The SaaS market is growing faster, with hundreds of applications rolling out daily. An exciting report says that a small-sized business uses an average of 100 SaaS applications to perform various business activities.
Yes, it is an excellent sign for SaaS applications, but for businesses, it's the other way around. Companies have been spending uncontrollably on SaaS products, with an overall SaaS spend of $178 billion in 2022.
But most of the spending is wasted due to low app usage, poor vendor negotiations, auto-renewals, etc. For businesses to optimize their SaaS stack and control their spending, they need a SaaS spend optimization strategy. But it is not an overnight development; reducing SaaS spending requires planning and a mindful approach.
It's time to take control of your SaaS expenses and increase ROI. Luckily, we are here to help you out. We created this article to help you understand more about SaaS spend optimization and its importance. We've also listed the proven ways businesses use to reduce SaaS spend.
What is SaaS spend optimization?
The concept of SaaS cost optimization illustrates the number of ways companies can decrease their spending on SaaS tools. And while these seem pretty straightforward, their subtle complexity becomes hard to overlook in the long run. Here are some of the main steps that 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, it is crucial to make a tab and analyze all the tools in use.
SaaS tools use licenses, and these tend to get lost in the process. Managing these software licenses, keeping track of renewals, and shedding deadweight SaaS products are some of the critical steps you can take to utilize proper licensing effectively.
Cutting SaaS costs
After all the tools are in place, the company can use different means to optimize SaaS spend.
This can be achieved using a SaaS cost management tool, which will provide complete visibility into your SaaS stack, automate renewals and procurement, identify unused licenses and duplicate apps, and reduce SaaS costs.
Why do you need to optimize your SaaS spend?
The growing emergence of SaaS tools has burned a hole in company spending. SaaS providers take advantage of the urgency in buying companies and extract steep prices due to high-reaching costs and poor competitive research. But it's not just about the spending, but the ROI as well.
The smallest of tools sometimes turn out to be the most efficient and excel where full-stack solutions fall under-utilized. The most optimal usage of these solutions is essential when companies want to extract the total value of the services they are paying for.
Here are a couple of reasons why SaaS spend optimization 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 unverfied expenses and optimizing them right away.
Cluttered tools in a stack represent a massive and ever-increasing cost increase. However, a neat stack with well-defined use cases makes the categorization and assignment of tools much more effortless. 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 do their jobs effectively and 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.
8 Clever Ways to Reduce SaaS Spend
To manage SaaS spend and cost, a streamlined set of constant but necessary methods is required. These methods are a way of shedding underutilized products, which neither add to ROI nor create any value for the company.
But even beyond that, some expensive SaaS applications that are being utilized might also need some optimizations regarding better plans, fewer seats, and renewal negotiations.
According to the Workato 2022 State of Business Technical Report, many companies have started to manage SaaS spending by implementing different strategies, as depicted in the picture below.
Let's look at each of these ways in detail:
Implement a vendor management system
While procuring a tool, many different steps are involved, from tool selection to contract signing and delivery. A good vendor management system can now take over each of these steps. These systems are particularly designed to ease your procurement needs by automating the entire purchasing process and making time for more tasks that add value.
1. One of the things that a vendor management system has to ensure is the minimal expenditure of resources.
This means that these systems can even take over the systematic negotiation processes and strike the most beneficial deal for both parties.
2. It also creates a streamlined procedure and builds better relationships with vendors and customers.
If you are using the best software for SaaS spend optimization, there's no need to hassle the procurement teams and get stuck with negotiations.
3. With a good analytics and monitoring feature stack, VMS will provide reports on what SaaS apps are being used and how. They give an overview of consumption and ROI, making it a cakewalk for companies to let go of the dead weight.
A sound vendor management system, like CloudEagle, allows you to simultaneously keep track of the SaaS apps, reduce costs, and streamline procurement via automation. It's an all-in-one solution that can help you take your head off these mundane tasks.
Fix Shadow IT
Before we jump into this, what does "Shadow IT" mean? It is a practice where individuals in a company procure SaaS applications without prior approval from the IT team.
It is termed "Shadow IT" because it replicates the work of an IT team but without accountability. This practice leads to the purchase of tools that are either going to serve only individual use cases or are going to be severely underutilized.
Shadow IT is prominent in successful corporate structures with vast hierarchies. This leads to many employees having a company email address and a spending card that they can use to blindly attain these tools.
