The SaaS industry is expected to grow from about $130 billion in 2021 to $716 billion by 2028, which is nearly a 500 percent increase globally. With greater growth, however, will come greater needs for spending, and industry leaders are looking for ways to optimize and cut costs in the face of this growth.
Below we’ll look at 5 ways you can optimize your SaaS costs by reducing waste, utilizing tools more efficiently, enabling better SaaS management practices, and more.
What is SaaS cost optimization?
SaaS cost optimization is a strategic approach to reducing and controlling costs related to your SaaS applications while still maintaining functionality, ability, and user experience.
The optimization process involves keenly scrutinizing SaaS spending, application usage, software contracts, and license management to identify optimization opportunities.
A substantial part of your SaaS spend optimization will happen through technology value optimization, a dedicated process aimed at reducing waste, cutting costs, and protecting your systems from cyber threats.
What are the benefits of SaaS cost optimization? Why is it important?
Efficiently managing SaaS spend is a challenging balance to strike because the demands of a growing market, the need to cut costs, and your responsibility to maintain your SaaS applications present a set of contradictory challenges. These challenges, however, are what SaaS spend optimization aims to help solve.
Several effective SaaS cost optimization strategies can help you manage software costs, such as:
- Reducing the amount of users who are able to access certain applications.
- Cutting specific applications from the SaaS roster at your company.
- Minimizing unnecessary or redundant expenses, like unused licenses and redundant applications.
- Creating business strategies that allow you to prioritize certain technology needs.
- Minimizing security risks, including unauthorized access, in order to mitigate threats that could cost you time and money.
Moreover, managing your SaaS spend effectively can give your finance team and business leaders complete visibility into your software spend. This can help streamline your purchasing process, secure a fair price during negotiations, and ensure the adoption of SaaS applications across various departments.
Let's delve deeper into 5 best practices you can utilize to optimize SaaS spend.
5 best practices for optimizing your SaaS costs
1. Reduce your waste
It's often difficult for smaller companies or startups to set up a process for managing and evaluating SaaS waste. Application purchasing, ownership, and SaaS inventory management can spiral out of control without a proper management platform.
Developing a strategy or integrating a third-party SaaS procurement tool like Sastrify can help keep track of your software licenses, reduce software spending, and minimize unnecessary costs like unused licenses.
2. License management
License management is a crucial aspect of not just reducing waste but also optimization as a whole. With the right insights on your licenses, you can cut, expand, or replace software that does or does not meet your needs.
Solutions like Sastrify can assist by proactively monitoring license usage to identify deficiencies and provide you with a forecast of your SaaS spending.
3. App adoption and engagement
Creating a company-wide culture of app usage, engagement, and app adoption can ensure maximum usage and return on investment (ROI) for each of your apps.
It involves proactive efforts from your leadership to educate team members, promote application licenses usage, and foster habits around maximizing tool usage and platform collaboration.
4. Renegotiate contract with SaaS providers
Renegotiating contracts with SaaS providers is a necessity as you expand to reduce costs and gain visibility into your agreements. Procurement solutions like Sastrify can simplify the negotiation process by doing the negotiating for you, offering you complete visibility into contract terms and giving you the purchasing power to secure the best prices.
5. Automate where possible
Automation is key in SaaS spend optimization. Automotive features of certain tools can help you save time/money and establish new goals with smart purchasing options that fit your budget. With the right tools, you can automate your SaaS stack, switch your software subscriptions to autopilot, and onboard your tech stack to an all-in-one, spreadsheet-free platform. You gain full access to all the insights on usage, spending, security risk, and more.
Using management software with automotive features provides real-time visibility into your SaaS spend and usage patterns. You can thus identify overage fees, upcoming renewal dates, and opportunities for savings, ensuring optimal use of each piece of software.
Get Sastrify’s 2023 SaaS Spend Management Guide
Sastrify’s SaaS Spend Management Guide offers an expert view into the top ways to save money on SaaS tools in 2023 through better usage forecasting, analytics, and negotiation. Considering that SaaS prices are only going up — any software buyer or procurement leader should read this guide to protect their bottom line and extend their runways.
Did you know?
Almost every business – over 99%, in fact – use at least one Software-as-a-Service (SaaS) tool, but the average stack is much larger (96 among Sastrify customers). Every single one of those platforms adds up, and in an uncertain economy, it’s no surprise that companies are searching for ways to save.
