February 20, 2023

A Comprehensive Guide to SaaS Vendor Management

Here's an unpopular fun fact, the ability to properly manage SaaS vendors is like the unicorn of business tasks - everyone wants it, but rarely do they have it! 

Having said that, we understand that managing SaaS vendors can seem daunting, especially for those unfamiliar with the software process. Between choosing the right vendors to save money, ensuring timely deliveries, and getting everyone on board - it's easy to see why vendor management often falls to the wayside. 

With our comprehensive guide, designed specifically to help businesses with their SaaS vendors, you'll be on your way in no time. So don't wait any longer; get ready to take control of those software suppliers with our easy-to-follow guide! Read more below.

What is SaaS Vendor Management?

Managing SaaS provider relationships is essential for finding efficient IT solutions and optimizing spend in any business. SaaS vendor management dictates the entire lifecycle of each entry, from the evaluation process and onboarding up to renewal or termination.

It allows organizations to take control of their supplier relationships, enabling them to track usages, assess value and manage solutions more effectively. Doing so creates a pathway for businesses to create purposeful IT supply chains, ensuring they have the best tools for their needs at the lowest cost.

A Software-as-a-Service (SaaS) vendor lifecycle is a process that starts when the vendor creates the product and ends when the customer stops using it. This lifecycle comprises several components:

  • Beginning with product conception and ending with marketing and maintenance. During this journey, vendors gather knowledge about the customer's expectations, needs, and preferences to refine their product or service.
  • Through research and feedback loops, they can refine their business strategies accordingly. Set objectives, crunching analytics data, and making decisions based on customer interactions are essential steps within this approach.
  • The process also holds value in improving experiences for existing clients while involving new ones in the fold, all contributing to developing long-lasting relationships between SaaS vendors and customers.

The Importance of SaaS Vendor Management For Businesses

Discovering that most companies overpay for software by a significant margin, Spendflo uncovered further difficulties in the process of purchasing SaaS products. With the average company being obliged to manage 300 contracts across an anticipated timeframe of 4-12 hours for each one, a tremendous 1,200 to 3,600 hours could annually be invested by senior employees alone at the contract management stage. 

  • Excessively difficult to buy due to most categories offering several similar vendors with obscure pricing schemes, buyers likely must take part in multiple demo calls just to acquire a quote.
  • The process of obtaining a comprehensive understanding of features, workflows, and costs associated with a product or service can be quite time-consuming and demanding.
  • For smaller companies and entrepreneurs particularly, this endeavor often takes weeks away from their regular business operations. This creates an unwelcome diversion in focus which, in turn, hinders progress toward achieving the company's goals.
  • Additionally, the time dedicated to ascertaining all necessary details related to potential vendors means less time spent on capitalizing on the core competencies and expertise that are essential to success.

Therefore, managing a Software as a Service (SaaS) vendor is essential for businesses leveraging cloud-based technology. By monitoring your vendors for performance, you can ensure that your business's operations run smoothly and efficiently. 

Vendor management allows businesses to proactively identify and address:

  • Operational,
  • Legal
  • Financial
  • Reputational, and
  • Cybersecurity risks associated with SaaS solutions.

It provides visibility into how a vendor's functions affect service quality and ensures the vendor understands the specific requirements of their products and services. With good SaaS vendor management strategies, businesses can confidently rely on SaaS solutions while avoiding potential risks or issues.

Benefits of Good SaaS Vendor Management

Good SaaS vendor management is a daunting but necessary task for organizations of any size. It involves the establishment of effective protocols for monitoring vendors, gauging performance, and identifying opportunities for improvement. Nonetheless, there are several undeniable benefits to having a good SaaS vendor management process in place. Keep reading to learn about the primary benefits of a good SaaS vendor management system!

1. Reduce software costs

Evaluating SaaS pricing can be complex and exhausting. Studies have found that most companies are likely to overpay for the software they use, around 30% or more. This number has been as high as 80% in some extreme instances. How are companies falling into such steep overspending?

By lack of negotiations or having unattainable benchmarks in cost and feature comparison, acquiring licenses or features that may not even get utilized. As most business budgets are tightening, understanding SaaS vendor management is a smart way to decrease expenses and still grant appropriate access. Spendflo can sharpen your approach to manage better and potentially reduce application program costs.

2. Save time

Companies have reported losing anywhere from four to 12 hours of senior-level time poring over contracts, coordinating between departments, and preparing for negotiations. Companies process annually leads to 1,200 to 3,600 hours devoted only to contract work, zapping up valuable resources while leaving little space for more important projects.

The advancement of SaaS options can make sifting through the myriad of possibilities an overwhelming process. By tapping into a reliable third-party service, businesses can ensure they're freeing up their hardworking staff's schedules while still getting top-quality results in vendor management.

