Today, most businesses employ software-as-a-service (SaaS) solutions to increase productivity, foster collaboration, and work smarter.
As the SaaS industry is now worth $100 billion, wise businesses use SaaS management best practices to discover and remove duplicate SaaS apps, minimize security risks, and, most crucially, optimize their software spend.
On average, businesses spend 25% of their revenue on public cloud and other SaaS solutions. And 93% of enterprises feel SaaS solutions will help their company grow and achieve its objectives in the long run.
As the number of SaaS products we use daily increases, so do the costs.
How can a company save money and gain a competitive advantage using SaaS without reducing the number of tools they use? The solution is to use an effective spend management strategy.
Sam Walton says, "Control your expenses better than your competition." "This is where you can always find the competitive advantage."
Thus, a spend management strategy is critical for any business's growth, as overbudgeting impacts a company's profitability, especially when spending can be easily optimized.
Even though many businesses have already started using a spend optimization strategy, in this article, we’ll show you how to improve it.
What is a spend management strategy?
It is the process of evaluating and managing your SaaS expenses to keep them under control. Setting limits, predicting costs and market changes, and making appropriate adjustments help ensure that your spending stays within your budget.
Managing SaaS spending for business is a difficult task. It entails a substantial amount of data, money, and workforce. However, if you have an effective spend management strategy, you can easily manage and optimize your software spending.
This strategy will act as a roadmap, telling you what to do and when. So, let's delve into the process of creating a plan for spend management.
How to Create a SaaS Spend Management Strategy
Understand the Requirement
To streamline your SaaS expenditure plan with your business goals, one must thoroughly identify and understand the organization's needs and define priorities.
This can include the number of apps and licenses needed, the type of software required, the number of employees that will use it, and so on.
To begin, analyze the company's potential to identify inefficiencies and areas for improvement. Also, prepare a list of every possible business problem, goal, or scenario and the particular steps to be taken in the chosen direction.
Have a thorough understanding of your employees' pain points and the kind of technologies they need to overcome them.
Talk to them to better understand their requirements; this will help you create an effective strategy to manage SaaS spending.
Discover the SaaS Stack
Good SaaS spend management starts with identifying all software and tools across the enterprise, including each business unit, team, and sector. The visibility of the SaaS stack will help you see the bigger picture of your revenue.
You must know whether to acquire or renew more licenses, buy fewer applications, try a different plan, or remove the application from your SaaS stack. Discovering this data will make your SaaS expense forecasting process smooth and seamless.
Moreover, the app discovery method performs a complete and detailed investigation of all financial activities, so you can get an idea of how much you are spending and on what. This can be easily accomplished through spend management software.
Optimize and Reduce SaaS spend
Unpredicted SaaS expenses can affect your IT budget, increasing costs for even the most contemporary digital firm. With more SaaS options on the market, it's easy to go on a SaaS buying spree, resulting in inflated SaaS spending that exceeds your budget.
So, after you've identified all SaaS apps, look for measures to control your SaaS budget and optimize your SaaS portfolio by,
Reducing underutilized licenses
When you realize that approximately 40% of all SaaS subscriptions go unused after 30 days, you'll look to delete unneeded or underutilized solutions. If possible, search for chances to downgrade premium subscriptions to usage-based subscriptions or even freemium plans.
Decreasing overlapping functionality
Shadow IT will lead to the rise of duplicate applications in the system, and the finance team will end up paying for two or more apps that serve the same purposes.
Identify duplicate applications that are wasting your money and eliminate them before the next renewal window to optimize your spend.
Create A Renegotiation Plan
Once you get complete visibility into your SaaS products, identify the app usage and create a renegotiation plan. Whenever you renegotiate, do some research on your vendors to learn about their pricing flexibility and why they might be able to offer you a better deal.
A comprehensive understanding of the market can also assist businesses in determining what their competitors are paying for the same apps they’re using or planning to purchase.
Forecast and Progress
A continuously updated SaaS record system gives you a complete picture of your software inventory, allowing you to forecast and plan your SaaS costs using data.
