Did you know that SaaS spend is the third-highest spend in a company, next to employee and office lease spend?
This shows how much organizations rely on SaaS applications. But how much ROI are companies generating from their SaaS spend?
Our customers often complain about the poor ROI on SaaS applications. And we believe the major reason for this is uncontrolled spending and poor vendor negotiations.
Here are two quick questions that’ll put things into perspective:
1. Are companies spending a lot on SaaS applications? - Yes
2. Are they purchasing applications as per the requirements and through effective negotiations? - No.
Without an effective SaaS spend optimization strategy, you cannot keep your SaaS spend under control. With that in mind, we created this article to provide you with eight proven ways to reduce your SaaS spend.
Leverage them as part of your SaaS cost optimization tactics to optimize SaaS spend and increase your ROI.
What is SaaS spend optimization?
It is a business process followed by finance teams to track, manage, and reduce SaaS spend effectively. SaaS spend optimization necessitates a series of strategies and practices that you must follow to keep your SaaS costs optimized.
The primary goal behind SaaS spend optimization is to get the maximum value for the software investments while simultaneously minimizing needles expenses from missed renewals, shadow IT, etc.
Here are some of the main steps this concept encompasses:
Analyzing all the tools in the SaaS stack
IT companies always work better with autonomy. But many a time, this autonomy leads to individual employees going ahead and purchasing tools with limited use cases and inflated costs.
And with such a large number of tools in the stack, keeping them all on track becomes difficult. Hence, as the first step in reducing SaaS spend, making a tab and analyzing all the tools in use is crucial.
This will help identify duplicate, redundant, and underutilized applications in the stack; eliminating them will result in significant SaaS cost savings.
SaaS tools are licensed based on the requirements. Some companies might purchase 50 licenses for an app when the requirement is just 20. The remaining 30 licenses will be left unused, leading to poor ROI.
Right-sizing these licenses through effective renegotiation is a significant aspect of SaaS cost optimization.
The key to optimizing SaaS spend is effective negotiation. You can lower the prices only by negotiating with the vendor, or the vendor will charge the product's list price.
Without negotiations, you will be paying way higher prices than your peers for the same applications and licenses.
8 Clever Ways to Reduce SaaS Spend
These eight ways have been tested and proven by various organizations, but if you want to have an inside look of how finance teams and leaders reduced SaaS spend in their organization, click here.
How can you reduce SaaS spend if you don’t know where you’re spending the most?
Some companies use spreadsheets to track their spending. A manual approach makes sense if the stack is small, but what about a SaaS stack of 100+ applications? Spreadsheets aren’t practical and scalable.
This is why you must use a SaaS cost optimization platform to minimize SaaS spend.
These platforms can integrate with your SSO, finance, and HRIS systems to retrieve complete app, spend, user, and usage data from applications.
It’ll provide complete visibility of your entire SaaS portfolio. This includes:
- Visibility on sanctioned and unsanctioned applications.
- Visibility on duplicate, redundant, and underutilized applications.
- Department-wise, user-wise spend reports.
- Complete license details, including provisioned users and spend per license data.
- Accurate usage data to calculate ROI.
A platform will reveal active and inactive users. You can easily deprovision inactive users from licenses and reallocate those licenses.
Fix Shadow IT
If you see unsanctioned applications in your SaaS stack, it indicates shadow purchases.
Shadow IT has a plethora of risks associated with it, so you must act quickly to prevent it. We asked our customers what they did to eliminate shadow IT, and we got two major tactics,
1. Create strict policies for shadow purchases. Some policies even include “work termination” for using a company credit card to purchase SaaS applications without approval.
Educate your employees about the risks involved in shadow IT. Limit credit cards to specific third-party purchases or set a threshold for every virtual card you offer.
2. A centralized SaaS procurement process. Our customers used a SaaS buying platform to streamline their software purchasing process.
- Delayed procurement
- Lack of transparency over purchase requests
These are the major reasons that frustrate the employee and lead to them going rogue with their purchases. A SaaS buying platform will automate the process and provide 100% transparency.
Workflows will accelerate SaaS purchasing and prevent employees from purchasing unsanctioned applications.
Effective license management
A SaaS spend management platform will reveal the number of licenses purchased and how many are being used effectively.
If you want to get the maximum value from your SaaS application, you must eliminate those unused licenses. It is also essential to assess underutilized licenses, as they can impact your return on investment (ROI), follow these best practices to manage your licenses effectively.
You can use the tool to deprovision users of underutilized licenses, reallocate them to needed users, and eliminate the remaining. This will greatly reduce SaaS costs.
