Mastering SaaS License Management: Types, Risks, & Best Practices

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min read time
December 23, 2023
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In today’s dynamic business landscape, SaaS apps have emerged as game changers, offering organizations enhanced flexibility, scalability, and efficiency.

On average, enterprises use more than 300 SaaS applications for core business functions. In addition to this, as per Fortune Business Insights, the SaaS market is projected to cross $800 billion by the end of this decade.

However, the widespread usage of cloud-based apps presents numerous challenges, particularly in managing SaaS licenses. Poor management will lead to increased spending, security hassles, and a subpar ROI.

As a result, SaaS license management has evolved into a vital strategy for organizations to manage SaaS software licenses. Efficient license management has become critical to ensuring cost-effectiveness, compliance, and optimal utilization of resources.

This blog will explore more about SaaS licensing management, its types, importance, best practices, and its role in shaping modern enterprises.

What is SaaS license management?

It is an approach followed by organizations to successfully manage and optimize their software-as-a-service (SaaS) licenses. It entails purchasing, managing, and monitoring SaaS licenses throughout their lifespans, from procurement to renewals.

At its heart, SaaS license management closely tracks multiple facets of software licenses. This includes tracking license allocation to individuals or groups, analyzing license usage, and assuring licenses are renewed before expiration to avoid service disruptions.

Monitoring is only one aspect of SaaS license management. It also involves proactive efforts for resource allocation optimization. This includes examining user access trends and changing license distribution as needed.

Understanding how licenses are used allows firms to allocate them to departments or individuals who require them the most efficiently, simplifying license utilization.

SaaS license management is a subset of generic software asset management (or IT asset management), which encompasses all software in a firm, whether or not it is subscription-based.

What are the types of SaaS licenses?

There are six popular SaaS licensing types:

  • Flat-rate licensing: This model charges a flat amount for a product for a set period, regardless of usage. It's best suited for small teams with predictable usage patterns.
  • Per-feature licensing: Users pay based on the precise features they access or use inside a product, allowing them to tailor their spending to their needs.
  • Usage-based licensing: Charges depend on how much the service is utilized, providing flexibility and a "pay-as-you-go" approach linked with consumption.
  • Per-user licensing: This involves payment based on the number of users, with various tiers accommodating different user counts, such as Slack's per-user model.
  • Freemium: This model offers limited free access while enticing consumers to subscribe for additional features or premium services.
  • Tiered licensing: Software is available in various packages or tiers, each with its features and pricing. Users select the tier that best meets their needs and then upgrade for more advanced features. These models cater to a wide range of business requirements, offering cost and software access flexibility.

Why should you manage SaaS licenses?

Each SaaS application will have its own stack of purchased licenses, and managing them effectively has advantages.

Cost savings

Efficient license management is the key to substantial cost savings. It comprises prudent financial resource allocation, halting wasteful spending on unused or surplus licenses. Organizations can optimize their budgets by actively aligning licenses with actual demands.

Avoiding shadow IT and SaaS sprawl

Shadow IT refers to the purchase of SaaS apps without IT knowledge, and when left unmonitored, it’ll lead to a proliferation of SaaS apps (sprawl).

Image showing shadow IT statistics

A systematic license management framework functions as a beacon, giving visibility over what’s being used and helping the team avoid the risks of shadow IT and SaaS sprawl. It extends beyond visibility and provides complete control and governance over the entire scope of software utilization.

Prevent spend escalations

Failure to monitor surplus and unused licenses during contract renewals can lead to increased costs. Proactive license management serves as a protective measure, avoiding financial strains resulting from unnecessary payments. It ensures businesses solely pay for utilized services, preventing budget escalations and promoting fiscal responsibility.

Enhanced Productivity and better resource allocations

By providing an elaborate insight into usage trends, license management becomes a catalyst for increased productivity. This detailed information enables businesses to optimize software deployments, allowing easy access to vital tools. Simultaneously reducing redundancies, leading to better resource allocations, and enhancing workforce productivity.

