SaaS applications constitute 70% of the total software used in every company as of 2022. It is the third-biggest expense in an organization next to employee and office lease expenses, according to the CloudEagle survey.
On average, a business uses 130 SaaS applications for collaboration and seamless business operations. The higher the number, the harder it gets to manage these applications and their vendors.
Most businesses invest poor efforts in managing SaaS vendors, resulting in increased SaaS spend and security breaches.
However, some businesses and vendor managers caught wind of it and have deployed SaaS vendor management software to manage software providers, as manual SaaS vendor management is not feasible.
But before we talk about the software, let us first understand what is SaaS vendor management, its importance, best practices, and how you can approach it in this ultimate guide.
What is SaaS vendor management?
It is the process of researching, evaluating, selecting, and managing SaaS vendors to build a healthy relationship.
It necessitates complete control over SaaS vendors, aiming to optimize SaaS spend. The term “SaaS vendor management” is not limited to managing software vendors; it refers to a complete lifecycle.
This life cycle includes:
- Understanding the requirements
- Vendor research
- Creating RFPs and RFQs
- Selecting the right vendor
- Negotiating and purchasing the product
- Implementing the application
- Usage and renewal tracking
- Constant engagement
Goal of SaaS vendor management
Managing software vendors can be cumbersome if you don't have an effective SaaS vendor management process to keep things in line.
The primary goals are to get complete visibility over SaaS vendors, track their policy changes, communicate, and maintain a good relationship to optimize your SaaS spend.
It is said that an average vendor relationship lasts less than three years; this isn't a great sign.
Vendor relationships are supposed to last longer to keep your SaaS spending under control. The key to longer relationships is effective SaaS vendor management.
If you don’t track SaaS vendors, you'll often end up paying more during every renewal. Maintaining a healthy relationship with these vendors will open up opportunities for discounts and cost-saving plans.
Why managing software vendors is necessary?
Do we need a SaaS vendor management system to track vendors?
Business owners frequently ask us the question mentioned above, and we consistently provide the same answer:
"SaaS vendor will regularly increase their prices by 5% to 7% each year. So, it is necessary to have a SaaS vendor management system in place to keep track of vendors, pricing, benchmarks, policies and so on, so you won't be caught off guard."
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, it'll be challenging for the IT and security teams to track applications and vendors.
It's difficult to determine if your teams are using your apps efficiently, where your SaaS expenses are growing, or if your SaaS stack contains duplicate applications.
To prevent this, you'll require comprehensive insight into your applications, which a SaaS vendor management platform can provide.
Losing $135,000 is not something to overlook. Thousands of applications are rolling out daily, and your employees might purchase unsanctioned apps with overlapping functionalities.
How will you identify these duplicate apps and shadow purchases if you don't have a proper SaaS vendor management solution?
Now is the time to invest in vendor management and optimize your stack. Apart from decluttering your SaaS stack and giving you complete control, there are a few more reasons why you need vendor management.
Before we get to the reasons, check out this exciting customer story from Iffi Wahla, the co-founder and CEO of Edge. He recalls how his team streamlined vendor management using CloudEagle.
Gives control over SaaS spend
Studies show that 90% of companies pay more than what they use. Financial teams are turning over every stone to see where they're losing money, and often they overlook their SaaS contracts.
The primary reason for increased spending is that teams don't utilize SaaS applications completely; this happens when an app is purchased without understanding the requirements.
A SaaS vendor management software will reveal accurate app usage insights and spend data; this will help the finance and procurement teams negotiate the contract accordingly and reduce excess SaaS spend.
Surprise pricing trap
Some vendors tend to display low pricing on their websites compared to their competitors.
Businesses perceive that low pricing includes all features, onboarding, and priority support. Little do they know that the SaaS vendor will start charging extra fees for implementation, onboarding, support, and more after the contract is signed.
You'll end up paying more than what your peers are paying for similar applications.
Vendor management systems like CloudEagle will help you perform detailed research on vendors, read relevant reviews, talk to their customers, and enable you to make the right decision before purchasing the product.
Bird’s eye view
Businesses don't operate as they did a decade ago. Back then, employees had limitations on the internet, OS, applications, and browsers, 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. Vendor management platforms will provide 100% visibility, making it easier for the team to identify free apps and duplicate apps resulting from shadow IT.
Service level agreements
SLAs are mandatory commitments a vendor must offer, irrespective of contract pricing.
- Services and functionality of the SaaS application.
- Scope of the contract
- Termination clauses and penalties
- 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.
Poor vendor management will lead to your team accepting the vendor’s proposal without SLAs, which will be detrimental to your organization.
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. This is why managing SaaS vendors is critical, as it can eliminate shadow IT and its associated security risks.
Using SaaS vendor management software will mandate that vendors comply with prevalent security regulations. This software will assist you in identifying vendors with inadequate compliance requirements, allowing you to remove them and maintain a secure stack.
So, you found a duplicate app, which is excellent, but as you talk to the vendor to cut ties, they'll hand over an invoice for a penalty stating early agreement termination.
These penalties would be stated in the service level agreement. However, your team wouldn't have noticed it as they don't have a cloud-based vendor management system that would have warned you of the vendor's rules, guidelines, and termination clauses.
And yes, SaaS termination penalties do exist.
It is essential to perform vendor research before signing a contract. The 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?
Your customer will file a lawsuit against you.
