Projections show that the value of the SaaS industry will reach $700 billion by 2030. But SaaS applications already constitute 70% of total software used in every company as of 2022 – it has already taken over businesses.
On average, a business uses 80 SaaS applications for various business functions. The higher the number, the harder it gets to manage all of them.
The reason for this complexity is the uniqueness of each vendor in their guidelines, compliance, contracts, pricing plans, etc. This is why the need for vendor management software has soared, as manual SaaS vendor management is not feasible.
But how exactly will a cloud-based management application help businesses manage their software vendors and save spending?
That is why we wrote this ultimate SaaS vendor management guide to help you understand the necessity for a vendor management system and how it can help businesses properly manage SaaS providers and keep track of their contracts and spend.
What is SaaS vendor management?
The question answers itself, but it is not limited to just managing SaaS vendors; there's more to this vertical.
It is a business process that necessitates complete control and authority over the SaaS vendors, maintaining a good vendor relationship, optimizing the apps and spending, etc. – it involves the entire vendor management cycle.
This life cycle includes
- Understanding the requirements
- Searching for the right vendors
- Creating an RFQ
- Negotiating with the vendors
- Choosing the right vendor and submitting the RFQ
- Comparing quotes from multiple vendors
- Choosing the right Software as a service application
- Implementing the application
- Managing the renewals
- Renegotiating based on the usage.
Goal of vendor management
Managing software vendors can be cumbersome if you don't have a vendor management process to keep things in line – vendor lifecycle management for SaaS brings that discipline.
The primary goals are to manage the vendors effectively and maintain a good relationship with them. It is said that an average vendor relationship lasts less than three years – this isn't a great sign.
Vendor relationships should last longer, and the lack of a robust management system is why these short-term contracts exist. Vendor management will make evaluating, implementing and tracking applications easier, increasing vendor accountability and value.
Goal of SaaS vendor management
The goal is to have the right stack of SaaS applications utilized to its fullest potential, ensuring that the SaaS contracts are scrutinized and risks are adequately addressed to keep the tech stack secure.
There is no "one size fits all" aspect for SaaS applications. As your business grows, so will your requirements, and having a SaaS management solution will help you scale your SaaS stack in tandem with your business growth.
Why is managing software vendors necessary?
Do we need vendor management systems to keep track of vendors? Most business owners ask this, and before they realize it, their SaaS spend will have skyrocketed as a software vendor will increase the pricing plan by 5–7% every year.
Your requirements grow as you scale your business. To maintain a seamless flow of operations, you'll start using more applications, and without a management system, everything will get cluttered.
You wouldn't know if your teams are utilizing your apps effectively, where your SaaS spend is increasing, or whether your SaaS stack is filled with duplicate apps. To avoid this, you'll need complete visibility over your applications, which a vendor management system will offer.
Losing $135,000 is not something to overlook. There are thousands of applications rolling out daily and hundreds of duplicate apps – how will you differentiate between legitimate apps and duplicate apps if you don't have a proper vendor management solution?
A 2022 study reported that 53% of businesses will use cloud SaaS to manage their day-to-day activities by 2023.
Apart from decluttering your SaaS stack and giving you complete control, there are a few more reasons why you need vendor management.
Gives control over SaaS spend
Studies show that 90% of companies pay more than they use. Financial teams are turning over every stone to see where they're losing money, and often they overlook their SaaS contracts.
Teams don't utilize a SaaS application completely; this happens when an app is purchased without understanding the requirements.
A VMS will reveal accurate app usage insights and spend data; this will help procurement teams negotiate the contract accordingly and reduce their SaaS spend.
Hidden pricing trap
Effective vendor management will help you stay clear of the hidden pricing trap.
Cost savings don't start by choosing vendors that offer the lowest pricing—this is where most businesses fail.
Businesses perceive that the low pricing is inclusive of all features, onboarding, and priority support. Little do they know that the vendor will start charging extra fees for implementation, onboarding, support, and more after the contract is signed.
You'll end up paying more than your competitors for SaaS applications that offer the same features. You need accurate price benchmarking data to compare with other vendors in the market and make the right decision.
Bird’s eye view
Businesses don't operate as they did a decade ago. Back then, employees had internet, OS, application, and browser limitations, safeguarding businesses from various vulnerabilities.
Now it is more flexible; employees can access any browser, install applications, and purchase applications without consulting the finance teams. And this shadow IT is one of the primary reasons for increased SaaS spending within a company.
The finance team will be mostly unaware of this, as they don't have a comprehensive view of all the applications. Businesses need a SaaS management platform that offers 100% application visibility and app insights that empower them during vendor evaluation and negotiation.
Service level agreements
SLAs are mandatory commitments a vendor must offer, irrespective of the contract pricing. A lack of vendor management will invite the vendor to fool you without signing a service level agreement.
