The SaaS industry has grown rapidly in the last decade. In fact, since 2015, the SaaS industry has grown from $31.5 billion to an estimated $171.9 billion.
This popularity has persuaded companies to purchase SaaS applications at an alarming rate to handle various business operations.
Often, SaaS apps are purchased without the knowledge of the procurement or finance teams. This leads to poor app visibility and low accountability, leading to increased SaaS spend, poor ROI, and many security risks.
SaaS budgeting is the crux of spend management, and this definitive guide will help the finance and procurement teams devise an effective SaaS spend management plan to optimize SaaS costs.
What is SaaS Spend Management?
The idea is self-explanatory and outlines methods for reducing the costs of SaaS apps. It encompasses various checks and techniques, such as benchmarking costs, eliminating excess vulnerable and duplicate SaaS stack, ensuring viable pricing plans through negotiations, etc.
SaaS budgeting also makes up a substantial part of SaaS spend management since it assesses costs, analyzes them, and allows companies to decide what best suits their use cases.
The importance of SaaS budgeting has skyrocketed since the growing adoption of SaaS products. The expenditure on these tools will remain the same, which only elucidates their significance.
A suitable budgeting method will allow you to
- Maintain a check on company spending.
- Eliminate tools that don’t fit the bill.
- Reduce hassle and improve SaaS application organization.
- Prevent unverified spending and shadow IT.
How much do companies spend on SaaS applications every year?
A proper SaaS spend strategy involves the right plan and leveraging better techniques of SaaS expense management. As of 2020, an average company spent $2,623 per employee per year on SaaS.
Here’s a breakdown of how companies from different backgrounds and domains spend on their SaaS stack:
Small Companies (1-100 Employees)
The spending in these companies was reported at an average of $202k in 2020. This figure has seen a gradual rise, indicating how even the smallest companies are not starting to rely on SaaS to reap the maximum benefits.
Midsize Companies (100-1000 Employees)
Midsize companies utilized $2.47 million of their SaaS budget in 2020. This is again a gradual rise. However, the scope of SaaS budgeting in these companies is exponentially higher than the ones talked about above. This clearly indicates how, as companies grow, their reliance on SaaS software grows too.
Enterprise companies (1000+ employees)
Not only is the spending the highest here, with $4.16 million as of 2020, but these companies also saw a steep curve in their pattern as opposed to the previous ones, which had a more gradual trajectory. The SaaS spend for these companies grew 30 times from 2018 to 2019. This demonstrates the increasing popularity of SaaS software. This has prompted companies to pay more attention to SaaS expense management.
Importance of effective SaaS spend management
With the amount of money being burned, companies clearly don’t have a problem since they most definitely see results. Would some meager savings really influence the enterprise-level companies that clearly don’t have any problem spending that much?
The flaw in this argument is that the savings aren't that meager. SaaS spending is predicted to reach $500 billion in 2023, and with a proper expense management strategy, businesses can save millions of dollars.
Many businesses have already invested in spend management and saved money on purchases. So, what exactly can you achieve using an effective spend management strategy,
Visibility on unused SaaS apps
The SaaS tool might’ve served a purpose at the time of purchase, but it would’ve become redundant as the requirements changed.
Some tools fulfill their use cases, and that's the end. But due to low accountability, these SaaS applications are only partially removed from the stack, thereby increasing the resource load for no specific gain.
Effective SaaS management will reveal excess spend waste like this and help the teams eliminate it and save money.
Prevent Shadow IT
Shadow IT refers to company employees acquiring SaaS applications without the knowledge of the IT department. As the title suggests, they are doing the job that a procurement department should do.
This practice results in employees purchasing SaaS software without realizing that the organization already has an alternative solution that solves the same problem more efficiently, thus resulting in the rise of duplicate apps.
An effective SaaS spend management software will define procurement guidelines, thus preventing shadow IT and the risk of duplicate applications in the stack and saving SaaS costs in the process.