Consider utilizing a SaaS management platform that regularly analyzes usage information and patterns to predict your future SaaS spend accurately.
However, effective execution relies on being consistent with the strategy. To effectively optimize SaaS spending, adhere to the spend optimization strategy regularly.
Key elements of a SaaS spend management strategy
The core elements that contribute to the best overall strategy are as follows:
Define your enterprise SaaS spend goals and requirements
Establishing a spend management strategy for SaaS applications will provide a framework for a company's overall cost optimization goals. It is ideal to figure out and clearly define the goals, like,
- To ensure your company's long-term growth and profitability.
- Improve spend visibility
- Maximize ROI
- To prepare for the future or function efficiently or
- To adapt to changes in supply and demand
- Mitigating risks by stopping fraudulent spending
- Or optimizing spending by reducing procurement and renewal costs.
Aside from goals, another element in building a successful strategy is evaluating where your organization stands and what is required to fulfill corporate goals and growth aspirations. You must have answers to questions like,
- Are your procedures paper-based or manual?
- Is it time to evaluate your tech stack if you've previously installed solutions?
- How effective are the present systems?
- Do you need integration services?
- And could a modern, advanced, or new solution better serve your company?
- Is your team expanding?
- How are you assisting your team in operating efficiently?
- Are you giving them the tools they need to make wise spending decisions?
These are the key questions to consider as you design and implement your spend management process. The responses to these questions will reveal the efficiency and potential areas for improvement and identify where processes are being affected.
Perform a detailed spend analysis
Another key component is to perform a thorough spend analysis, which will provide insights into the company's purchase records and spending habits as well as insight into supplier benchmarking and savings opportunities.
This is also how cost reductions, percentage variations, and aggregates, or averages, can be measured.
As a result, conducting a thorough spend analysis can reveal what went wrong and what worked well in the past. It can also recommend the best course of action based on projections and anticipated results.
Negotiate better to get the desired rates
Another key element of a successful enterprise spend management strategy is negotiation.
Negotiating better can help enterprises secure affordable contract rates and better customer support and onboarding.
Remember, the better the negotiation, the greater the savings, as it can substantially help an enterprise reduce its procurement costs and improve vendor relationships.
Companies can quickly evaluate how much they invest in each vendor and how those vendors perform by using strategic sourcing, vendor assessment, and spend data analysis.
This information will further enable businesses to engage in data-backed negotiations with their vendors.
Vendor negotiations can be challenging, so seek assistance from experts like CloudEagle to negotiate on your behalf.
Their negotiation experts can help secure the best deals and optimize your SaaS spend.
Implement cost-saving measures
Creating cost-cutting measures for managing, procuring, and maintaining SaaS products entails numerous steps, such as reviewing inventory and optimizing vendor contracts.
Management teams can enhance operational procedures and increase profitability by being cost-efficient. Here are some cost-effective measures to be followed;
- Reviewing and reconsidering the existing SaaS licenses and subscriptions. And terminating the unnecessary ones.
- Re-evaluating the SaaS inventory. This implies taking in necessary apps and removing the redundant or duplicate ones.
- Avoid Maverick Spending Habits - Purchased without procurement process and approvals of organizations
- Always plan the renewals and procurement ahead of time to minimize emergency and costly purchases.
- Explore the best vendors and negotiate your best deal.
- Centralize all the purchases to avoid duplicate purchases.
Effective monitoring and tracking of your SaaS spending
First, ensure that all contracts and invoices are in one place and that you have a procedure for integrating new purchases into the reporting system.
The data can then be used to see and evaluate SaaS spending effectively. Moreover, this data can help you create accurate projections, optimize budgeting, and undertake in-depth analysis. Here are some best practices to follow,
- Identify places where spending exceeds the budget or the projected amount.
- Find strategies to streamline your purchasing and procurement operations to save money.
- Create effective key performance indicators (KPIs) to track how successfully the organization fulfills its spending and revenue targets.