- Services and functionality of the SaaS application
- Ways in which the performance of those services can be tracked.
- Billing and Renewal details
- Minimum software uptime guarantee
- Security promises and vendor compliance guidelines
- Minimum response time details.
- General support details
For instance, your business incurs a massive loss of revenue due to application downtime. If the vendor has yet to sign an SLA, you cannot hold them accountable for your loss, as it doesn't state so in your vendor agreements.
Shady vendors are the ones that don't sign SLAs because, most of the time, their applications won't be legitimate.
We talked about Shadow IT previously and how vendor management can give a bird's-eye view of all the applications.
Shadow IT, on the other hand, puts your business and all critical data at risk because employees may use duplicate applications. This is why managing SaaS vendors is critical, as it can eliminate shadow IT and security risks.
The bird's-eye view of all the applications will give you all the time you need to evaluate your vendors, choose the applications that are essential to your business, and eradicate the ones that look suspicious.
So, you found a duplicate app, which is great, but as you talk to the vendor to cut ties, they'll hand over a penalty invoice stating early agreement termination.
These penalties would be stated in the service level agreement, but your team wouldn't be aware of them as you don't have a proper management system that would have warned you of the vendor's rules, guidelines, and termination clauses.
And yes, SaaS termination penalties do exist.
There is nothing much to do other than continue using duplicate applications and expect a security breach, or pay the penalty and cut ties.
It is essential to perform vendor research before signing a contract. Research will reveal their pricing plans and terms and conditions, saving you time and money.
Security breach and indemnity
Here's an interesting scenario: Shadow IT goes unnoticed, your teams are using a duplicate application, and a security breach occurs where sensitive customer data gets stolen.
What happens next?
A vendor manager would have alerted you to sign an indemnity clause with the vendor to safeguard your business against civil lawsuits. Now, you don't have Indemnity and will be sued by your customers, which, in the worst-case scenario, could end your business.
Businesses should pay attention to vendors; they know you'll be planning a renegotiation to lower the pricing.
And when the renewal period closes, vendors will not remind you, and you'll end up paying the same cost. This is a tactic that most vendors use to catch businesses off guard with auto-renewals.
If businesses had effective vendor management for SaaS systems, it would've warned you of the renewal, and your team would have negotiated the contract early. Vendor management gives the power back to the SaaS buyer and will keep them ahead of the SaaS vendor.
What are the vendor management best practices?
We listed the importance, and now let's discuss the best practices for effective SaaS management.
SaaS vendor management tool
Manual vendor management can be tedious and time-consuming, as a business uses 150+ SaaS apps on average. Keeping track of them manually will require loads of documents and sheets that are not scalable and secure.
Each application generates loads of data from usage insights, contract details, spend data, renewals, etc. Documenting them on a spreadsheet is not scalable; the solution here is to automate the process using a vendor management system.
Each application will have different renewal dates; how will your finance team track them using spreadsheets?
Your team will need software to handle all the applications and vendors efficiently. Teams can recover app usage insights from one place, get alerts on unauthorized access to duplicate apps, get renewal reminders 90 days in advance, and negotiate with the vendors accordingly.
Not much emphasis is given to SaaS negotiations; businesses pay the list price of an application and later wonder why their SaaS spend is so high.
This is where a vendor management tool can help you with deeper app usage insights and spend data; your procurement team can negotiate with vendors to get pricing based on the usage.
To make this happen, you need to integrate all your apps with your vendor management software, so choosing a VMS with multiple app integrations is essential.
A VMS is redundant if it doesn't come with custom API integrations; be mindful of the integration aspect while choosing a VMS.
SLAs and Renewals
We stressed the SLAs previously; be sure to register all the SLAs to your VMS so you can get alerts and reminders when an application malfunctions.
You cannot always be present to keep your apps in check. If you have properly configured the SLAa to your VMS, it will automatically alert the vendor in the event of application downtime, saving your business from revenue losses.
Auto-renewals are a SaaS buyer's nightmare; you cannot stay updated with renewals through manual vendor management. A VMS will send renewal reminder alerts 90 days in advance. This will help you devise a negotiation plan based on your usage, or you'll end up auto-renewing it and losing your SaaS spend.
Designated buyer and owner
The main cause of shadow IT is a lack of authority. Create a defined app purchasing process that includes everything from making requests and approving them to purchasing the applications. A VMS can automate this process for you.
Procuring authority must involve IT, Finance, and Procurement team members. This will streamline the buying process and eliminate shadow IT. Also, define the DRIs for the applications; they should be responsible for requesting approvals and tracking app metrics.
The marketing lead, for example, should be the owner of all marketing-related applications such as Hubspot, Mailchimp, and so on. Suppose a request is submitted to acquire a new app for marketing. In that case, the marketing lead will accept the request and should advise the procurement team on what licenses to purchase.