Bad SaaS Licensing Decisions
When companies buy a license for 100 people but only 30 use the tool, it creates a gap in utilization and leads to the expenditure of more resources.
This simply happens because companies haven't reviewed the employees' temperaments and consulted them before acquiring the product.
SaaS management streamlines the SaaS procurement process and necessitates the procurement team to consult the internal team, identify the requirement, and purchase the product.
So, now you know why SaaS cost optimization is needed, but what does it offer?
Benefits of effective SaaS spend management
Proper Utilization Of SaaS applications
With a SaaS expense management system in place, companies can effectively understand if the teams are utilizing their tools well and ensure that they’re getting exactly what they paid for.
Nothing more, but nothing less as well. This eliminates the risk of having a tool that is being used by only half the people or tools that serve the same purpose.
Better SaaS budgeting
While looking at expenses, companies tend to note their abilities in the first place. This includes multiple aspects like their available funds, how much they can allocate, and what percentage of their resources they can spend on SaaS.
But most importantly, they look at what value and ROI will be generated by the tool. It is essential that every SaaS tool serve a purpose and drive results; otherwise, organizations are merely throwing money at a wall.
Renewals in SaaS are tricky. This is, in part, the fault of the SaaS providers themselves. Tactics like late renewal notifications, auto payments, and deliberate miscommunication result in tool owners not being aware of when their tool will expire or renew.
The unwanted sense of urgency created by this process forces many companies to pay more than they could have, had they started negotiating early on.
With the right SaaS spend management software, finance and procurement teams can stay on top of renewals, renegotiate contracts based on usage, and renew on time, saving costs.
Check out how our customer streamlined SaaS renewals using CloudEagle's renewal workflows:
SaaS spend management best practices
SaaS spend management isn’t tricky, but the process requires involvement, proper, active involvement.
Well, because if you think you saved $1000 on a subscription, there’s a high chance you could have saved $1000 more.
This ultimately boils down to your method and how you optimize your processes. Let’s look at the SaaS spend management best practices to follow for effective cost optimization,
Procure your SaaS tool wisely
The very first step in using a SaaS tool is to procure it. This depends on many different factors:
- How many alternatives are there on the market?
- What is the pricing model for each of those tools?
- How each provider cooperates with your SaaS contract negotiation process?
- How well does the product fit your needs?
- Does it create value?
Having a number of different alternatives isn’t necessarily a bad thing. The higher number gives you more leeway to look at tools and judge their cost and functionality. If there are more options, then there’s more scope for you to negotiate and reduce the cost of the tool along the way.
On the other hand, pricing models might be different for each tool. Some might come with no offers, but other relatively new products might try to increase their user base with massive discounts on annual plans. This helps you stay within budget while also delivering the maximum value.
Ace your SaaS contract negotiations
SaaS software comes with contracts that might be monthly, yearly, or even biannual. Many SaaS vendors also have customizable plans for individual use cases.
Having a custom plan works in several ways.
- It allows the buyer to only opt-in for the feature their company will utilize. This eventually prevents providers from sticking in add-ons and ultimately increasing the product's price. This issue is prevalent in many companies that end up spending a lot more because of features they don’t even end up using.
- Custom duration also allows you to negotiate for longer or shorter periods, depending on how much you will use the SaaS tool.
In the case of longer SaaS contract terms, there is also scope for more procurement negotiation since it indicates commitment, and there is a better chance of getting discounts on the pricing plans.
- The custom plan also indicates room for communication with the providers. This is helpful in cases of downtime, and you need the support team on priority. Since you are a high-value customer, there are chances your use case will be prioritized, thus saving you from the risk of losing business in the process.
Manage your SaaS stack
Now that you have successfully negotiated and purchased the product, it needs to be managed carefully by stakeholders, who will be responsible for every little thing that happens with the product. This will create accountability, and a SaaS management platform will help make this process easy.