- Conduct price benchmarking and vendor analysis to ensure that you get affordable product and service prices.
- Prepare financial reports and perform audits more consistently to keep things in check.
Ways to improve your SaaS spend management strategy
Improving your SaaS spending strategy is not as easy as it seems. It involves various tactics, and practices and we've listed some of the best ones.
Use spend management software
Investing in the right spend management software with the latest features can help businesses leverage real-time data to cut down on their SaaS spend based on app usage and optimization insights.
This may appear as just another SaaS investment, but it is a game changer. The software can assist you in streamlining your spend management operations and doing all of the legwork for you. Here's why you should think about it:
- All your SaaS apps will be centralized. You no longer require a spreadsheet containing all of your subscriptions. Instead, a software will organize them to make data retrieval and auditing easier.
- It’ll streamline your SaaS purchasing process with automated workflows and improve vendor relationships.
- You’ll know how well your employees use the applications. This data can help you during the renegotiation or renewal processes.
- Manage all of your contracts in one place.
- Improve security, eliminate shadow IT and mitigate compliance risks using a management software.
- Learn about your spending habits, forecast optimization strategies, and plan your budget accordingly.
You can use a platform like CloudEagle to improve your expense optimization strategy. Click here to see more tools for spend management.
Seek the help of negotiation experts
SaaS negotiations can be cumbersome, but they are essential to improve your SaaS spend management strategy. To be successful, you must follow the latest negotiation strategies to secure the best deals.
As Chester Karrass states, "In business, you don't get what you deserve; you get what you negotiate."
There is no specific formula for negotiation, but there are strategies that can help. Or if you don’t have the resources to do it, you can seek the help of negotiation experts.
SaaS negotiation experts will possess years of negotiation experience and use relevant tactics to negotiate warranties, service level agreements, enhanced support facilities, liability constraints, and other suitable contractual conditions.
Many platforms provide assisted buying services; they can take over the negotiations for you while you focus on running your business.
Eliminate unused licenses and shadow IT
The ease of purchase of SaaS apps and employees' access to corporate credit cards can be detrimental to businesses. This is termed "shadow SaaS" or "shadow IT" and occurs when a product is purchased without the approval of the IT team. This can jeopardize the company's data, security, and SaaS budgets.
So, it is critical to have a centralized method when purchasing products or obtaining procurement team authorization. This will ensure complete visibility over their SaaS spending, including the number of active users and subscriptions.
Another critical step in enhancing the spending strategy is eliminating unused apps and licenses. Approximately 29% of SaaS spending is either underutilized or wasted.
So, reducing SaaS license wastage can help you save a lot of money on your SaaS budget. The first step is to evaluate the applications in your inventory and determine whether you should be spending money on them, whether they add value to your business, and whether they will benefit your teams.
You can use a SaaS management tool to prevent shadow IT by streamlining the procurement process and centralizing the SaaS stack. The tool can also identify duplicate, unused, and hidden applications and save your excess SaaS expenses.
Automated SaaS Renewal reminders
If each company uses an estimated number of 110 SaaS apps, a couple of contract renewal dates are bound to slip through the cracks. If a business fails to pay on the renewal date, it may lead to unnecessary spending or the loss of the subscription. This is where reminder guidance comes to the rescue.
The previous spreadsheet's way of keeping track is no longer appropriate. Firms can easily track their renewals and pay on time using reminder guidance.
Platforms like CloudEagle come with reminder workflows. It’ll start the workflow 90 days in advance, assign it to stakeholders, and keep escalating until the license is renewed. You can stay on top of renewal with CloudEagle’s workflows.
Negotiate usage-based pricing models instead of flat-rate model
The flat rate model appears simple—customers pay a regular monthly or annual price for the SaaS software and services.
The usage-based pricing mechanism, on the other hand, is entirely contrary. It is often known as the "pay as you go" model. In this pricing model, the customer is charged based on how much they use the product.
As per the research, today, 38% of SaaS firms charge only on a usage basis. So, clients only pay when they use the service or product.