To make this process more efficient, you must automate procurement workflows. With automation, the request will be automatically allocated to the DRI for approval; once granted, the procurement team is notified, and they can negotiate with the vendor and purchase the app with the assistance of the finance team.
This will save a lot of time, and the teams will have complete visibility over the entire procurement process.
With a tech stack comprising 100+ applications, it is essential to perform regular audits to ensure that your teams are utilizing the apps for what they're being paid for.
You can perform quarterly or half-yearly audits, evaluate the usage, and optimize your apps to reduce spending.
Effectively track the usage of your apps to see the apps used regularly and usage based on the tasks.
Your team, for example, may be using two different applications to segment clients based on their personas and to send emails. Some applications provide both functionalities; in those circumstances, you can purchase an all-in-one app that can handle numerous features, saving you both space and money.
Focus on the value add
Procuring an application at the right price is necessary, but you should be mindful of how your teams use it.
A SaaS application might provide various features, but if your teams don't find it user-friendly, they will not use it, and all your negotiations will go in vain.
The user experience should not be left unnoticed; it is one of the major reasons for unused apps in IT businesses. For example, let's say you've purchased Zoom for meetings and discussions.
But your team finds Google Meet to be more flexible as it can sync with your calendar. Your Zoom license will go unused, so during every audit, look for applications that are least used by your team and eliminate them.
Only use applications that add more value to your team and business.
Your business will be operating on heaps of data and it is your responsibility to keep your business and customer data secure.
With hundreds of third-party SaaS apps in your stack, it is more important than ever to ensure that you and all other vendors are adhering to the required security compliance.
Some of the security compliance that cloud-businesses must adhere to,
- PCI DSS
- Service organizational controls(SOC)
Using applications that are not compliant with these security audits will make your stack vulnerable to cyber attacks, and you'll lose sensitive data that would gravely impact your business.
For example, SOC 2 compliance proves that the application was built by following all the necessary security protocols and is capable of safeguarding customer data.
Likewise, each certification has its own protocols, and businesses must have those certifications. Keep your business secure by not partnering with vendors that aren't compliant with security standards.
Vendor management systems will keep track of all the compliance and make it easy for you during audits.
Tips to select the right SaaS providers for your business
Using the right vendor management tools is one of the best practices, and in the next section, we’ll show you how to select the right platform. But now we'll take you through a quick list to help you select the right vendors.
- Have a detailed understanding of your needs before searching for vendors.
- Use a SaaS Vendor management app to make the vendor research process easy.
- Closely analyze the certification and compliance audits passed by the vendors to keep your data secure.
- Check if the vendor offers custom API integrations.
- Collect their existing customer profile and look at the reviews and testimonials.
- Use G2, and Capterra to study their ratings.
- Social listening to check word of mouth surrounding the vendor.
- Analyze their data back policy and termination clauses.
- Do not miss out on their pricing.
- Always have a backup plan ready in case your primary choice doesn’t work out.
- Engage with their existing customers to learn more about the SaaS vendor.
- Analyze their previous service level agreements and contracts.
- Learn more about the customer and technical support they offer.
- Check the SaaS vendor’s reputation in the marketplace.
If everything pans out well, you can create an RPQ and submit it to the SaaS vendor; this will be succeeded by quote evaluation, review, negotiation, and contract signing.
Once you’ve selected the right SaaS vendor, they’ll become a part of your vendor management plan and next, we’ll show you how to select a platform for effective management.
How to select a SaaS vendor management platform?
With hundreds of tools on the market, finding the right one can be challenging. To make it easier, we've listed a definitive checklist; look for these features while selecting your ideal VMS.
Effective vendor control isn't feasible if you don't have a comprehensive view of your entire SaaS stack. You must have 100% application visibility, and more than that, look for a tool that provides detailed app usage, optimization insights, and accurate spend data.
Pay for what you use & Transparent pricing
The best way to save money is to pay only for features you need. Be mindful of this factor while selecting vendor management software—check if the vendor has scalable pricing and is willing to negotiate with you and quote you a price based on your requirements.
You can build healthy, long-term relationships with vendors like these.
The hidden pricing is a major red flag to watch out for while selecting an SMP to manage SaaS vendors. 55% of SaaS vendors keep their pricing hidden; you'll have to talk to their sales team to know their pricing.
Save your time by choosing a vendor with transparent pricing plans and good value per feature.
Contract management and renewal reminders
Contracts and invoices from vendors are more likely to get lost in your inbox or spreadsheets. It won’t help you make the right decisions during renewals. You need a tool that offers dynamic contract management functionality and can hold all necessary vendor documents in one place.
Do you think sending renewal reminders is enough? What if the reminders get lost in your inbox or go directly to spam? You'll miss the deadline, and the contract will be automatically renewed.