This process of owning a specific tool is typically handled by the finance and procurement teams. They exclusively take care of all the stack's tools and manage different aspects of their usage. They might not be the end users of the product, but they will be responsible for all the following things:
- Giving access to the tool to employees who need it.
- Keeping a tab on utilization and ensuring there aren’t any empty seats draining resources.
- Making sure that the contracts are in line with the requirement and the expiry date is in check.
- Keeping a check on product usage to identify red flags which can land the company in a flurry of compliance issues.
- Making sure that the company-specific data being used in the product is kept secure and that none of it reaches the wrong hands.
- Analyzing the cancellation terms as and when the product reaches its final stages of usage in a company.
- Maintaining a constant communication loop with the provider support team in case anything goes wrong.
Keep track of Return on Investment
ROI isn’t difficult to judge, especially when a company has a finance department in place. But what is ROI, in context, with a SaaS application?
ROI means the positive impact that has been created since the tool's adoption. Say you have purchased an automation tool that helps you automate your email drip campaigns. Then, every lead acquired through those campaigns comes from the tool and its automation features.
However, there are a lot of cases where ROI isn’t so obvious. The return on investment might not be clear upfront in the case of an AI content creation tool.
But from a long-term perspective, you can effectively base it on the results that were generated as a by-product of the content. Hence, regardless of the tool, the ROI generated is essential to ensuring that the money invested in the tool isn’t going down the drain.
Get a SaaS spend management software
The above steps seem straightforward, but they require a lot of effort and a large workforce. Companies often have their hands stretched and find themselves in difficult positions to appoint people to take care of these tools. This is where a SaaS spend management tool can help optimize spending and SaaS procurement.
Simply put, a SaaS management platform with a SaaS spend optimization feature will help you accomplish all the tasks mentioned above and more with straightforward automation.
Utilizing these tools requires little to no manual effort. One of its primary features is streamlining the entire SaaS spend management process.
With every tool under one roof, managing and analyzing their contribution to the company's overall growth becomes much easier.
SaaS spend management tools, like CloudEagle, help you manage many different aspects of this process:
- Complete coverage over all vendors.
- App-usage insights that aid you in negotiation.
- Identify low-usage apps to optimize spend & reduce SaaS costs.
- Detect unused subscriptions.
- Identify duplicate apps and eliminate them
- Use price benchmarking data to enhance vendor negotiations.
6 Tips for better SaaS spend management
Let's look at a few tips on SaaS cost management that will help you gain a clearer insight into how you can save more efficiently.
Get a good grasp on SaaS policies
SaaS software and its purchase involve a lot of paperwork as part of the SaaS agreement. The SaaS software also deals with a lot of data usage; this data is usually very private, and in cases of exploitation, it can lead to widespread reputational and resource damage.
Hence, defining security, privacy, and SLA policies from the get-go and making sure that there aren’t any compliance issues is the top priority.
Here are some of the things that these policies cover:
- Are there going to be auto-recurring expenses?
- What kind of data will the tool need access to?
- Are the privacy and security features of the tool on par with the latest standards?
- Will anyone from the SaaS vendor team have access to that data?
- How does the support team solve issues arising in the usage process?
- Is there any hidden clause regarding a feature essential to know beforehand?
- What are the tool's compliance policies, and is GDPR compliant?
- In case of a security breach, what are the standard protocols?
- Do the users have a say in the product roadmap?
- Is there a hidden cap on certain features? If yes, what are they?
Conduct consistent SaaS Audits
Since we have spoken so much about ROI, it’s also important to judge the tools from time to time to gauge their impact. Hence, a periodic audit of their function and usage is necessary to determine the necessary insights and move forward accordingly.
A monthly or quarterly audit can prove very helpful in this regard. Moreover, a good SaaS spend management tool like CloudEagle can provide you with acute analytics and insights that can make this process even more streamlined.
