In a world where SaaS is the main way software is purchased, companies are experiencing a growing need for SaaS spend optimization. And the reasons are numerous. SaaS has made it extremely easy to purchase software as anyone with buying authority can purchase a solution that makes sense at the time. This means that individuals outside of IT departments could purchase a technology they think they need without being aware of existing or better solutions. Not surprisingly, this leads to a serious waste of SaaS spend.
And this is how SaaS tends to be wasted: Over time, there is an accumulation of unused tools and licenses. App subscriptions with duplicate use-cases overlap and generate more costs than necessary. In fact, according to recent SaaS spend research, an average company with heavy SaaS-use wastes more than 40% of wasted spend on overlapping or underutilized tools. But this doesn’t have to be the case. SaaS spend optimization can help manage your SaaS inventory and maximizes the value you can get out of your SaaS apps.
Learn about the most common approaches and the best practices of SaaS optimization to effectively optimize SaaS spend in your company.
What is SaaS spend optimization?
SaaS spend optimization is the active SaaS management process to reduce the number of SaaS apps or licenses, and to right-size contracts in your company. It plays a vital part in avoiding SaaS waste, unnecessary security gaps, and cost accumulation through tracking all existing SaaS solutions and detecting over-licensed and under-utilized SaaS applications.
In recent years, SaaS has drastically changed the ways software is procured. Companies keep opting out of on-prem technology and this trend is very likely to continue in the future. After all, moving to the cloud or creating cloud-first environments has proven to deliver better customer service and employee experiences, ultimately resulting in a competitive advantage and increased profits.
However, the more SaaS solutions are purchased, the more unmanaged the cloud infrastructure becomes. And without proper SaaS management tools and SaaS spend optimization, the company wastes budget on unnecessary costs.
The main reason for SaaS waste is limited visibility into overlapping subscriptions, automatic renewals of unused or under-utilized tools, or unclear ownership. This is due to a lack of formal rules when it comes to the procurement of SaaS applications. Thus, companies end up paying for tools with the same use-case or keep on paying for solutions that are no longer needed.
In order to keep track of what technology is owned and used, SaaS cost optimization provides a number of strategies that help take control of IT spending and reduce it. In the following, learn about the benefits of SaaS spend optimization.
Benefits of SaaS Spend Optimization
Optimizing SaaS spend is a process that requires engagement from IT, Infosec, and finance teams, which also share the interest of the end benefits. IT is able to reduce SaaS waste while finance achieves cost-saving goals. As well, Infosec benefits when overlapping SaaS, and unnecessary access to SaaS gets removed.
Lower SaaS spend
With the right SaaS insights, companies can remove unused and unnecessary SaaS apps, remove redundant apps with similar functions, right-size SaaS licenses, and negotiate SaaS contracts using accurate insights. All these actions impact the company’s bottom line and set the path to run cost-efficiently in the future.
Removing unused, unnecessary, and redundant SaaS apps closes security gaps that were left open by unmanaged SaaS stack growth. During the SaaS optimization process, IT can discover apps to which ex-employees still have access or apps that were only used for an old project.
At the same time, they can discover that employees across different departments use apps with similar functionalities on which sensitive data is stored—apps that are unnecessary.
How to approach SaaS optimization
To optimize SaaS spend in the best way possible, you need to evaluate all existing SaaS applications within your organization (using SaaS Management) and establish a logical prioritization. Instead of trying to optimize all applications in a massive cleanout, identify and prioritize SaaS solutions in the following four ways (which are not mutually exclusive):
By total investment – Create a list that captures the top 5 to 10 most pricey applications. You can also organize them in terms of the highest total spend. This method gives you an overall idea of the individual cost factors and helps you expose the solutions with the biggest cost reduction potential.
By renewal date – High costs occur when application subscriptions are being automatically renewed even though they might be unused or underutilized. Focus on applications with an impending renewal date to make sure that their utility and pricing tiers can be discussed before your company gets locked into another period.
By the number of users – Some applications are widely spread across an organization and almost all employees have access to them. However, there is often a large number of individuals who are not actively using certain apps. So even though everyone has a license, an app could lead to a shadowy and wasteful existence.
By business function and value – While some applications are simply “nice to have”, others are integral to a company’s growth and success. In order to find out which apps are the most and least critical, it’s worth organizing them by how much business value they represent in relation to their overall cost.
Best practices to optimize SaaS spend
Cloud environments and SaaS have been around long enough that there are best practices when it comes to SaaS optimization. Luckily, this means that you don’t have to “reinvent the wheel” and come up with your own strategies that haven’t been tried and tested. It’s important to know that SaaS spend optimization, in general, isn’t about multiple spreadsheets – there are advanced methods and SaaS management tools that integrate with existing ERP, contract, or expense systems.
Before you start with the optimization process, make sure you completed these three steps which will help you optimize SaaS spend with the best outcomes.
Full visibility into your SaaS estate: To get started, get a complete picture of your SaaS subscriptions, including users’ licenses, contracts and spend. All applications that are managed or unmanaged by the IT (shadow IT). This will help you with making informed decisions about renewals, potential cancellations, and future investments.