Although most platforms provide renewal reminders, only a handful of softwares have a specific method for alerting you of renewals. These platforms don't only send reminders; they also make sure you pay them on time by assigning managers and creating automated reminder workflows that begin 90 days in advance.
Identifying vendors has become an obsolete feature. Now, platforms allow you to look into the specifics of a vendor, such as their name, customers, reviews, testimonials, and so on.
A platform like that would aid you in the vendor evaluation process by allowing you to quickly assess trustworthiness and identify duplicate apps.
Procurement workflow & Reports
Shadow IT can be eliminated only if you have a proper process for procurement. You can easily automate your procurement process using SaaS management platforms.
Procurement workflows will automatically assign intake requests to approvers and help the procurement team purchase the product in no time.
Choose a platform that saves the time of your procurement team, so they can focus on managing software vendors and not chasing approvals.
Getting real-time app usage data, spend data, and insights into all SaaS apps Only then can the IT, Finance, and Procurement teams collaborate on what apps to use and effectively eliminate vulnerable, duplicate, and unused apps.
Maintaining good vendor and supplier relationships is necessary. To do that, you need expert help like that of assisted buyers, who can perform detailed vendor analysis and negotiate on your behalf to get the best contracts.
Assisted buyers are more like an extended part of your procurement team with years of negotiation experience. These buyers can get you the deal you need without frustrating the vendors; only a few vendor management software have assisted buyer features, so choose the right one.
Onboarding and Offboarding
How will you track app usage insights if you haven't provisioned and deprovisioned apps for the users? This is a crucial functionality to be aware of and a vendor management best practice. It'll show you who's using the apps; only then should you analyze how much they're using.
A mistake here will affect the experience and productivity of your team. Ideal software for managing vendors should be able to automatically provision and deprovision users.
Why do you need CloudEagle to manage SaaS vendors?
Managing SaaS vendors won't be complex if you use the right SaaS vendor management software, like CloudEagle.
Also, CloudEagle is the only SaaS vendor management platform that checks all the boxes on the extensive checklist discussed above.
CloudEagle handles everything from identifying vendors, assessing them, and submitting RFPs to negotiating, signing, managing contracts, and providing renewal guidance.
It covers the entire vendor lifecycle and is the only tool with automated procurement workflows and assisted buyers. Let’s have a quick rundown of the features,
- Get a bird’s eye view of your applications and retrieve deeper app usage insights and spend data.
- Manage contracts and invoices from one place.
- Identify duplicate, unused and low-usage apps within seconds.
- Top-notch renewal guidance. The reminders only stop when you pay the renewal.
- No more chasing approvals; automate the process with procurement workflows and purchase apps in seconds.
- Use the help of assisted buyers to find the right app that suits your needs.
- Expert negotiators to help you get the best contract and maintain healthy vendor relationships.
- AI-powered recommendation engine that automatically suggests apps based on your company data, size, and requirements.
- Automatic provisioning and deprovisioning of users.
- Get detailed cost-optimization insights.
The best SaaS vendor management platform is not the one that just lists out the vendors and offers visibility into your SaaS stack; it is a tool that simplifies the entire lifecycle of SaaS management and keeps your business secure with necessary risk compliance and mitigation. CloudEagle is one such tool capable of doing it all.
It is not an exaggeration, but rather a fact. Just a click, and you can see it for yourselves
SaaS vendor management has become a hot topic as we get into 2023. Because of inflation and recession, businesses have finally paid attention to their rising SaaS spending and decided to take action.
That's why we created this ultimate guide to help business owners, finance directors, and procurement leaders find the right software for managing vendors. In this blog, you learned about
- Importance of vendor management software
- How to select software to manage software vendors
- Vendor management best practices.
And we saved a search for you by listing why it is the right decision to choose CloudEagle. If you're convinced, click the "Book a demo" button above or look at what our wonderful customers say about us.
"CloudEagle’s team keeps delivering results of actual cost savings, both in time and money! My Vendor Management team uses CloudEagle daily and every month for our internal review and for quarterly board meetings, I use CloudEagle actively to pull out reports."
- Troy Otillio, CEO, Aira
Frequently asked questions
1. What is the role of the vendor manager?
The vendor manager oversees the entire vendor lifecycle and creates a roadmap/plan to improve the process without bottlenecks. The vendor manager will be in constant connection with the vendor to maintain strong vendor and supplier relationships.
2. What does a vendor management system do?
A vendor management system is SaaS or cloud-based software that helps the team manage the entire vendor lifecycle and automates repetitive processes within the cycle. It helps the team search for vendors, engage them, manage, and track all their contracts in one place.
3. What makes a good vendor manager?
Vendors are more like your business partners, and it is necessary to maintain a healthy relationship with those partners. A good vendor manager builds that relationship by engaging with vendors regularly and maintaining a good working relationship by sharing ideas and strategies, accepting feedback, and more.