3. Get more visibility into your software stack

Proper vendor management for your SaaS solutions means swiftly determining who purchased it, why it was acquired, and the deal's conditions. This gives you a better outlook, allowing you to recognize unused or duplicate apps, so immediately, there's no need to pay for similar products separately—like Calendly and SavvyCal or Teams and Slack.

4. Forecast future costs more accurately

Software prices have risen significantly in the last decade - a whopping 62% higher than the inflation rate. This can make for some significant business expenses, as software bills become one of the biggest entries on their balance sheet. To stay ahead of your budget and financial planning, it's important to gain insight into your current costs and what you'll likely spend in the future. By understanding the rates of your SaaS vendors and incorporating them into your forecasting strategies, you can easily decide when to adjust or cut back on spending.

Who Typically Handles Vendor Management?

In small businesses and startups, vendor management is typically handled by a combination of finance, IT, legal, and functional area leaders. This patchwork "procurement" team structure can be inefficient, as each leader may have different objectives when evaluating vendors.

For example, the IT department may focus on reliability and scalability, while the finance department may be primarily concerned with cost and long-term ROI. Furthermore, this approach can lead to software sprawl (i.e., the acquisition of unnecessary or redundant systems), higher risk due to lack of standardization, and waste due to poor vendor selection processes.

On the other hand, enterprises typically have dedicated procurement teams responsible for managing all aspects of the vendor management process, from finding qualified vendors to onboarding them and negotiating contracts. This ensures that all stakeholders involved in purchasing decisions have their needs met while ensuring that processes are streamlined for maximum efficiency.

Common SaaS Vendor Management Challenges

Vendor management is a key part of any successful SaaS deployment process, but it can be challenging for both IT departments and vendors. From vendor onboarding and selection to tracking contracts and managing support problems, there are common challenges that must be managed throughout the life cycle of an agreement. Below are 5 of the most common SaaS vendor management challenges for your reference. They are:

No clear owner

Organizations with fewer than 1,000 employees often don't have access to a comprehensive vendor management team equipped to deal with the complexities that follow. With no one responsible for all aspects, from selection to onboarding and price negotiation, they are left neglected or fall short of expectations. This means it can be challenging for those in charge of particular functions to adequately review whether a new program is right for them when they're also trying to fulfill their day-to-day job duties.

High amounts of 'shelfware'

Unused software can take a big toll on budgets and stall productivity, yet many companies still have lots of shelfware in the form of SaaS subscriptions. A recent study from Gartner discovered that a sizable majority of business experience over 25 percent of purchased software goes unutilized. This lack of visibility into what's been bought and how much it's being used is incredibly costly and should be addressed for optimal efficiency.

Hidden compliance risk

As SaaS continues to rise in popularity, it has become clear that not all solutions offer the same degree of protection regarding data security, privacy, and industry regulations. In response, ISACA – an organization focused on IT governance, released a list of necessary safeguards that must be taken in order to mitigate any risk of financial or legal repercussions. These measures include:

  • reducing the possibility of data loss through unauthorized access,
  • improving API security, and
  • referring to risk countermeasures for further preventative protocols.

It is essential to address these key risks from ISACA's standpoint in order to avoid costly dilemmas further down the line.

Too many options

Today, SaaS reigns supreme in software purchases, and nearly every industry has an abundance of similarly functioning tools that are similar to one another in terms of features and pricing. This can be overwhelming and make it tough to find the ideal solution for your needs. While all of the options may seem indistinguishable from each other, comparing them closely will help you decide which tool is ultimately the best fit.

Redundant tools

With the surge of self-service SaaS tools, enabling users to take up solutions instantaneously has become quicker and simpler than ever before. Despite this ease of access, one major difficulty still lies: small companies can adopt tools, often unaware if someone else in their organization has already purchased a similar one. This predicament results in redundant subscriptions and payments for overlapping features rather than combining them into one central option.

The 7-step Vendor Management Process

Managing vendors is a critical component of most businesses, as it helps ensure the outputs are meeting expectations and that operations are running in an efficient way. The vendor management lifecycle typically involves several stages tailored to unique business needs. 

While these may differ from company to company, common stages found across many businesses include identifying whether or not external services are needed, selecting and establishing contracts with appropriate vendors, regular performance tracking, and eventually transitioning away from the vendor when necessary. They are:

1. Vendor selection

Although purchasing goods or services may appear to be as straightforward as comparing features and pricing options, the selection of a SaaS vendor involves far more complexity. Organizations must trust their vendors with security and product uptime, so each decision must be carefully considered. 

Research plays an important role in vendor selection, as it makes pricing comparisons with competitors and investigations into compliance regulations. Many companies now require RFPs or multiple quotes before committing to a service provider to ensure that they are making an informed choice.

2. Price negotiation

SaaS vendors often rely on long-term contracts to ensure customer loyalty, so negotiations are key in securing the best price possible. It's important to be aware of competitors' offerings and use this information as leverage during debates. Companies can also request discounts for larger orders or inquire about any hidden fees that could affect their final bill.