Identifying SaaS app owners: Every SaaS solution has an owner who was responsible for the procurement. And since many companies allow multiple employees to make SaaS purchases, it’s important to assign ownership to each app. This will allow you to take action on the optimization opportunities you find during the process.
Monitoring SaaS usage: In this step, you are identifying what apps are being used and to what extent. As it would be impossible to do this manually, companies use SaaS management solutions that automatically monitor the SaaS estate and deliver insightful metrics.
In the next paragraph, you’ll find out how to put these steps into practice in order to effectively optimize SaaS spend.
Remove unused or forgotten SaaS apps and licenses
A vital part of SaaS optimization is the removal of applications and licenses. In order to know which ones are eating up unnecessary costs, you need to create full visibility as outlined earlier. Once you have a good understanding of your SaaS estate, you can focus on the following two steps.
Removing SaaS applications and licenses used by departed employees: In this scenario, you’re focusing on the removal of SaaS apps that were procured by employees that are no longer with the enterprise or licenses that are still assigned to them. And the reason is simple. There’s a fair chance that an employee forgets to cancel or transfer ownership of an app before leaving the company. This is why identifying SaaS owners is an important part of SaaS spend optimization.
2. Removing any unused SaaS: This scenario can overlap with the one outlined above. Research has shown that in a typical SaaS inventory, more than 40% of all SaaS licenses are under-utilized due to various reasons. Establish use cases and a utilization benchmark rate that is tailored to each app, so you can identify those that are being actively used or rarely/never used. Thus, you’ll quickly find out which solutions should be paused or removed.
Remove redundant SaaS apps
SaaS redundancy is much more common than you might think. It happens when employees outside of the IT department make independent SaaS purchases without communicating them. But this flexibility comes at a high price as the company might be paying for co-existing duplicate apps or apps with very similar features and functions.
Even though you should review the entire inventory, there are some application types that tend to have a high level of redundancy. Best examples are file-sharing tools like Dropbox or Sharefile as well as project management platforms like Trello or Basecamp. Your company might even have subscriptions to different educational online training platforms and multiple messaging tools like Slack or Teams.
Once you have determined functional overlaps within your SaaS inventory, you can start the consolidation and standardization process. Use the utilization metrics from monitoring your SaaS usage to make informed decisions and find out which applications are non-approved.
Note that the removal of redundant apps is not always the best approach. Multiple similar apps can add value to a business if they are preferred by some teams who in turn need to give you valid reasons for their choices. If you have selected standardized solutions, make sure to introduce them across the organization and provide proper training opportunities.
Right size SaaS apps and licenses
The beauty of SaaS and cloud services is that they are fairly easy to up-or downgrade. If done right, this scalability translates into a “pay as you go” model and helps you save costs. However, with an increasing amount of SaaS solutions and less informed employees, you might be paying for much more than you need to.
For right-sizing SaaS licenses, pay close attention to the SaaS usage. The utilization metrics from your SaaS management tool can quickly show you which apps are being under-utilized. Example: If an employee hasn’t logged into an app for over 30 or 90-day period, it could probably be downsized at the next renewal.
By setting benchmarks and understanding SaaS utilization, you can also identify users who no longer need a license or the premium features that vendors often offer for an upcharge. Once you have your top 10 for licensing rightsizing opportunities, you can take action.
In the first step, simply remove all unused licenses or recycle them within your company to prevent duplicate purchases in the future. To avoid cancelation penalties, make sure to read the contractual agreements. When it comes to existing, under-utilized licenses, it’s important to know what specific licenses each vendor offers. Many SaaS providers offer free basic versions of their products that might do the trick. If the premium features aren’t necessary, optimize SaaS licenses by downgrading them to a lower tier or plan.
Negotiate SaaS contracts
SaaS solutions offer you immense flexibility that you should use to your advantage. Contracts and prices are not set in stone and you can get better deals based on factors like loyalty, volume, usage, terms, and future promises. If you’re working for a known company, you can leverage your logo power with smaller SaaS vendors that are trying to establish a leadership position in their industry.
However, you should start with the negotiation efforts as early as possible. If you are already locked into a contract, wait until the renewal date. Since the market is getting more and more competitive, you can compare vendors and their rates and negotiate a better price with your current SaaS provider. Vendors see the long-term value of client contracts and will often go the extra mile to secure your business.
You can (and should) optimize SaaS contracts by using the utilization metrics from your SaaS management tools. And here’s why: If you know exactly what you need, you also know what you don’t need. Make sure to communicate your own terms to the service provider and simply let vendors compete for your business. Most SaaS rates are based on endpoints, so knowing the exact number of users will make sure you’re not overpaying.
If you’re not keeping track of your growing SaaS landscape, you are probably losing out on the benefits that make SaaS solutions so desirable. Applications with overlapping features, under-utilized or un-used SaaS tools, as well as solutions without purpose or ownership, can create massive costs.
These costs are completely avoidable with proper SaaS spend optimization, an integral part of SaaS management. By monitoring and reviewing your SaaS inventory, removing, consolidating, and right-sizing licenses with the help of SaaS management tools, you’ll maximize your SaaS ROI, secure the organization, and retain a competitive edge.