Usage-based pricing matches monetization to how customers use the SaaS product or the services. It also provides a wide range of scalable pricing strategies, such as Tiered-usage pricing, per-unit usage pricing, volume usage pricing, and stair-stepping usage pricing, all of which are options.
Billing flexibility is the most fundamental and powerful advantage of a usage-based strategy.
Customers also do not feel constrained by being trapped into a month-to-month payment schedule or an annual contract.
Instead, they can decide based on the usage. So whenever you plan a purchase or renewal, negotiate on the usage-based model instead of the price-based model. And, if possible, choose SaaS software with usage-based pricing to improve your SaaS spending strategy.
Leverage price benchmarking data to get low-cost alternatives
Pricing benchmarking data tells you what your peers are paying for the exact SaaS solutions and allows you to create benchmarks based on licensing price, app, and license category, thus opening options for low-cost alternatives.
Not only can you improve budget planning by examining quantity and cost possibilities, but SaaS pricing benchmarking data allows you to take subscriptions to the next level by comparing your current cost to that of similar firms.
CloudEagle is a reputable SaaS spend management software that guarantees support with price benchmarking. As a result, users can gain actionable insights and detailed benchmark price data to negotiate like a pro.
CloudEagle - Ultimate SaaS cost optimization platform
With new SaaS providers popping up daily, it's tough for businesses to assess and obtain the best prices that fit their budgets. Managing and lowering the associated costs is an entirely different issue.
Fortunately, platforms like CloudEagle were built to help businesses ease the hassles of cost optimization. You can use the tool and its accurate insights to create a new SaaS spend management strategy or improve the existing ones.
Let us show you how CloudEagle can help you save up to 30% on your current and future SaaS spending and effectively manage your SaaS costs.
- With CloudEagle's cost optimization, users can optimize spending by identifying and removing unused, duplicates, and redundant apps/ licenses. Additionally, they can right-size the contracts using detailed insight data.
- With its detailed price benchmarking data and assisted buying feature, users can get 100% support in purchasing and negotiating. It does everything from procurement to price negotiations to seal the deals.
- With its contract management feature, users don't have to worry about renewals. It automatically notifies and begins the renewal workflow 90 days in advance.
- With CloudEagle's vendor recommendation engine, users can make the right vendor choices that meet their requirements at the optimum cost. CloudEagle provides smarter choices for vendor selection and negotiation.
SaaS spend management is necessary for businesses looking to scale their operations. Especially during the economic downturn that the market is facing, it is now more important than ever to focus on saving your SaaS spend.
Prioritizing it is the first step toward achieving your cost-cutting objectives; creating an efficient plan comes next, and how you apply that strategy is the key to unlocking results.
In this article, you learned how to create a SaaS spend management strategy, and we showed you how to improve it. Use these solutions to optimize your SaaS and scale your business effectively.
If you are looking for ways to save up significantly on your SaaS spend, manage renewals, and get detailed data insights, then contact CloudEagle today!
Frequently asked questions
1. What is the significance of spend management?
Spend management is critical because it eliminates wasteful spending, ensures data quality and structure across the billing lifecycle, and regulates supplier relationships. Adequate expenditure management increases company profitability, decreases cash leakage and reduces supplier risk.
2. What exactly are the four stages of spend analysis?
Spending analytics is the collection, filtering, classification, and analysis of spending data using either specialist software or one-time spend cubes.
3. How can I minimize my SaaS costs?
Here are five steps to help any business minimize its SaaS spending
- Discover All SaaS apps.
- Sort applications by overall cost, from highest to lowest.
- Cut down on unused or underutilized licenses
- Implement Best Practices for Future Purchases.
- Remove Duplicate Apps and Overlapping Services.
4. How do you negotiate for the best SaaS prices?
- Begin the Conversation Early and not weeks before the renewal
- Negotiate for more extended contracts; vendors are more likely to offer discounts on their pricing plans.
- Discover What Your Peers Are Spending, compare it, and use them in your negotiation process.