Tech companies move fast, taking products to market and aiming for hockey-stick-style growth. No matter their size, those scaling companies need the right equation to support their business objectives.
SaaS spend management used to be something only thought about when things became messy, but in recent years it's become more of a priority rather than an afterthought.
Each penny invested in operations, SaaS platforms included, should deliver a return towards the future. If your finance department or procurement team is still using manual spreadsheets for SaaS cost management, you've probably lost track of your subscription costs.
So, what are the right ways to approach SaaS cost management?
At Sastrify, we're helping fast-growing companies avoid common SaaS buying mistakes. Let's take a closer look at how easy it is to let your company's expenses spin out of control and what you can do to manage your spending on SaaS platforms.
Stop paying for SaaS tools you’re not using by stepping up your SaaS spend management game.
- Runaway SaaS costs is common because procurement, finance, and IT teams have too many tools to manage.
- Optimizing your IT budget is impossible if you don't have a process for buying and managing software at scale.
- Platforms like Sastrify make it possible to automate SaaS spend management across your entire organization.
What is SaaS spend management?
The SaaS spend management process includes monitoring and controlling an organization's SaaS subscriptions and tool usage. While this might seem straightforward, the intricacies of SaaS make it anything but.
A well-structured SaaS spend management framework enables you to:
- Monitor and manage your SaaS-related costs.
- Centralize all SaaS tools for better visibility.
- Extract meaningful insights about the actual use of SaaS subscriptions.
- Identify and cut down on superfluous expenditure.
- Renegotiate terms of SaaS contracts more effectively.
- Track SaaS usage to make timely adjustments.
- Forecast future SaaS expenditure accurately.
Why is SaaS spend management so important?
SaaS spend management is important because most businesses need to constantly expand their SaaS needs. If you aren’t routinely reviewing your subscription costs, tools, user activity, and other key aspects of your procurement process, it’s easy to lose sight of wasteful spending and redundant applications.
SaaS spend management reduces unnecessary spending by assisting with:
- Decentralized decisions: In larger organizations, different departments often make independent SaaS purchasing decisions. This can lead to a lack of cohesion and missed opportunities to leverage the full power of your SaaS ecosystem.
- Functional redundancy: Without a centralized SaaS strategy, you might find multiple tools with overlapping functions, leading to unnecessary costs.
- Unused or underused licenses: Regularly review how many active users you have for your tools. If a tool isn't being used as expected, consider reducing the number of licenses or engaging users more effectively.
- Contract renewals and cancellations: Managing these aspects can be time-consuming. A third-party solution like Sastrify can streamline this by providing timely notifications for renewals and helping with contract negotiations.
How to responsibly reduce your SaaS spend
When you are in SaaS procurement mode looking for the right tool at the best price, remember that there are only 3 ways to save on software:
- Buy cheaper
Buying cheaper is all about negotiation. You can save on software by simply getting a better price. Again, it helps to be an enterprise-level user that enjoys power in numbers. You can also buy cheaper by switching from a monthly to a yearly plan or dealing with a reseller rather than directly with the vendor.
- Buy less
Buying less is the approach outlined in this post — only pay for the licenses that you are actually using. When you have 85 employees but 100 licenses for a given SaaS platform, you are throwing money out the window.
- Buy better
Buying better is all about optimizing your service level and plan. Find the right configuration for any SaaS platform your company needs and ensure that you are not paying for features that your team does not need.
At Sastrify, we provide specialized spend and contract management software that helps your company do all 3 when appropriate: track SaaS spending, buy cheaper, buy less, and buy better.
Read more: 7 tips for effective SaaS budget planning.
Best practices for SaaS spend management
There are several strategies to get the most from your SaaS budget:
1. Create a comprehensive SaaS policy
With numerous stakeholders using various SaaS solutions, a centralized policy helps define procurement protocols, approval hierarchies, and purchase processes. It sets clear guidelines for:
- The SaaS purchasing process.
- Authorization for SaaS purchases.
- Approval workflows for SaaS acquisitions.