A cloud-based vendor management system would have alerted you to sign an SLA with an indemnity clause to safeguard your business against civil lawsuits.
Since your team didn’t pay attention to the SLAs, you don't have indemnity and might be sued by your customers, which could cause a huge loss of reputation for your organization.
SaaS vendors will not include an alerting system for contract renewals because they want your contracts to be auto-renewed.
Auto-renewal is one of the major reasons why organizations overspend on SaaS. Check out this exciting customer story from Wefunder and how auto-renewals affected them.
SaaS vendor management software like CloudEagle has renewal workflows to help you stay ahead of contract renewals. You can use VMS to gather usage data, negotiate with your vendors effectively, and optimize your SaaS spend.
A comprehensive SaaS vendor management software can benefit your business in many ways, as mentioned above.
SaaS vendor management best practices
We listed the importance, and now let's discuss the best practices for effective SaaS management.
Use a 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.
Your team must use a SaaS vendor management system to handle all the applications and vendors efficiently.
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 SaaS vendor management tool can help you with deeper app usage insights and spend data; your procurement team can leverage this data and ace vendor negotiations.
Getting accurate app usage insights is only possible if a vendor management system is capable of integrating with your apps and internal systems.
A VMS is redundant if it doesn't come with custom API integrations; be mindful of the integration aspect while choosing a VMS.
Don’t miss out on 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 encoded the SLAs in your VMS, it will automatically alert you 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, and help you renew the contract on time.
Centralize your procurement process
The main cause of shadow IT is a lack of authority. Create a defined SaaS purchasing process that includes everything from raising and approving purchase requests to purchasing the applications.
A SaaS vendor management tool like CloudEagle can automate this process for you using 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 by leveraging the usage insights and purchase the application.
This will save a lot of time, and the teams will have complete visibility over the entire procurement process.
Ensure security compliance
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 adhere 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 protocols, and businesses must have those certifications. Keep your business secure by not partnering with vendors that aren't compliant with security standards.
A SaaS vendor management system will have access to all your data, so it is essential to select one that meets the necessary compliance standards.
SaaS vendor selection checklist to select the right vendors
Our customers often ask, "How do I select the right SaaS vendor?" Here's a quick vendor selection checklist for you to make the process easier.
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?
Finding the right SaaS vendor management software can be challenging with hundreds of tools on the market. 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 the needed features. Be mindful of this factor while selecting SaaS 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.
Hidden pricing is a major red flag to watch out for when selecting a VMS 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 time by choosing a vendor with transparent pricing plans and good value per feature.
Contract management and renewal reminders
Contracts and vendor invoices will likely 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 software goes the extra mile to ensure you renew on time.
Why waste time searching for vendors through Google? Vendor research must be easier and not take most of your time. Now, platforms allow you to look into the specifics of a vendor, such as their name, customers, reviews, testimonials, and so on.
A platform with vendor research functionality will help you quickly shortlist the right vendors without breaking a sweat. You can also leverage the price benchmarking data to find the most cost-effective vendor.
Shadow IT can be eliminated only if you have a centralized SaaS procurement process.
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.
Maintaining good vendor and supplier relationships is necessary. To do that, you need to ace your negotiations, but what if your team lacks the bandwidth to negotiate?
This is where you need the help of SaaS buying experts, who can perform detailed vendor analysis and negotiate on your behalf to purchase the right product at the right price.
Select a SaaS vendor management platform that offers on-demand SaaS buying services to save on SaaS spend and build a healthy relationship with the vendor.
Onboarding and offboarding
How will you track app usage insights if you haven't provisioned apps for the users? This is a crucial functionality to be aware of and a SaaS vendor management best practice.
Effective employee onboarding is necessary for seamless SaaS application management. Or your IT team wouldn’t know who is using the app and how much they’re using it, leading to redundancies in your SaaS stack.
Likewise, if you don’t effectively deprovision users after they quit, you risk the chance of your data being used by others. So, select a VMS that offers automated onboarding and offboarding functionality.
CloudEagle: The all-in-one SaaS vendor management platform
Managing SaaS vendors won't be complex if you use the right SaaS vendor management software, like CloudEagle.
Also, CloudEagle is the only platform for vendor management that checks all the boxes on the vendor selection checklist we listed in the previous section.
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 in one place.
- Identify duplicate, unused, and low-usage apps within seconds.
- Top-notch renewal guidance with automated workflows. The reminders only stop when the contract is renewed.
- 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's data, size, and requirements.
- Automatic provisioning and deprovisioning of users
- Get detailed cost-optimization insights and custom reports.
The best SaaS vendor management platform is not one that just lists out the vendors and offers visibility into your SaaS stack.
It is a tool that should simplify the entire lifecycle of SaaS management and keep your business secure with necessary risk compliance and mitigation. CloudEagle is one such tool capable of doing it all.
SaaS vendor management has become a necessity for organizations in 2023. Because of inflation and the 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 learn more about vendor management and find the right software for managing software vendors. In this blog, you learned about
- The importance of vendor management software.
- How to select software to manage software vendors?
- SaaS Vendor management best practices.
CloudEagle is the only platform that offers SaaS vendor management, application management, contract, renewal, and license management, assisted buying services, procurement workflows, and cost optimization insights under one roof.
"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 or plan to improve the process without bottlenecks. The vendor manager will constantly connect 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 them, 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.