SaaS spend management strategy: Do You Know All About It?

SaaS tech stacks of B2B companies reached an all time high in 2023; companies with fewer than 500 employees are using around 253 SaaS apps and those with up to 2,000 employees are using about 353 apps. Although there is no debate around the value each tool brings, such procurement has burdened procurement and finance teams to identify new ways to manage spending effectively. However, as per Spendflo’s State of SaaS Buying Survey, 56% of organizations don’t have a monthly cadence for SaaS spend management.

It is for this purpose, we’ve written this blog to help you plan a spend management management strategy. An effective spend management strategy can help a company optimize their SaaS spending, improve bottom lines, negotiate contracts, etc. Read on to learn the exact steps to plan your spend management strategy.

What is spend management in SaaS?

Procurement and finance leaders in SaaS use spend management practices to optimize procurement by analyzing SaaS spends to financial performance. This approach maximizes value from expenditures by negotiating costs, identifying unused licenses, and strengthening supplier relationships. The key components include spend analysis, strategic sourcing, and supplier management. Spend management software ensures transparency for procurement officers and CFOs, aiding in effective oversight.

The process covers the entire expense management cycle—from request and approval to payment processing and detailed transaction recording. It's crucial for controlling costs, allocating capital efficiently to boost revenues, and reducing operational expenses. Moreover, it ensures compliance and minimizes financial risks through a strategic approach to expenditure.

SaaS spend management provides a comprehensive view of capital flow, enabling stakeholders to make data-driven decisions. Understanding the specifics of expenditures is essential for strategic business planning, much like managing a household budget but on a larger scale, to identify profitable resources and track costs effectively.

Benefits of spend management strategies

Effective spend management strategies are crucial, especially considering Mckisney’s report that 40- 80% of total costs typically go to external suppliers. A strong spend management system encourages a culture of fiscal responsibility, motivating employees to actively engage in cost-saving measures. This protects profits, strengthens the company's competitive position, and ensures long-term stability in the business world.

Cost Optimization:

A well-implemented spend management strategy offers significant opportunities for cost reduction. According to our survey, around 40% of organizations spend over $1 million annually on SaaS, with 14% exceeding $5 million. By gaining real-time visibility into usage and performance data, finance and procurement leaders can identify underutilized licenses, redundant tools, and overlapping functionalities. This eliminates unnecessary subscriptions, consolidates tools, and ultimately leads to substantial savings. Negotiating contracts based on usage data also helps secure better pricing and prevent overspending.

Strategic budgeting:

Having a spend management strategy provides data-driven insights necessary for strategic budgeting and accurate forecasting. Our research reveals that 68% of business and finance leaders identify SaaS spend optimization as their top priority​​. With a centralized view of SaaS expenses, CFOs can analyze usage patterns and predict future requirements, helping them align tech investments with organizational objectives. This proactive approach ensures that every dollar spent maximizes ROI.

‍Streamlined Procurement Process:

SaaS procurement often involves multiple stakeholders, causing significant delays. Over 30% of organizations require 1-2 months to complete the procurement process, and more than 11% take over 60 days​​. By automating procurement tasks and centralizing policies, approvals are accelerated, reducing bottlenecks. This minimizes delays and ensures that stakeholders are involved promptly, improving efficiency and reducing the overall time to purchase.

Improved Compliance and Risk Mitigation:

Centralizing SaaS contracts and data management enables finance teams to track renewals and compliance requirements effectively. Automated alerts prevent missing deadlines, reducing the risk of unintentional auto-renewals or compliance violations. Without this real-time visibility, organizations often lack control, leading to wasted budgets due to unused licenses or hidden renewal clauses.

‍Enhanced Collaboration:

Providing a single source of truth regarding SaaS expenses and usage fosters collaboration between finance, procurement, and department heads. Nearly 56% of organizations lack a structured monthly review and optimization cadence​​. By sharing accurate data, these teams can evaluate productivity and make informed decisions, aligning technology investments with strategic business goals and promoting a culture of continuous improvement.

Effective spend management also helps identify and eliminate rogue spending, reduces redundant purchases such as unused software or duplicate licenses, and corrects costly processing errors. Cutting out wasteful spending frees up more capital for growth initiatives. With Spendflo's immediate assisted buying, large organizations are streamlining procurement processes by placing requests with. You can stay updated via Slack by receiving real-time concierge services and fast-tracking renewals and purchases to save you a guaranteed amount of time and money.