- Do not forecast your growth and purchase licenses based on future projections.
- Only purchase licenses based on the requirements.
- It is important to inform vendors before the renewal notice period about your intention to right-size licenses. Failure to do so may result in penalties imposed by certain SaaS vendors.
Longer SaaS Subscriptions, Lesser Costs
For any given product, the pricing options for year-long SaaS subscriptions are considerably discounted compared to their monthly plans.
This is because SaaS companies find forecasting growth and revenue easier and more lucrative when a customer has pledged for an extended period.
Considering that you and your team will be using the particular SaaS product continuously, you can negotiate your contract by opting for a yearly or two-year subscription. You can talk your way through negotiations in several ways:
- Opting for the prolonged discounted rate mentioned in their transparent pricing plan.
- Increasing the potential SaaS usage & bringing down the cost in a bulk-usage scenario.
SaaS renewals are tricky, especially when you aren't anticipating them. As a ground rule, you should make it clear in the SLAs to avoid auto-renewals. It gives more opportunities for the SaaS vendor to process the payment without a revised contract negotiation.
SaaS vendors work differently, and while some send reminders regarding the upcoming renewal date, others prefer to remain silent until the last moment.
This is where SaaS renewal management software could come in handy. You can use workflows to send automatic reminders and stay ahead of renewals. Here's how the renewal workflow can help you out:
- Get reminders 90 days before the renewal date and start prepping your negotiations well in advance.
- Be sure to re-do the competitive research & leverage benchmark data to stay in line with the market and pricing.
- Make it clear with the vendors about your decision to right-size licenses well before the renewal date arrives.
Get rid of the auto-renewal clause from your agreement; this will prevent you from incurring unnecessary expenses.
Manually tracking your renewal dates is not feasible. Use a renewal management tool to streamline SaaS renewals.
We recently had a conversation with Dave Beckwith, the Vice President of Global Procurement & Endpoints at 8x8, and asked about his approach to reducing SaaS spend.
He replied, Vendor Consolidation!
He added, “Our portfolio included 100s of SaaS vendors. However, around 20–30 vendors covered the majority of spend. " We noticed we paid seven figures for a small fraction of vendors.”
“So we decided to eliminate some of the underutilized and high-spending vendors and consolidate them.” “We relied on some of our reliable vendors who delivered similar functionalities,” says Dave Beckwith.
Get complete SaaS visibility using a SaaS management platform. Identify the high-paying vendors, evaluate your requirements, and consolidate them to reduce SaaS costs.
For example, let’s say you have Mailchimp for email marketing, Asana for management, and Hubspot for marketing. In this case, you can consolidate Mailchimp and Asana since Hubspot can deliver both email marketing and project management functionalities.
This consolidation will bring potential benefits such as simplified vendor management, improved efficiency, cost optimization, and better integration between various organizational functions.
Negotiate & Reduce SaaS Spend
Negotiation is the most crucial stage of your SaaS application purchasing process. Cost savings begin with effective negotiations.
You can clarify your primary requirements for the product by communicating your needs to the vendors. This can help you in a number of ways, such as avoiding additional and unwanted features, avoiding upselling traps, and devising a customized plan well suited to the company's needs.
The main steps of your SaaS contract negotiation process are as follows:
- Begin early to ensure you are ahead of your contract's expiry date. New renewal also paves the way for new offers and bargaining.
- Ensure that the vendors provide SLAs while signing the contractual agreements.
- Keep your BATNAs ready before you go into negotiations.
Leverage price benchmarks and analyze what your peers are paying for similar products and features for better negotiations. Clearly define your requirements and allocate your budget. Do not fall for it because SaaS vendors will ask you to buy more licenses to earn discounts. You’ll only end up spending more.
If your team lacks the bandwidth to negotiate, seek assistance from expert SaaS buyers. They can analyze your requirements and usage, leverage benchmarks, and negotiate with the vendors for you to right-size licenses, downgrade plans, and help minimize your SaaS spend.
A SaaS cost optimization platform comes with direct integration capabilities. Platforms like CloudEagle and Zluri can integrate with 600+ applications.
Direct integrations enable these platforms to provide accurate usage insights. You can track the user activity and usage patterns and use them to negotiate with the vendors.
When we asked Jinendra Jain, the Global head of Finance at Tiger Analytics, about the pricing plans to choose, he added, “Do not pay the pricing upfront. Always opt for slab-wise or usage-based pricing for better control over spending.”