We want to help you do it, which is why we're excited to share our SaaS Spend Management Guide for 2023, packed with eight actionable tips to help you better forecast your usage, spot savings opportunities, and negotiate the best prices.
Overview of Sastrify’s 2023 SaaS Spend Management Guide
Reading the report will give an overview of why 2023 is the year to get control of your SaaS spending and offer eight tips to help you do it.
Here's a sneak peek at three of the tips we highlight in the report:
1. Identify the primary cost driver(s) of your SaaS spending
The first step in any savings plan requires that you understand the cost driver(s) for each tool – think of this as your SaaS COGS. This will aid your decision-making process to forecast what your usage will be (i.e. how much you should commit to or plan for), how to optimize your SaaS pricing, and what your cost will end up being.
For example, the primary cost driver for business SaaS platforms like Google Workspace or Microsoft Office 365 is typically the number of employees. You can determine this figure from HR and finance headcount forecasts.
Other tools charge by factors like:
- Number of servers monitored (Datadog)
- Monthly Tracked Users, or MTUs (Segment)
- Volume of data stored (Snowflake)
2. Commit to your SaaS Subscription for optimal unit price
After you’ve forecasted your volume and know how much you plan to purchase in the next year, you can find ways to leverage that information in negotiations with the SaaS vendor. To get the optimal unit price, you need to find the right balance between flexibility and price – this is what we mean when we talk about SaaS cost optimization.
Here’s how some of the combinations could look:
- High flexibility, high price – On-demand buying (e.g. monthly plan)
- Medium flexibility, medium price – Small commitment plus bulk purchase as needed
- Low flexibility, low price – Large commitment in advance
3. Negotiate with your SaaS providers step by step
We always like to remind SaaS buyers to hold onto their “carrots” – i.e. new things you have to offer like a longer commitment or higher volume – in the beginning of a negotiation. First, see if you can get any discount or other benefit for keeping a flat renewal (same contract as before).
Then, you can ask hypothetical questions to see what you could get on top. For example, “What if I add 30 additional licenses next year? What would that do to my pricing?”
The tips in this report offer insight you can act on now to save money – and we know they work because our customers have proved it. Sastrify has helped customers save over $10 million on software.
4. Apply price benchmarking
An essential aspect of SaaS Spend Management and optimization strategies is price benchmarking. It's the process of comparing your software costs and usage with other similar companies or industry averages to ensure you're getting the best possible price. This can be an excellent tool during the negotiation process to ensure you're paying a fair price.
5. Monitor usage and control unauthorized access
To optimize your software spending, monitoring the usage of your SaaS apps is crucial. This is because unused licenses or subscriptions can add to unnecessary costs.
Similarly, unauthorized access to premium features or applications can lead to cost accumulation. Implementing usage monitoring systems and controlling unauthorized access can help identify these gaps and make informed decisions about renewing or cancelling software subscriptions.
6. Encourage company-wide adoption
Poor adoption of a SaaS application often leads to wastage of technology investment. Lack of training or awareness among employees can lead to a situation where an expensive piece of software is under-utilized.
Encouraging company-wide adoption, providing necessary training to the sales team, the development team, and all other business units, can ensure optimal usage and maximize SaaS ROI.
7. Opt for SaaS management platforms
SaaS Management Platforms provide complete visibility into your SaaS landscape, thus improving your ability to make informed decisions. These platforms can assist you with usage monitoring, renewal times, optimization tools, automatic renewals, and contract negotiation.
It helps in keeping track of all software users and software applications, preventing unauthorized applications and duplicate software, which could otherwise lead to unnecessary costs.
8. Plan future investments
SaaS spend optimization is not only about reducing costs; it's also about making future investments more productive. Using the insights from the optimization approach, companies can better plan their future technology investments, purchasing process, and budget allocation.
For instance, the data from your software usage and adoption could reveal valuable insights into the needs and habits of your team. This can inform your decision-making process regarding future software purchases, giving your company a competitive edge.
Software for SaaS cost optimization
Sastrify can help you negotiate for the best rates with your vendors, automate your manage SaaS licenses, minimize onboarding time, evaluate security risks, track your SaaS software licenses invoices, and gain all the transparency you need without scaling up an internal team, which can be timely and costly.
Click here to schedule a call and learn more about how Sastrify can help you optimize spending and streamline your SaaS procurement process.
In 2023, more than $200 billion and 3.9 billion working hours will be wasted on buying and managing software. Keep your software costs under control with our contract management guide.