- Tracking of end-user acquisitions.
- Usage requirements for SaaS tools to ensure maximum ROI.
- Spending limits and approval requirements for high-value SaaS tools.
2. Conduct regular SaaS audits
Maintain an up-to-date inventory of your tech stack, detailing:
- Vendor information.
- Tool functions and license types.
- Pricing structures and associated costs.
- Active user counts.
- Effective dates and renewal schedules.
- Cancellation and renewal policies.
- Integration capabilities and SLA details.
3. Perform routine SaaS reviews
You should be reviewing and assessing your SaaS needs and any SaaS updates on a regular basis. Your SaaS needs will rapidly change as more tools are added and the use-function of older tools become obsolete or can be replaced by better technologies.
Take some time each quarter to review your SaaS stack and come up with an informed decision on how to reduce waste and get the most out of your subscriptions, or integrate a third-party procurement solution, like Sastrify, that can automate the process for you.
Here are 5 management tasks for reducing SaaS spend:
- Deactivating unused accounts
- Analyzing inactivity hotspots
- Customizing workflows
- Monitoring unexcpected consumption
- and re-harvesting unused licenses
5 key principles of SaaS spend management
The allure of SaaS is deceptive; with its low entry cost and scalable nature, it's easy to overlook the mounting expenses. As the reliance on SaaS grows, establishing robust principles for managing these costs is not just beneficial—it's essential.
The management of these costs, when done right, could save the average company millions. Let’s delve into the five key principles of SaaS spend management that companies should adopt.
1. Centralize your SaaS procurement
In fast-growing companies, SaaS procurement tends to take place within departments.
Here's a story to explain it:
The sales team needs a CRM, so it seeks out the best software to meet its needs — and signs up. The development team needs a product for tracking bugs and managing projects, so it evaluates its options — and signs up. The marketing team needs an email marketing tool, so it conducts research on different platforms — and signs up.
Undoubtedly, teams that will ultimately use specific software products must be part of the decision-making process. The decision-making process, however, needs to be centralized so the company can manage costs properly. With a centralized Saas management platform, your company will be able to identify and limit redundancy while ensuring that it is also maximizing savings.
Gartner studies estimate that as much as 30–40% of technology spending results in hidden costs within the organization. That makes it impossible to accurately assess what any given company is procuring and actively using.
For example, one employee subscribing to a SaaS tool for less than $10 a month does not trigger any alarms. But when you multiply that one instance by 100 over 2 years, the numbers start adding up quickly. The cost of SaaS subscriptions and licenses can pile up and eventually swamp your company to the bottom. When all of those contracts are managed centrally, your company can then enjoy a level of transparency that helps identify opportunities for savings.
According to the IDC, 70% of US tech spending now occurs from business-unit budgets, and this number will continue to grow in the following years. If they do not find a way to centralize their SaaS procurement, companies will be plagued by budget overruns and missed opportunities. Effective SaaS budgeting is nothing without centralized saas management.
There is another step beyond centralization that you can take to improve SaaS procurement, which is using a platform that automates the process. With Sastrify, you can automate the procurement process and keep costs under control by quickly collecting information, navigating the approvals process, and providing data visualization. See the graphic below for a comparison of decentralized procurement and centralized procurement. It generally shows the automated saas procurement through a software platform like Sastrify.
2. Monitor SaaS license usage
Perhaps the most common SaaS mistake companies make is paying for licenses that are not getting used. For example, if you’re paying for 100 licenses with your CRM provider but your company only has 70 members on its sales team, 30 licenses are going unused. Fluctuation in the number of team members is typically the problem, but vigilant monitoring of license usage can solve that problem.
The price of unmanaged SaaS Software is much larger than anyone assumes. Gartner’s research reveals that more than 30% of the growing cost of “software and cloud services” will go unused in any given month through 2022. That is a lot of money getting invested in technology that no one is using.