The best way to reduce SaaS spend is to pay only for what you use. You can do this in two ways,
1. Ask your teams, clearly understand your requirements, and purchase the product based on projected actual usage and the number of seats.
2. If your ROI is low, right-size your licenses, cut down on unnecessary features, and downgrade your pricing plans to keep your spend under budget.
Most SaaS vendors will not be open to offering usage-based pricing. However, it is essential to skillfully negotiate and align the vendors' understanding with your requirements without straining your relationship.
Why do you need to optimize your SaaS spend?
The market is volatile, and failing to implement a SaaS spend optimization strategy can negatively impact your bottom line. You don’t want that during economic uncertainty, so here are a few reasons why it is crucial for organizations
We have spoken a lot about saving costs, but what about the abstract expenses that occurred in the process? A SaaS optimization tool will make your auditing process smoother and quicker, helping you easily identify unverified expenses and optimize them immediately.
Optimizing SaaS spend will increase the value of the SaaS applications, resulting in enhanced ROI. By eliminating overlapping and unused licenses, finance teams can redirect resources to high-priority and high-demand applications, easing app management.
Enhanced budget allocations
SaaS spend optimization platform will help you clearly define what different teams need and their priorities. You can use their usage data to allocate your budget effectively. Using a cost optimization platform will send alerts when a purchase exceeds the budget; this increases accountability during SaaS purchasing.
Cluttered tools in a stack will continuously increase financial burden. However, an organized stack with well-defined use cases makes categorizing and assigning tools much more effortless, cost optimization strategy will result in an organized SaaS stack.
The right people will have access to the right SaaS applications, and the plans will be purchased accordingly, increasing ROI.
Space for more services
By gauging adequate SaaS spending benchmarks, the organization can further focus on improving other parts of its service. This can range from improved customer service to improved onboarding. Better optimization increases morale and leaves more room for the marketing, production, and development teams to perform efficiently.
Many organizations lose a fortune on fines and compliance issues. This can be easily avoided if there's proper licensing and tracking of expenses in the form of SaaS spend optimization tools and subscriptions.
How does CloudEagle help you reduce SaaS spend?
CloudEagle is a comprehensive SaaS spend management platform that can help finance teams reduce SaaS spend. It has an extensive integration library, enabling you to get 100% visibility on apps and spend, and it provides accurate usage and user activity insights for better app control and management.
Here’s a quick rundown of CloudEagle’s capabilities:
- Get complete SaaS usage visibility for better SaaS optimization and license negotiation.
- Receive automatic notifications and renewal guidance from dedicated managers as the contract renewal dates are approaching.
- Utilize our custom workflows to get your SaaS intake request within seconds.
- Use our price benchmarking data to compare competitive prices and choose the affordable SaaS solution.
- Pre-negotiated discounts are available.
- Cost optimization insights.
- Automated provisioning and deprovisioning.
- License harnessing and reallocating.
- Centralize all your contracts and documents in one place for easy management.
- Get proactive alerts on shadow IT applications.
- Assisted buying experts
- Procurement workflows to accelerate SaaS buying
Head over to see CloudEagle's full-stack SaaS cost optimization functionality in action!
SaaS spend optimization isn't a tricky process, but what makes it so tedious is that it is always ongoing. The usage of SaaS solutions will continue for a while, and companies worldwide will be spending millions and billions on SaaS applications.
Following the right SaaS cost optimization strategies can help you reduce SaaS spend. One of the tactics is to use a SaaS spend management platform like CloudEagle to take control of your SaaS portfolio.
With solutions like CloudEagle, you can optimize SaaS spend without hassles and focus on your growth trajectory's more important and impactful aspects.
“It was amazing to see how CloudEagle's team saved us thousands of dollars within just a couple of months of our 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, Director of IT and Security, ICEYE
So, are you ready to optimize SaaS spending and increase ROI using a SaaS management platform?
Frequently asked questions
1. Does CloudEagle have a free trial version?
Yes, CloudEagle does have a 15-day free trial version, so you can experience the platform's capabilities. The pricing plans start at $500 per month.
2. How much can I reduce my SaaS spend using CloudEagle?
It depends on the applications you use and how your teams are using it. One of our customers has saved $450,000 on SaaS spend using CloudEagle. You can find their stories in our customer stories section.
3. How is CloudEagle better than other SaaS spend optimization platform?
Reducing SaaS spend is not just about optimizing SaaS apps using the usage insights that most platforms provide. You need to streamline your procurement process, empower your negotiators, use automated procurement workflows, and effectively manage your vendors. Currently, only CloudEagle provides all these functionalities on the market, and that's why it is better than others.