Efficient license management enables easy identification of active and inactive users. Consequently, you can revoke licenses from inactive users and reallocate them to teams that require them.

Risk of underutilization and overutilization

As many as 38% of SaaS licenses go unused, and many SaaS users log in to a product less than once monthly.

Poor license management exposes businesses to the dual risks of underutilization and overutilization. Organizations confront operational inefficiencies, whether they are paying for dormant licenses or dealing with disruptions caused by shortages.

Strategic license management involves maintaining a delicate balance to ensure optimal utilization aligned with company needs. Breaching usage limits could result in penalties from vendors, highlighting the importance of managing licenses to guarantee efficient team utilization.

Compliance and security hassles

Robust license management is critical for assuring licensing agreement compliance and mitigating security concerns. It protects enterprises from legal and security risks by ensuring a secure and compliant software environment.

It ensures that the organization operates within the bounds of software license agreements, preventing legal implications due to unauthorized usage or breaches of licensing terms

License management provides visibility into software usage, enabling tracking of who uses what and ensuring accountability, which is crucial for compliance audits and keeps the ecosystem secure.

6 SaaS license management best practices

Let us delve into each practice to elevate your SaaS license management strategy:

1. Get complete visibility of purchased licenses

Having complete visibility into all purchased SaaS licenses is essential for successful license management. Organizations should create and maintain a centralized repository that contains specific information about each license, such as license type, renewal dates, costs, and other relevant details.

This not only improves transparency but also allows for faster decision-making regarding license renewals, upgrades, or downsizing.

A comprehensive overview of the entire license landscape assists organizations in avoiding redundancy, avoiding overspending, and ensuring that licenses are matched with actual business needs.

2. Analyze usage for better cost optimization and resource allocation

Regularly evaluating usage patterns is critical for cost optimization and efficient resource allocation. By analyzing instances of over- or under-utilization, IT and finance teams right-size licenses based on usage.

This information enables informed decisions about renewing, upgrading, or downgrading licenses, aligning software costs with actual usage and company needs.

Proactive usage pattern analysis ensures that enterprises optimize costs and encourage a more agile resource allocation process without hassle.

3. Use automation to track and monitor license usage.

Implementing automation for license tracking and monitoring is crucial to modern license management. Automated systems are essential in helping you analyze usage insights and configure alerts for over- or under-utilization.

Utilizing automation enhances the accuracy and efficiency of license management, eradicating the potential for human error. By employing automation for routine monitoring and management tasks, IT teams can redirect their focus to strategic projects, promptly addressing license agreement discrepancies through proactive measures.

Automation greatly improves the accuracy and agility needed for effective SaaS licensing management in dynamic enterprise environments.

Image showing low usage applications

4. Leverage a SaaS license management software

You can use SaaS license management software to automate the licensing management process. They can integrate with your internal systems and provide complete visibility over your SaaS portfolio.

It’ll organize all applications in one place, including all the purchased licenses. You don’t have to visit each application for usage insights. Instead, you can analyze usage on licenses from a centralized dashboard.

Or, instead of purchasing a best-in-class license management platform, you can purchase a holistic SaaS management solution to manage your SaaS licenses and right-size them efficiently.

5. Streamline procurement to avoid decentralized license purchases

Streamlining the procurement process is critical to preventing ad hoc and decentralized licensing purchases. Organizations must establish a structured procedure in which all licensing requests are approved, ensuring that purchases align with actual needs and financial limits.

This practice limits the proliferation of disparate licenses among departments, resulting in a more integrated and cost-effective procurement strategy.

Organizations can gain more control over software spending and make strategic decisions corresponding to overall corporate goals by streamlining the procurement process.

You can leverage a SaaS procurement platform and use workflows to automate your request approval process. This streamlined approach will make purchasing easier, preventing users from purchasing apps and subscribing to licenses independently.