3. Signing contracts

Vendors must sign contracts before any services are provided to ensure that all parties understand the terms and conditions of the agreement. This process involves both sides agreeing on payment amounts and timelines and outlining service levels in case something goes wrong. Companies should also consider including clauses regarding potential termination or breach of contract issues should they arise.

4. Vendor onboarding

Ongoing communication is vital for a successful vendor relationship. Before services can begin, the vendor management team should have their contact information and any required credentials to access their systems. Regular meetings with vendor executives or department heads help ensure that expectations are communicated clearly, allowing both sides to work together more effectively.

5. Ongoing relationship management

Managing relationships with vendors is a strategy that businesses must take seriously in order to ensure ongoing service delivery. Check-ins should be regular and frequent, with the goal not being solely focused on potential conflicts but rather on tangible progress that can be made to improve business relationships. Being diligent about SaaS products also entails taking the time to evaluate their performance, certifications, and compliance protocol. This helps businesses prioritize long-term security and satisfaction for all parties involved.

6. Invoicing and payments

Without a vendor management system like Spendflo, businesses may struggle to process payments on time and risk missing out on early payment discounts, as well as late payment penalties. SaaS businesses, especially, are at risk of auto-renewing subscriptions, which can take away from the benefits offered. As such, it is vital to create a proactive renewal strategy and eliminate auto-renewal so that you can effectively manage invoicing and payments related to your service providers.

7. Closure and Offboarding

In a software-as-a-service (SaaS) model, the primary user is responsible for ending the subscription and disabling any associated auto-debit payments. When vendor relationships don't work out, formal measures must be taken to offboard them from financial and administrative records. Not making sure this process is complete can result in costly maverick spending due to continued payment for services that are no longer used. Over time, such oversights can eat away at profitability for an organization. It's why vendor offboarding is an important step in SaaS transitions.

What Are Some of the Best Vendor Management Practices?

With so much riding on their shoulders, finance and procurement leaders have a big job when it comes to managing vendors. With the current digital landscape, the vendor management process has become more complicated than ever - especially without an efficient system in place. 

The need for consistent, compliant practices is paramount, and vendor selection and negotiation, not to mention management and payment, require careful attention from finance teams. Fortunately, some handy best practices around vendor management can make the experience easier for everyone involved while saving valuable time. They are:

1. Define your company's buying process

Shadow IT is a major problem for companies with no clear structure for purchasing software-as-a-service (SaaS) tools. Without a defined process, employees from different roles can make their own purchases. This often leads to last-minute decisions being made without prior planning or key stakeholders involved.

Having a comprehensive buying process in place, it prevents such incidents and ensures security and legal reviews are conducted while allowing time to negotiate better deals. That way, enterprises can avoid software purchases with high price tags that are hard to retract.

2. Set clear expectations with vendors

Working with a vendor or supplier can help business operations run smoothly, but when expectations aren't laid out clearly, there can be issues. To ensure agreements are agreed-upon and to keep vendors from skirting promises, organizations need to set standards that both sides have to meet and make sure they're put in writing — particularly if they involve payment. It's essential to have an official contract containing all key performance indicators (KPIs) so that everyone is on the same page and neither side ends up hanging due to a misunderstanding. This approach allows vendors and clients to avoid confusion, fostering long-term business security.

3. Analyze the cost-benefit of your vendors

Make sure to measure the efficacy of your SaaS and non-SaaS vendors regularly. Are they contributing to the success of your business in significant ways? Consider if there are vendors that can provide better value for the same service, and seek help from your finance team and SaaS stack manager to find ways to optimize these relationships. It's wise to perform a thorough assessment of each vendor at least once every three months; this can lead to cost savings while simultaneously providing increased benefits.

4. Use a vendor management platform

It is paramount to ensure your vendor management strategy is properly implemented to get the best out of your vendors. With the right solution like Spendflo, you can unlock tremendous value that otherwise would not be achievable. Spendflo is a comprehensive vendor management system that efficiently manages and optimizes vendor relationships while driving value. By leveraging Spendflo, you can easily establish a transparent relationship with your vendors and track savings like never before.

Wrapping Up!

Creating a vendor management system in your organization for Software as a Service (SaaS) capability will offer you long-term advantages. This system can provide constant improvements that are tailored to meet specific SaaS procurement goals. Through this blog post, we believe you'd have understood how critical it is to have a vendor management system in place. It is imperative to any organization's success.

With the right approach and tools, companies can save money while improving their operations and security. Spendflo is a powerful SaaS vendor management platform that helps customers get the best prices on software services while streamlining workflows and increasing transparency. Start leveraging the many benefits of Spendflo today. Book a Demo and optimize your purchasing processes like never before.

Vaishnavi Babu
Karthikeyan Manivannan

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