Organizations can fix this system by appointing strict guidelines for SaaS spending. This can be done in the following ways:
- No tool should be purchased without prior approval from the IT team.
- There should be a proper review of the tool and the particular plan. This will avoid a situation wherein a business plan is being used to serve individual needs.
- Reduce software overlap by indicating the tool and its usage to the employees. This will prevent purchasing two or more tools that serve the same function.
Conducting Internal Reviews
Employees are the best advocates of a tool since they are going to be the primary users, after all. Hence, understanding their sentiments about SaaS solutions often reveals many insights that might be unknown to the IT teams.
These insights can be in the form of reviews or rants about the UI, features, or even the general problem-solving ability of solutions. Some insights that can be uncovered via this process are:
- Understanding what tools are most popularly used so that they can be renewed for an even more vast population, thus reducing costs via bulk SaaS purchases.
- Knowledge of underrated SaaS apps that might not have progressed through the trial stage but can create significant value.
- Underutilized SaaS apps purchased for different teams but hardly impacted the ROI. These SaaS apps can be scrapped.
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 it easier and more lucrative to forecast growth and revenue 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 different ways:
- Opting for the prolonged duration discounted rate mentioned in their transparent pricing plan.
- Increasing the potential SaaS usage & bringing down the cost in a bulk-usage scenario.
As we briefly mentioned, renewals are tricky, especially when you aren't anticipating them. As a ground rule, one should avoid auto-renewals since it gives more opportunity for the SaaS vendor to process the payment without a revised contract negotiation quietly.
SaaS teams work differently, and while many give a prior indication about the upcoming renewal date, many vendors also remain hush until the very end.
Again, this creates urgency and forces you to get the product at an unnecessarily higher cost. Here's how you can smartly maneuver this to your advantage and save SaaS costs:
- Make a note of the renewal date and start your negotiations well in advance.
- Be sure to re-do the competitive research & benchmark data to stay in line with the market and pricing.
- Quote your requirements and costs accordingly to strike the best deal.
Every company works differently, with different capabilities. In such situations, keeping track of the company budget becomes crucial to fix your SaaS spending benchmarks and avoid overspending.
This also makes it easier to eliminate SaaS apps based on their prices. Sometimes a simple cost calculation indicates that a tool is going overboard. Hence, it can be removed from the competitive research stage itself.
On the other hand, SaaS applications that are more than affordable and carry significant value should be negotiated and brought into the SaaS stack as early as possible.
Beginning early can give you first-mover leverage and showcase high intent towards the vendor team. More often than not, they can make a customized plan that explicitly matches the buying company's use case.
Negotiate & Reduce SaaS Spend
Negotiation is the most crucial stage of your SaaS application purchasing process. It can happen at multiple stages of your buying process, including the contract and the renewal period.
You can clarify your primary desires 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 that 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.
- Maintain an organized pipeline that facilitates easy communication without a lot of back and forth. This will save time and effort on both sides.
Assign SaaS tool owners
Even though multiple team members might use the tool, one person should be appointed as its owner to ensure that they are keeping proper track and maintaining insights in a secure place.
This should be a separate process from the IT team since these insights will be more in-depth from a usability perspective.
How CloudEagle can help you reduce SaaS spend?
CloudEagle is your go-to solution for all your SaaS spend optimization needs. CloudEagle can take over all the strategies mentioned above in a streamlined and resource-efficient manner.
This all-in-one, SaaS management platform, helps finance, procurement, and IT teams get visibility into their software spending, save on it, and streamline their buying and renewal processes.
With a simple 3S solution, CloudEagle paves the way for effectively streamlining and saving while procuring SaaS apps.
- See your apps: This feature helps you identify hidden and unused apps. It is an effective way to keep Shadow IT in check.
- Save on SaaS spend: With effective benchmarking, it becomes easier to check costs and ensure that you are well within the industry standards. CloudEagle also aids you by empowering your negotiators with accurate SaaS optimization insights to minimize costs.
- Streamline Procurement: With fluid automation, you can streamline your procurement process with CloudEagle.
Here are some of the key ways you can utilize CloudEagle to reduce your growing software spend,
- 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.
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.
This can't and won't be minimized, but the one thing that can undoubtedly be taken care of is the value generated per dollar spent.
Following the right strategies can help you optimize 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 the more important and impactful aspects of your growth trajectory.
“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 your 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 get to experience the capabilities of the platform. 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. As of now, only CloudEagle provides all these functionalities in the market and that's why it is better than others.