Be mindful of contract terms and clauses
SaaS vendors can add terms and conditions that might be unknown to SaaS buyers. So it’s essential to have that line of communication with them and get that sorted out early on.
The earlier this happens in the buying process, the smoother the vendor relationship will be.
Clauses that state that the vendor will take full responsibility for any misconduct due to data breaches or application downtime are also essential to maintaining the company's image and ensuring that the buyers aren’t facing any unwarranted consequences.
Ask the right questions of your vendors during negotiations, and then select them.
Early Renewal Negotiations
Beginning early is always advantageous in such processes because it helps give the buyers the upper hand. This allows you, the buyer, to decide what you will eventually pay for the renewal.
Retention is always a big deal for SaaS vendors, who hate seeing loyal customers switch. The buyers can effectively use this to negotiate a deal that is not only mutually beneficial but even better than the one they got in their first installment.
Festive Seasonal Discounts on SaaS applications
Typically, SaaS vendors will hold holiday sales between Black Friday and Christmas. This attracts more buyers, and the discounts go as low as 60–70%. Buying SaaS tools makes perfect sense during this period because it allows you to procure those SaaS solutions at a fraction of the cost.
Not only that but these prices are further lowered if the plan you buy is long-term (annual or biannual). This paves the way for even greater discounts that can reap better ROIs in the long run.
Driving ROI in a company does not always rely on a single tool but rather on multiple SaaS solutions that will work together to produce the best results.
This can only be ensured with proper integration support from the vendor. The more freedom a tool provides in terms of integration, the better the chances are of properly channeling data and driving better results.
Why do you need a SaaS spend management software?
A SaaS spend management software can be used to optimize SaaS expenses and save on SaaS spend. Each of the tasks can be taken over in a smooth, streamlined, and centralized manner with better and more nuanced analytics.
SaaS platforms like CloudEagle solve the critical problem of SaaS overspending by bringing all the different applications, its spend, and vendors under a single cloak, providing best-in-class SaaS management.
With its advanced stack of features, CloudEagle helps you accomplish much more from your SaaS tools and, eventually, drive better results.
- Make renewal decisions with usage insights: The tool helps you gain the upper hand with app utilization information, price benchmarking, and insider information on alternate vendor options.
- Stay ahead of SaaS renewals with renewal workflows.
- Centralize your SaaS contracts and vendors for easy management.
- Detect SaaS and non-SaaS apps: discover SaaS apps and categorize them from non-SaaS with the help of 200+ integrations and browser extensions.
- Cost optimization: Detect underutilized licenses, hidden apps, and duplicate apps, eliminate them, and prevent expense wastage.
- Pre-negotiated discounts: Thanks to years of vendor relationships, we provide pre-negotiated discounts for various vendors to help you save money.
- Financial integrations: CloudEagle will easily integrate with your financial systems and provide accurate results of your SaaS spend relevant to each application.
- Generate accurate and timely financial reports: The CloudEagle cost management platform provides you with 20+ customizable reports. You can quickly and efficiently track your organization's progress, from departmental spending to employee spending and usage.
- An extended procurement team: We'll also help you negotiate better with our proven tactics and support. So you can efficiently focus on the tasks that matter more and leave the savings to us.
SaaS spend management is essential for finance and procurement teams to control costs and optimize their SaaS stack.
In this article, you learned about spend management, its benefits, and the best practices to follow while creating a SaaS spend management strategy.
Though this management process seems like a stretch, it can be simplified by leveraging SaaS spend management tools like CloudEagle. The amount of resources that can be saved as a result is substantial enough for you to reconsider your SaaS spending and start thinking more proactively about your solutions.
“It's amazing to see how CloudEagle's team saved us thousands of dollars within just a couple of months of engagement. With their insights about internal usage and persistence with vendors, it feels like they are our own team that’s working hard to save us money.”
Michael Lipinski, ICEYE
Book a demo with us and discover how CloudEagle simplifies SaaS expense management and saves you big bucks!