Types of spend management categories 

The types of spend management within an organization can be divided into:

1. Direct spend

This category captures all costs directly tied to the production and delivery of software services, typically categorized as Cost of Goods Sold (COGS). This includes expenses related to cloud hosting, data storage, and direct software licensing costs. Effective SaaS management of COGS requires precision in tracking and forecasting to align spending directly with revenue generation.

2. Indirect spend

Supporting the broader operational needs, indirect spend includes costs not directly linked to the software product, such as administrative tools, HR software, and utility expenses for office operations. These costs can be optimized through decentralized SaaS buying strategies, allowing different departments to procure solutions that best meet their specific needs while maintaining oversight through centralized budgeting and compliance checks.

3. Rogue spend

Uncontrolled or rogue spend often arises in decentralized environments where unauthorized purchases occur, such as unsanctioned SaaS tools or software upgrades. To curb this, companies need robust internal controls and audit trails that ensure all purchases are pre-approved and aligned with corporate spending policies.

4. Tail spend

Although individually minor, tail spend can cumulatively constitute a significant portion of the budget, often slipping through the cracks in a decentralized SaaS buying environment. Consolidating suppliers and leveraging technology to automate procurement processes can help capture these outliers, reducing overall spend and improving procurement efficiency.

5. Capital spend

Investments in major technological infrastructure, such as enterprise software solutions or large-scale cloud integrations, fall under capital spend. These expenditures are high in value and crucial for long-term scalability and operational effectiveness. Managing these investments requires careful planning to ensure they meet future business needs and comply with capitalization accounting standards.

6. Legal and regulatory spend

This critical category includes all spending on legal services, compliance measures, and regulatory mandates. These are particularly vital in the SaaS industry, where data privacy and security are paramount. Strategic management of this spend involves continuous monitoring of regulatory landscapes and investing in systems that enhance compliance capabilities.

5 steps for effective spend management

Effective spend management is important for optimizing operational efficiency and financial health. Here are five strategic steps to enhance your spend management processes:

1. Centralize visibility

The first step in effective spend management is gaining a centralized view of all expenditures. This involves consolidating data across departments to create a single, comprehensive spending overview. Such centralization enables better analysis, helps identify spending trends, and facilitates informed decision-making.

2. Renegotiate contracts

Periodically reviewing and renegotiating contracts with suppliers can lead to significant savings. By reassessing the terms based on current market conditions and your company's changing needs, you can often secure more favorable terms or additional benefits, reducing overall costs.

3. Eliminate duplicates 

A common issue in many organizations is the duplication of software licenses, services, or subscriptions. Identifying and eliminating these duplicates can reduce unnecessary spend. This step requires thorough auditing of all procurement channels and subscriptions to ensure that every expense is necessary and no resources are wasted on redundant services.

4. Centralize contracts

Similar to centralizing visibility, consolidating all contracts into a unified management system can streamline processes and reduce overheads. This approach simplifies access and oversight and enhances compliance and renewal management, ensuring that no contract terms are overlooked and every renegotiation is timed appropriately.

5. Get visibility into expenses

Enhancing visibility into each expense helps understand the company's financial flow and identify areas where cost-saving measures can be implemented. This step involves detailed tracking and categorizing expenses, allowing for a granular analysis of spending patterns and identifying potential inefficiencies.

How Spendflo helps tackle spend management with effective strategies

Your spend management strategy is essential for monitoring transactions and preventing unauthorized spending in your organization. Finance teams often struggle to issue reimbursements for employee expenses that bypass formal procurement procedures.

To avoid these substantial losses, which typically surface during audits, consider adopting a spend management solution like Spendflo. This tool can help save considerable amounts of cost on daily business expenses.

With Spendflo, you can:

• Monitor expenses in real-time
• Get immediate visibility into spending patterns and software utilization, enabling precise and informed financial decisions
• Consolidate SaaS and cloud expenses into a single comprehensive view, simplifying the tracking and management of every dollar spent
• Facilitates strategic subscription management and negotiation, securing favorable terms and minimizing unnecessary outlays
• Streamline approval processes by automating multi-channel workflows for swift and efficient procurement operations

To learn more about us, book your demo.