6. Conduct regular audits for usage and compliance

Conducting periodic audits is crucial for ensuring continued compliance with licensing agreements. These audits include a comprehensive review of software usage to discover any unauthorized or non-compliant cases.

Organizations can reduce the risk of legal ramifications and financial fines by routinely monitoring compliance with license agreements.

Furthermore, audit findings can be utilized to modify and improve the organization's entire SaaS license management approach, promoting a continuous improvement mindset in software asset management. Regular audits lead to a proactive and vigilant compliance and risk management approach.

Risks of poor SaaS software license management

Increased software spending

Poor SaaS software license management often leads to increased spending. Enterprises can over-purchase licenses or invest in software that doesn't meet their needs. This leads to wasteful finances, diverting funds that could be better deployed elsewhere in the business. Licensing management is critical for reducing software costs and maintaining a cost-effective operational structure.

Poor ROI on licenses due to low usage

Inefficient license management can lead to a low return on investment (ROI), as firms may pay for rarely or never-used licenses. This is a waste of financial resources and can be a direct impediment to achieving optimal productivity.

To maximize ROI, the number of licenses must be aligned with the team’s actual requirements, ensuring that each license contributes effectively to the business objectives.

Non-Compliance Penalties

Poor SaaS software license management puts enterprises at risk of non-compliance with licensing agreements. Non-compliance can result in severe penalties, legal consequences, and reputational harm to the business.

Ensuring that software use is in accordance with licensing terms is not only a financial necessity but also an essential part of maintaining the organization's integrity and avoiding legal issues.

Reduced Negotiating Power

Without a clear understanding of software use patterns and needs, enterprises may lack negotiating power when dealing with software vendors. This might lead to missed negotiation opportunities to secure volume discounts, attractive licensing terms, or other concessions.

A weakened negotiation position can result in suboptimal agreements, affecting the business's ability to manage software expenses successfully.

CloudEagle - The Holistic license management solution

CloudEagle is a comprehensive SaaS management and procurement platform that helps organizations manage their SaaS apps, streamline procurement, and optimize spend.

In addition, it is also equipped with robust license management features to help you manage your licenses effectively.

Image of CloudEagle's dashboard

Integrations enable CloudEagle to look into your SaaS portfolio. It will organize all applications in one dashboard, including their spend data, purchased licenses, usage insights, etc. You can analyze individual license usage and make the right optimization decisions.

License reclamation workflow

You can configure automated workflows to deprovision users from licenses automatically. Set a minimum usage threshold, and when the user doesn’t meet the requirement, CloudEagle will automatically deprovision the user, harness, and license to reallocate it to another user.

Or you can collect the unused licenses and right-size them.

Negotiation assistance

If your team lacks the bandwidth to negotiate with vendors to right-size licenses, you can seek assistance from our SaaS buying experts. They will work as an extended team, analyze the usage, and negotiate with the vendor to eliminate unused licenses successfully and realize cost savings for you.

Here's how we helped one of our customers right-size licenses through expert negotiations:


Efficient SaaS license management is paramount for businesses aiming to thrive in a rapidly evolving digital landscape. As SaaS spending increases across various software categories, businesses must proactively manage their SaaS licenses to optimize costs, enhance security, and ensure compliance.

This guide explored SaaS license management and its importance, best practices, and risks. However, managing these licenses can be tricky without an efficient SaaS management solution.

Managing SaaS licensing effectively reduces risks, maintains compliance, and maximizes your ROI. This is where platforms like CloudEagle can be beneficial.

CloudEagle can help streamline license management, save costs, and simplify operations. Furthermore, it can provide comprehensive visibility into your SaaS stack and assist you in streamlining your procurement process, avoiding shadow IT/ SaaS sprawl, decentralized purchases, and minimizing your spend.

Book a demo today to learn how CloudEagle can help you manage SaaS licenses.

Written by
Kevin Lee
SDR, CloudEagle
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