There are two common reasons why SaaS licenses go unused:
- Turnover: Team members come and go over time. In many cases, new team members get added to SaaS platforms and take up licenses. But too often departing team members are not removed from those same SaaS platforms. Over time, it may appear that your company is maxing out its licenses for a platform. However, many of those licenses belong to employees who are no longer working with you.
- Growth assumption: Scaling companies sometimes assume that they will grow rapidly, necessitating more licenses in the future than they need in the present. Using the CRM example above, a company knows it only needs 25 licenses at the moment but it expects to rapidly scale its sales team to nearly 100 members by the end of the year. That’s an inspiring goal and one that is realistic for startups that are gaining traction. Most SaaS platforms though will let you upgrade to new service levels and add licenses as needed. There is no reason to buy licenses you might need in the future until you truly need them. It is just money spent that could be saved.
Clearly, your company should only pay for essential applications and the exact number of licenses needed for each. You must monitor usage closely and identify when SaaS subscriptions and licenses become superfluous to get rid of what's unnecessary.
3. Cancel or archive unused licenses to manage SaaS spend
This next part is easy: When you discover unused licenses, simply cancel or archive them. It is just another reason why centralizing management of SaaS applications and subscriptions is so essential to spend management. Without centralized management, administrators are reluctant to cancel or archive licenses they suspect are going unused. After all, what if someone in a different department is still using that license?
Centralized management of SaaS licenses means that a single team or group within the company has full access to information on SaaS usage: who is using the tools, how much that activity costs, and if/when someone with a license no longer needs it.
The sooner you can centralize SaaS spend management at your company, the easier it becomes to cancel or archive unused licenses.
5. Review SaaS pricing pages for spend management
To get a sense of the different levels of SaaS support, check out any platform’s pricing page. A quick glance at Intercom’s pricing page reveals that users at higher levels can optimize performance, conduct A/B testing and implement conversational bots. Now, in many cases, companies using SaaS products, like Intercom, will have all of their licenses lumped into a single service level.
But, in other cases, your company can access savings by allocating some licenses to a lower service level for users who do not need high-level features. SaaS providers often allow you to mix plans based on those personal requirements and interests.
Sometimes, you simply need to commit to an annual plan to realize significant savings..
If you are using a SaaS applications across various departments, the demands will certainly differ. You may find that your product and development teams need a high level of service and more features, while your sales and support teams need a low level of service and fewer features. If you are an enterprise-level user, you might be able to negotiate savings into one contract for the different needs across these departments.
Different users might have different subscriptions packages depending on their functional and technical needs.
How to leverage your buying power for better spend management
Fear of software subscription expirations is commonplace in the corporate world, as they often herald price hikes in new contract terms. However, this perspective shifts when businesses centralize SaaS spend management. A well-monitored SaaS portfolio turns contract renewals into opportunities for savings or service enhancements.
Here’s a guide to harnessing your SaaS negotiations effectively:
- Compile Essential Information: Equip yourself with data to negotiate beneficial terms. Providers tend to offer concessions to retain users, saving themselves acquisition costs.
- Harness Collective Bargaining: Centralizing SaaS management reaps the benefits of bulk licensing, often unlocking unpublicized enterprise-level rates.
- Consolidate Purchases: Merging separate procurement efforts into a single contract amplifies your negotiating stance.
- Understand Quantity Pricing: Bulk purchases typically yield more favorable SaaS license costs.
Are you researching enterprise-level pricing for certain SaaS providers? At Sastrify, we maintain a valuable database that allows us to provide you with pricing benchmarks based on the SaaS payments from thousands of subscriptions. You can also upload your SaaS invoices for analysis to figure out whether or not you are paying too much for your existing contracts.
How can a SaaS procurement software help you with spend management?
There is a reason why so many companies continue to manage their SaaS spending in silos: Centralized SaaS management can be time-consuming because creating the all-around systems and processes can feel overwhelming.
That is where SaaS management platforms like Sastrify come in: we provide one system of record for all cloud-based software purchased across your company. This enables you to manage, measure, and optimize cloud investments with real-time insights into spend and usage.
