical SaaS procurement process?
- Some common procurement mistakes and how to avoid them
- How to choose the right SaaS procurement tool for your business
What is SaaS procurement?
SaaS procurement is the process of selecting the right tools for your business needs, assessing them for compliance and security, and implementing them.
Typical SaaS buying today is ad hoc — which means that employees either email or raise a request for a products, which the procurement team just pays for. Or employees directly buy the SaaS tools they need using the company credit card, or their own cards and reimburse to the organization. We call this process decentralized SaaS buying, and it brings with it a number of challenges.
To overcome these challenges, procurement teams need a strategic SaaS buying program that ensures all software is bought at the right price, ensuring ROI and minimizing wastage. Here’s how it can help.
How can strategic SaaS procurement benefit your business?
High-growth startups don’t have time to waste in back-and-forth communication, contract negotiation, multiple layers of approvals and security audits. They need access to critical tools immediately. Strategic SaaS buying can help with exactly that.
Strategic SaaS procurement allows teams to gather requirements, evaluate the dozens of products available for each use case, right-size the licenses, and negotiate pricing from a position of strength.
It is common for high-growth startups to need tools for a specific purpose or time. Simply buying and canceling licenses can turn expensive, to say nothing of the wastage from forgetting to cancel. A strategic SaaS procurement process helps finance teams stay on top of expenses, even if they need to scale up or down from time to time.
During the rapid growth stage, teams often try or even buy tools that might have overlapping features. They might not have considered their future needs and optimized for current requirements/budgets. When this is done reactively, it results in wastage of time, cost and resources. However, strategic SaaS procurement can help make space for future needs and be adaptable to the ebb and flow of the market.
SaaS providers take significant care to keep their products secure. However, no tool is 100% secure, needing organizations to build their own policies and risk mitigation strategies. Moreover, depending on your industry, geography, customer type etc., you may have additional compliance demands. Strategic SaaS buying proactively protects you against these risks.
SaaS buying is not a one-time process. Depending on how the contracts are structured, organizations need to renew their contracts monthly/quarterly/yearly. Strategic SaaS buying empowers procurement teams to stay on top of upcoming renewals and optimize usage-based licenses appropriately.
How to set up a strategic SaaS procurement process
Strategic SaaS procurement is proactive, goal-oriented, results-driven and ongoing. Here are the basic steps in that process.
Identify the need
Why is a new SaaS tool needed? Does the team not currently have a solution to this need? Does the team not use/like the current solution? Does an entire product suite need to be replaced for a more cost-effective solution?
Once a department, team or business head identifies the need for a SaaS tool, a request is raised to the procurement department.
The procurement team then understands the requirements more closely. They might also conduct additional interviews with the requester to make a list of features, know must-haves and good-to-haves, the trade-offs they are willing to make etc. Based on this, they evaluate options available in the market.
They might also request quotes from various vendors and rank them based on factors such as features, capabilities, costs and customer service.
Choose a vendor
In collaboration with the requester, the procurement team chooses the right vendor. Here, they might also conduct security audits, study contract terms, understand renewal cycles and other terms and conditions. The legal team is involved to vet the terms and conditions, and the finance team gives approval for budgets.
Negotiate the contract
The SaaS vendor and the procurement team negotiate the terms of the contract such as cost, support, timelines and other factors related to software usage. SaaS negotiation includes several factors and negotiation levers that might not be applicable to traditional software buying.
Implement the software
The SaaS tool is implemented, which consists of setting up user accounts, securely transferring data and providing staff training on system usage.
Procurement/IT teams track the usage of SaaS licenses and monitor user sentiment to decide–when the contract is up for renewal–whether to renegotiate with the vendor, renew at the existing price or switch to a different tool.
Common SaaS procurement mistakes
Companies make a few common mistakes in SaaS procurement:
Moving too fast or too slow: Moving too quickly may lead to hasty investments, whereas moving too slowly can result in missed opportunities. Finding the right balance helps make informed decisions and maximizes the value of your investments.
Not exploring all options: Organizations often settle for the requester’s first choice or the first SaaS vendor that comes along. This can result in overpaying or having limited functionality.
Failing to try the product: For a software that teams use day-in and day-out, experience is critical. Organizations that don’t use their full trial period extensively might end up with a product that teams don’t like/use.
Ignoring hidden costs: Most SaaS tools today offer usage-based pricing, which includes various kinds of overages. While the base price seems acceptable to you, the actual invoice can be multi-fold higher. Moreover, adopting SaaS tools also includes costs of training, implementation, data migration etc.
Accepting off-the-shelf pricing: Most SaaS vendors have a significant negotiation buffer. They can offer customized pricing based on the number of licenses, length of contract etc. Some products also offer purchasing power parity-based discounts in certain geographies. Accepting the first quote wastes all these opportunities.
Dismissing ROI calculations: All said and done, every procurement needs to produce ROI. Without identifying the potential returns in terms of time saved, cost reductions and efficiency benefits, SaaS procurement might be ineffective.
Making isolated purchases: The procurement team has an org-wide view. However, they often make the mistake of buying specific tools for a specific department without leveraging organizational scale. For instance, buying different project management tools for different teams, while consolidating can be more cost-effective.
All these challenges can be mitigated with a strategic SaaS buying approach and a robust SaaS procurement solution.
What is a strategic SaaS procurement solution?
A strategic SaaS procurement solution helps you buy, manage and renew SaaS licenses all in one place.
It helps with:
- Consolidating all SaaS tool requests
- Automating approval workflows irrespective of the number of steps
- Compare pricing for various tools within the same segment
- Monitor user/usage data in real time
- Understand user sentiment for every tool
- Track expenses
- Identify optimization opportunities
- Set up security protocols and processes
Why should you use a SaaS procurement platform?
Your company will benefit from a SaaS procurement platform in the following ways:
Streamline SaaS usage: You can eliminate redundancy and identify duplicate software by managing all subscriptions, ensuring only necessary SaaS licenses are purchased and used.
Facilitate renewal management: You can track subscription expiration dates, monitor renewal timelines and notify stakeholders about the changes in advance.
Empower negotiation with benchmark data: You can use benchmark data to your advantage during renewal negotiations and secure better deals.
Ensure compliance: SaaS procurement platforms monitor the security and privacy policies of all subscriptions, allowing you to stay on the right side of regulation and adhere to security protocols.
Data-driven optimization: By analyzing usage data, the platform helps determine which SaaS solutions are no longer necessary, enabling companies to discontinue unused subscriptions and reduce costs.
Functionality analysis: You gain visibility into your tech stack to identify overlapping SaaS tools. Thus, you avoid duplicating features, optimize subscription usage and improve resource allocation for increased efficiency.
Deal discovery: You can use data-driven insights and market research to identify cost-effective options and negotiate favorable contracts.
Make SaaS procurement simpler with Spendflo
Procurement teams can save up to 30% of SaaS spend with access to expert insights and price benchmarking data. Spendflo saves hundreds of hours in the SaaS procurement process. Our platform helps you right-size existing contracts and make strategic decisions around future purchases so that you can optimize your SaaS tool stack.
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