It's been a year since the Russian-Ukrainian conflict began, causing a significant decline in the global economy. The conflict doesn’t seem to resolve anytime soon, and the economy doesn’t look to improve either.
The collapse of major banks and inflation at an all-time high indicates that we are in a volatile market. Business owners are paying close attention to this economic uncertainty and are investing in SaaS spend optimization to cut costs without impacting their bottom line.
With software spend being the 3rd biggest spend in an organization, next to employee and office lease spend, it is understandable why business leaders and finance team are keen on SaaS cost optimization.
We asked the same question to business leaders and SMEs, and here's what they had to say.
SaaS spend optimization initiatives
#1. Increase your topline or control costs
“When the market is volatile, finance teams must prioritize two key areas: driving top-line growth or reducing software expenditure to positively impact the bottom line,” says Jinendra Jain.
Jinendra Jain is the Global head of Finance at Tiger Analytics.
He proceeds, “However, considering the volatility of the market, you, as a business owner, cannot increase product prices or sales volume, especially if you’ve already signed a multi-year contract with your customers; this will increase your customer churn.”
“So, increasing your topline is not easy, considering the market conditions." Therefore, the focus shifts to cost optimization.
“We started by segregating our mandatory spending and optimizing it." "Then we proceed by comparing our current spending to planned spending, which we’ve already allocated the budget to.”
Jinendra Jain focused on optimizing their current spending on SaaS applications, giving them a significant opportunity to save on their planned budgetary allocation.
“Application consumption is what we primarily look at while optimizing our spend." Are the teams using the application properly? How are the licenses being utilized? This tells us what we have to do to optimize our costs.
“Once the usage insights are collected, leverage the data during renewal, negotiate the best price with the vendors based on the usage, and optimize your spend.” “This is how we optimize our costs in the volatile market,” says Jinendra Jain.
Our take on this
Jinendra Jain clarified the importance of application usage data. It is the core of cost optimization. You cannot increase your product prices in this volatile market, so optimizing your costs by leveraging usage data is critical to improving your bottom line.
#2. Vendor consolidation
“Our portfolio includes 100s of SaaS vendors, but 20–30 vendors cover the vast majority of spend. "We were paying seven figures for a small fraction of vendors,” says Dave Beckwith. ”
Dave Beckwith is the Vice President, Global Procurement & Endpoints at 8x8.
“We had an ecosystem of vendors like SalesOps, Marketing, Backend Engineering, etc. that served various functions of the organization.”
“We focused on a couple of aspects to reduce costs." We collaborated with business owners and asked them to analyze these ecosystems of vendors and check when the contracts are due and whether the teams are really using the software.”
“Our efforts were directed toward identifying opportunities for vendor consolidation, which involved eliminating redundant and costly vendors and relying on a small number of preferred vendors.”
“We achieved substantial success in vendor consolidation in SalesOps, and we’re proceeding to do the same in backend engineering to prevent needless expenses,” says Dave Beckwith.
If your SaaS spending exceeds your budget, chances are that most of the spending might be coming from a smaller fraction of vendors.
To keep spending under control, consider eliminating those high-spending vendors and, instead, focus on consolidating your needs with a select group of reliable and trusted vendors.
We were coming up on renewals for some of the applications. As Dave Beckwith led the renewal tasks, he was constantly on multiple calls with the team to identify application consumption.
“I didn’t proceed with the renewal until I got the names of users who wanted the application and a validation of how they would use it." "And then, we negotiated with the vendor and cut down two-thirds of the licenses for one particular software,” says Dave Beckwith.
“You have to bet on the right vendors and cut down your licenses based on absolute usage to realize SaaS savings.”
So, it is necessary to bet on the right vendors to optimize your SaaS costs.
#3. Purchase the right way
“SaaS vendors will bundle their features while selling the product. Once it is bundled, you can’t see the detailed pricing of the product, and it’ll be harder for us to unbundle it, pick the features apart, and save money by switching off some of the features,” says Mark Flowers.
Mark Flowers is the Managing Director, Product Management & Operations, OneMarket at LogicSource, Inc.
Mark Flowers recommends that “when you purchase a SaaS product or service in the right way, you’ll have more opportunities in the future to save costs." "Insist vendors to unbundle their features during the contract signing process to save on SaaS costs in the future.”
Our take on this: As Mark Flowers says, cost optimization must begin during the procurement process. You should not purchase a product and then think about optimizing your spend.
Understand your requirements clearly, forecast your growth, and opt for a feature-based pricing plan during vendor negotiations.
Another instance where Mark Flowers’s organization lost money was when the usage crossed the threshold.
Mark recalls, “We identified that most of our SaaS contracts were depleted." The volume negotiated for a whole year was blown out entirely by May; we were in no place to pay additional fees for using beyond the threshold, and we were worried about the business continuity without the application.”
Our take on this: It is vital to negotiate the agreements and clauses while purchasing the product. Have a clear understanding of the penalties and educate your teams on the ramifications of breaching the contract to minimize excess expenses.
And once again, it boils down to what Dave and Mark stated earlier: You have to bet on the right vendors and purchase SaaS apps the right way to prevent additional expenses like the one we discussed above.
“We overbought SaaS applications by forecasting significant growth in the pre-Covid era; we bought applications for 2500 employees, and now we are only 985,” says Terry Larock, the Head of Procurement at Tipalti.
Dave Beckwith added that SaaS buyers are notorious for overbuying and underutilizing SaaS applications.
At CloudEagle, we often come across customers looking to right-size their licenses or cancel multiple contracts because they overbought by forecasting higher growth.
And then, we proceed to help customers cut down licenses and cancel contracts by renegotiating with the vendors, saving valuable costs.
“We educate business owners to provide us with an ROI for spending on SaaS applications.”
“However, we often find that many business owners don't have an estimated ROI to offer." They simply say we just need the product to complete the task. As a result, businesses frequently end up with a bloated SaaS stack with no real value in most applications,” says Terry Larock.
Our take: We at CloudEagle notice this overbuying hassle with most customers. When we ask why you purchased the product, they simply say, ‘To send emails or for internal communication.” However, they often remain silent when we inquire about the application's return on investment (ROI).
As a SaaS buyer, you must calculate an estimated ROI before purchasing the product. It is not recommended to purchase a product just because you need to complete a task.
Effectively tracking the ROI on SaaS applications will make it easier for you to make cost optimization and vendor consolidation decisions, resulting in better SaaS savings. It’ll also prevent you from overbuying licenses or SaaS applications.
Optimizing SaaS spend with CloudEagle
The key takeaway from our conversation with experts is:
- Track your application usage consistently
- Leverage your negotiation skills to right-size licenses
- Consolidate vendors and eliminate high-spending ones
- Purchase SaaS the right way
- Estimate the value of a SaaS app before purchasing
These are the initiatives that business leaders and financial experts are taking to reduce SaaS spend in this volatile market.
CloudEagle is a comprehensive SaaS spend management platform to implement these initiatives to save on SaaS spend in your organization.
Direct integrations with hundreds of SaaS applications and system integrations enable CloudEagle to provide accurate app usage insights to make the necessary cost optimization decisions.
On-demand assisted buying experts are available to negotiate with the vendors on your behalf to cut down license counts and cancel contracts without any implications.
Vendor research module is available to help businesses search for the right vendors and compare them against price benchmarking insights. Select the right vendors and keep your SaaS spend optimized using CloudEagle.
Reducing SaaS spend has become a priority for organizations, as it is the third-biggest spend after employee and office leases.
Amidst the unpredictable market conditions, businesses are actively seeking strategies to optimize their spending on software-as-a-service (SaaS) solutions. To provide valuable insights, we engaged with financial experts and business leaders to understand their approach to cost optimization.
This article detailed the initiatives experts took to reduce license and SaaS costs. So, what do you think about this?
Which initiative are you going to take to cut down SaaS costs? Let us know.