Rather than digging through your business app-by-app, Sastrify automatically detects redundant programs and highlights them so you can take care of them, saving you a significant amount of time and money.
You can access our extensive pricing benchmarks or upload your SaaS invoices for quick analysis to find out where you're overspending on software.
Plus, we also handle the high-stakes negotiations for you to ensure you're signing the best contracts for your business.
How do I know when it's the right time to get SaaS buying assistance?
As a SaaS procurement platform, we obviously advocate for companies getting help with their SaaS stack and negotiations (e.g. from us). But we also know that there are times when we aren’t needed, and we’re more than happy to be honest about those.
Types of SaaS tools you should buy on your own
There are a few buckets of SaaS tools where it’s simpler to buy on your own and not really necessary to get third-party negotiation help.
1. Tools you can use for free
Let’s divide this into two types of free:
- A SaaS tool you want to use where the free version meets your needs – Maybe there are product tiers and the free plan works because you have limited licenses and you don't need premium features
- A SaaS tool you can test for free (or cheap) before buying – If you just have to register for free or even pay a small fee before using, then you can test the tool out before thinking about premium (paid) features.
There are countless SaaS tools that offer a free tier or a free trial. Take advantage of the opportunity!
2. Low cost tools that you already understand well
If you have a good understanding of the features and technology of a specific SaaS tool, and it’s still relatively low cost, you should buy that on your own as well. The low cost makes it a low-risk purchase, so go right ahead and buy or negotiate by yourself.
3. Tools for a small group of users
This aligns with tools that are low cost, but if the group of users in the organization is small – i.e. it’s just for one person or a small team – then you probably don’t need expert help. A small number of users typically translates to a smaller bill, and the effort and time of a full expert negotiation is probably unnecessary.
Examples of SaaS tools that can typically be bought on your own
Can we ask procurement to jot a few down here? Sergio or Alex? I couldn’t really find any articles on this and I don’t want to generalize without knowing Sastrify’s advice
SaaS tools where you should seek expert advice
With tools outside of the categories above, it pays to turn to a procurement platform and advice from experts. For example:
- Higher cost – If a tool is going to cost your company a lot of money, expert advice (and help in the negotiations) can lead to big savings.
- More users – If you plan to deploy the tool to a significant number of users or even the entire organization, then the stakes are much higher.
- Increased complexity – If you need help understanding the features of a complex tool, or if the negotiation itself is complex and you need levers you can pull to get a better deal, expert help is key.
There are a variety of larger or more complex tools when we highly recommend using a procurement platform like Sastrify.
One example is Microsoft, which has a variety of licenses such as E3, E5, and E7.
- E3 licensing is the most basic and provides access to Office 365, Windows 10 Enterprise, Enterprise Mobility + Security, and Microsoft 365 Business. It is designed for smaller organizations and businesses.
- E5 licensing is the more premium option and provides access to Office 365, Windows 10 Enterprise, Enterprise Mobility + Security, Microsoft 365 Business, and advanced analytics and security. It is designed for larger organizations that need more advanced features.
- E7 licensing is the most comprehensive and provides access to Office 365, Windows 10 Enterprise, Enterprise Mobility + Security, Microsoft 365 Business, advanced analytics and security, and voice and conferencing services. It is designed for large organizations that need the most comprehensive features.
Microsoft is widely used, complex, and generally a high cost item for companies, so getting expert help can lead to much better deal outcomes.
Other tools that require more expertise include:
- ERP/finance suite tools – e.g. SAP, Netsuite, Sage Intacct
- HRIS tools – e.g. Workday, BambooHR, Personio
- Niche tools – i.e. those specific to an industry
Working with a SaaS procurement solution like Sastrify can improve your SaaS buying and deals on both the tools you purchase on your own and the ones you hand to the experts.
Sastrify analyzes your SaaS usage, cleans stack, and automatically sends you auto-renewal notifications so you can increase your savings potential. On top of that, we’ll negotiate your contracts with vendors for you so you can spend more time on the important work that matters.
Consent management platform Usercentrics has experienced this firsthand: