SaaS Cost Optimization: Financial Proofing Your Organization

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min read time
December 24, 2023
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In today's technology-driven era, Software as a Service (SaaS) solutions are transforming how organizations function because of their ease of access, scalability, and the features they offer.

However, as organizations grow, navigating the landscape of SaaS can be challenging as the SaaS portfolio expands and relevant software spend becomes hard to manage.

More often than not, unchecked SaaS spending, decentralized processes, and a lack of visibility into actual usage data make it challenging to optimize SaaS costs.

This is why organizations should invest their time in SaaS cost optimization to identify redundant tools, minimize wasted spend, and right-size licenses to save on SaaS spend and increase ROI.

This blog will discuss the various factors influencing SaaS costs and SaaS cost optimization strategies that can be adopted to optimize your spend.

What is SaaS cost optimization?

SaaS cost optimization is the continuous and proactive management and monitoring of a company's software expenses to realize savings and increase the value of SaaS applications.

Also referred to as SaaS spend optimization, it essentially helps eliminate redundant, inefficient software and apps subscribed by an organization while ensuring no crucial solutions on which key processes are dependent are affected.

The process revolves around closely analyzing and scrutinizing SaaS spending, software contracts, licenses, and application usage to understand opportunities for optimization.

It is an approach designed to help companies derive maximum value from SaaS applications while minimizing unnecessary expenses. It also involves strategically managing resources, licenses, and infrastructure to ensure optimal efficiency and cost-effectiveness.

Why is it important to optimize SaaS costs?

In an era where organizations use various SaaS applications to streamline business operations, conducting regular assessments to align actual software usage with the investment is imperative.

By carefully analyzing the team's requirements and comparing them with app and license usage, organizations can align budgets effectively. This approach allows them to allocate finances for the right resources that drive the organization's growth.

SaaS cost management promotes resource allocation, ensuring that company investments are directed toward only tools and features that contribute effectively to organizational objectives.

At its core, this optimization process is not just any other financial exercise. It is a pivotal strategy that empowers companies to navigate the ever-evolving, dynamic landscape of SaaS and derive financial excellence.

Here’s a quick rundown of its importance:

  • Prevents spend escalations
  • Enables efficient budget allocation
  • Avoid overspending hassles

Alright, to understand how to minimize SaaS expenditure, first, it is imperative to understand the factors that influence the increase in SaaS costs.

5 Key Factors that Influence SaaS Costs in an Enterprise

1. SaaS sprawl and shadow IT

Due to lengthy or meticulous purchasing processes, employees may purchase and adopt SaaS applications without the IT department's approval or knowledge.

This unchecked, unapproved proliferation of software applications in organizations results in increased costs and overlapping functionalities. It also puts the data and infrastructure of the business at security risk.

Image showing shadow IT statistics

When employees or teams independently subscribe to unvetted tools or solutions to meet specific needs, businesses must contend with a complex ecosystem that leads to unavoidable operational inefficiencies and inflated costs.

2. Unused licenses

It is not uncommon for organizations to purchase SaaS licenses upfront, beyond the requirement for future growth. The majority of these licenses often remain unused.

These unused licenses are also called ‘abandoned licenses;' nothing can be done unless you have more users to provision them. If not, the only option left is to eliminate them during renegotiations, resulting in poor ROI.

3. Poor vendor negotiations

Many businesses fail to effectively negotiate terms and pricing with SaaS vendors, resulting in companies paying more than needed for subscriptions over time.

Discussing and establishing a clear vendor negotiation strategy is imperative for securing favorable terms, customized plans, and discounts that align with the company’s requirements.

SaaS procurement negotiations help businesses take control of costs and establish a foundation for a mutually beneficial, long-term relationship.

4. Rise of duplicate and redundant applications

Due to the ease of adoption of SaaS applications, more often than not, companies end up with various apps with similar features and functionalities, leading to redundant, duplicate applications.

Apart from a fragmented technology landscape and incurring unnecessary costs, it also dramatically complicates SaaS management and hampers productivity.

5. Auto-renewal of contracts

It is easy to miss out on the auto-renewal clause when signing SaaS application contracts. This is why auto-renewals catch companies off guard, which leads to unintentionally increased costs.

Without meticulous oversight, contracts may get renewed even when there is no longer a requirement in the organization.

Implementing contract management practices, including timely renegotiations and reviews, is essential to avoid the financial pitfalls of auto-renewals.

SaaS Cost Optimization Strategies for Organizations to Follow

Implement these SaaS cost optimization strategies to enable your teams to control expenses and enhance the overall efficiency of their digital operations.

Get end-to-end spending visibility

Tracking SaaS expenses is inevitable in a technology-centric organization. For some businesses, using spreadsheets works just fine to track their expenses. However, this isn't practical for organizations with over 50 SaaS applications.

This is where SaaS cost optimization software comes in to be extremely helpful. These solutions can be seamlessly integrated with your company’s finance, human resources, and SSO systems to consolidate data related to the app, usage, users, and spending.

Image showing CloudEagle's Application visibility module

Get a 360-degree view of your SaaS stack, which sheds light on your exact usage data and redundant, underutilized, and duplicate SaaS apps. You also get information about your licenses, which includes spend-per-license data and provisioned users.

You also get user and department-wise spending reports and data on your organization's unsanctioned and sanctioned SaaS apps using cost optimization platforms like CloudEagle.

Consolidate overlapping applications

It is common for organizations to end up with multiple applications that serve the same or similar purposes. This duplication happens due to decentralized buying, mergers, acquisitions, or multiple free trials leading to paid subscriptions. Having overlapping tools results in inflated costs and fragmented workflows.

Image explaining what is vendor consolidation

Adopt the practice of keenly analyzing overlapping spending that helps you look for instances where your organization has subscribed to two (or more) products offering the same features or functionalities.

When you find that your organization is using two tools in the same category, do a deep dive into their utilization, understand which would be a better fit for your organization, and serve the needs of your team members more effectively.

You can consolidate the two overlapping applications and start using just one, or you can purchase a unified solution to consolidate those best-in-class applications.

Here’s how RingCentral consolidates a contract management system and a SaaS management platform using CloudEagle. Check out this customer success story.

3. Right-size unused licenses

An instrumental step in SaaS cost optimization is regularly right-sizing your company’s unused software licenses. Conduct exhaustive SaaS inventory and usage audits to identify underutilized or unnecessary licenses.

Image explaining what is right-sizing licenses

When you analyze and streamline the number of SaaS licenses with actual needs, you can avoid overspending while ensuring that finances are directed towards subscriptions necessary for your business operations.

You can either negotiate yourself with the vendor to right-size them, or you can seek assistance from SaaS buying experts who will negotiate with the vendors on your behalf and eliminate the licenses without affecting your vendor relationships.

4. Eliminate duplicate, redundant apps

App duplication in companies bloats up costs and presents a risk of inconsistent, fragmented workflows. Frequent audits must be conducted in your SaaS ecosystem to identify duplicate systems and redundant functionalities.

Image showing duplicate application module

The decision to eliminate or retain apps should only be based on actual data on usage and adoption across business functions.

Through SaaS application rationalization, you can systematically assess all your software systems at use in your organization to align with current and future business needs.

The rationalization exercise aims to classify applications as replaceable, redundant, reusable, or customizable. The following steps can be taken according to the situation:

  • Apps with similar capabilities or poor adoption fall under the redundant category and should be removed
  • Applications that no longer meet your business demands should be replaced with better-suited options

5. Automate contract renewals to avoid auto-renewals

Take control of SaaS contract renewals by automating the contract renewal process to avoid the pitfalls of unnecessary auto-renewals.

Implement efficient automated systems like CloudEagle to receive timely reminders to review contracts and meticulously re-negotiate terms with vendors during renewals.

Image showing contract renewal workflows

This strategic approach helps you ensure you renew the contracts on time rather than just the subscriptions getting auto-renewed. Use the power of automated contract management systems to stay on top of your SaaS renewals and prevent dispensable expenditures.

6. Use a SaaS cost optimization software

The landscape of SaaS applications is ever-evolving and leveraging technology to its most has become essential for businesses to manage costs effectively. The use of dedicated SaaS cost optimization software has proven imperative for organizations looking to analyze and reduce their SaaS spending.

These cost optimization tools provide an overview of an organization's entire SaaS ecosystem. They offer real-time insights into your software usage patterns, contract details, and subscription costs.

By centralizing this data, companies can gain a holistic understanding of their SaaS spending, enabling them to make well-informed decisions about it, budgeting, contract renewals, and resource allocation.

SaaS cost optimization solutions go way beyond just offering fundamental analytics. These solutions often have advanced functionalities, including usage analytics, automated alerts, procurement workflows, vendor research, and vendor management tools.

CloudEagle: The All-in-one SaaS Cost Optimization Software

CloudEagle is a robust SaaS procurement and management platform that gives users complete visibility into their SaaS ecosystem and the ability to streamline review contracts before renewal to reduce SaaS expenditure.

Image of CloudEagle's dashboard

With CloudEagle, you can save up to 30% of what you already spend on your software and tools. We have helped organizations worldwide save millions in spend.

CloudEagle helps you identify where your organization may overspend by identifying duplicate apps. The tool is also designed to help you negotiate smarter based on data, manage contracts in advance, and streamline your procurement request process.

Here’s a quick rundown of cost optimization features:

  • Automatically identifies and organizes duplicate, free, and redundant apps.
  • Sends proactive shadow IT alerts.
  • Provides complete visibility into purchased licenses.
  • License reclamation workflows for better resource allocation.
  • Custom spend reports for efficient budgeting.
  • Renewal workflows to stay ahead of contract renewals.
  • Procurement workflows to streamline the process
  • Vendor spend data, vendor management, and vendor research capabilities.
  • Price benchmarking for effective negotiations
  • Savings guarantee

CloudEagle has helped companies save over 2000+ hours in negotiation and spend management, and it can help you save 30% on your SaaS spend.

Do you want to optimize your SaaS costs and save on SaaS spending with the industry's most comprehensive SaaS cost optimization software?

Book a demo and talk to our experts now!

Written by
Vamshi Krishna
Product Manager, CloudEagle
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