A complete guide to SaaS spend management

Businesses use an average of 110 SaaS solutions across departments at any given time. All these applications come with vendors to manage payment cycles, SaaS contracts, functionalities, and more. Given how organizations are scaling so fast and their SaaS stack is growing, managing these efficiently is becoming challenging. 

Did you know, nearly 30% of SaaS spend is being underutilized? So many unused applications or software with overlapping functions can undermine a company's ability to cut down costs. 

Organizations need a system to monitor and control their SaaS infrastructure to make the most of it, and eliminate redundancies and additional expenses. This is the basis for SaaS spend management. We will dive deep into the challenges, benefits, features to consider, and more in this guide on spend management for SaaS solutions. For starters, let’s understand what it is. 

What is SaaS and SaaS spend management? 

Software as a Service (SaaS) is known by a few names such as on-demand software, web-based software, or hosted software. It is the process of delivering internet applications as a service. In the past, companies bought and relied on packaged software that needed to be regularly installed, evaluated, updated, and maintained. Cloud computing completely changed that.

SaaS provides a simpler way to access applications from the internet and frees companies from complex software and hardware management. 

It also saves the effort and financial resources required to create such systems from scratch. Since they are subscription-based services, it reduces the up-front costs for companies. With so many benefits, more and more companies are adopting SaaS systems. 

Over the years, departments have moved towards SaaS tools to solve their problems, leading to hundreds of applications being used across organizations. SaaS spend management is the process of monitoring and managing the buying, onboarding, license renewal, and off-boarding of all SaaS software in a company's portfolio. 

It is challenging for businesses to perform all these functions efficiently while optimizing their SaaS budget. SaaS buying and management solutions such as Spendflo automate the entire process, so that companies can focus on the things that truly matter. Let’s dive into some of the important roles played by SaaS spend management software.

Why is it important to manage SaaS spend in 2024?

With the world’s economy teetering on the brink of a recession and inflation on the rise, companies, big and small, are aggressively pursuing cost-cutting measure. One major cost-cutting measure, that is often overlooked, is SaaS cost optimization.  

Unmanaged SaaS spends wreaks havoc on a company’s cash flow. Managing SaaS spending in an efficient manner ensures that the company’s money is being spent wisely without wasting resources. Cloud software management tools help businesses to obtain central visibility over subscriptions. This is useful to eliminate unused apps and duplicate services while also getting a clearer picture of the company’s SaaS usage data.

Businesses usually focus on their topline revenue and subscribe to many SaaS softwares to increase efficiency and achieve goals. But, unused software, duplicate apps, and unrestricted usage have transformed SaaS into ‘shelfware as a service’ for most companies. 

Gartner coined the term ‘shelfware as a service’ in 2008 to refer to software that is unused or essentially sitting on a shelf. A Gartner report also exposed the uncertainties surrounding SaaS including the impact of improper spending on a company’s bottom line. 

For companies in hyper-growth mode, it is essential to extend the runaway and reduce expenses. These are a few of the benefits of managing SaaS spend effectively, and why you should look into it immediately. Managing SaaS spends:

1. Eliminates redundant or duplicate software
2. Reduces wasteful SaaS spending
3. Reduces burn rates
4. Leads to a higher return on investment (ROI)
5. Creates opportunities for better negotiations with vendors
6. Saves waste of resources during compliance and negotiation
7. Mitigates security risks

Now you understand the importance of SaaS spend management, but managing hundreds of SaaS solutions manually comes with some challenges too. Here are the most common difficulties that companies face with cloud cost management.

What are the challenges to SaaS spend management?

Cloud cost management requires a lot of time, effort, and resources that most businesses simply do not have. Companies may find themselves at the mercy of vendors or stuck with an ineffective SaaS stack. To avoid these common problems, you must understand the challenges to SaaS spend management:

Lack of information

Each department in a company uses an average of 40 to 60 apps and less than half of this SaaS stack is used. Businesses are not able to keep track of the different cloud-based software they have purchased, which makes decision-making inefficient. Central visibility of your entire SaaS stack (including information like renewal time, features, costs, usage, etc) can save a lot of time and money, and help when picking a software or renewing a contract.

Tedious data collection

Many businesses do not have the right tools to integrate SaaS spend data from different sources. Doing this data collection manually via documents and spreadsheets is time-consuming and provides limited insights. SaaS management platforms provide detailed asset reports to keep companies up-to-date on their cloud spending. 

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A single-view dashboard that automatically collects all data and converts it into actionable insights is a game changer. Urban Company achieved a 15x ROI by bringing transparency to SaaS procurements with a consolidated view of its SaaS spends. 

Vendor lock-in period

SaaS vendors create a seamless buying process for businesses and ensure 99% uptime too. That’s the reason why companies opt for SaaS solutions. When it comes to opting out of a service, some vendors might impose legal, technical, or financial restrictions on the company. So, look out for a lock-in period in your SaaS agreements while signing or renewing subscriptions. 

Additionally, there are some other issues that you should be wary of. Vendors may

• Charge high licensing costs for additional features that should be included in the standard agreement. In 2019, Adobe raised the price of its CC suite subscriptions for individuals and teams. This came as a big shock to many.

• Change agreement terms by sending companies a website copy agreement as an agreement. Vendors can later alter the website copy and change the terms and conditions of the original agreement. So, be sure that you receive a written un-editable document. 

• Make it difficult to retrieve your data when you switch to a new SaaS application. Vendors may charge companies heavily for data retrieval or sharing it in a compatible format for integration purposes. Having said that, most vendors also make migration easy. Have that conversation with your SaaS vendor before signing the contract. 

These are just a few of the issues that companies may face. Want to read more about the challenges? Here are five challenges of SaaS spend management and how to overcome them.

Although SaaS spend management might seem challenging, it is important to know that the benefits outweigh the challenges. Let’s take a look.

The benefits of SaaS spend management

SaaS spend management is the basis of accounting for every last cent of a company’s software spending. Subscriptions can get out of hand when multiple individuals from different departments purchase tools as per their needs without looking at overlaps in functionality. 

SaaS spend management provides companies with concrete data about the number of active cloud software subscriptions along with information about applications that are being underutilized or overutilized. 

When companies can pinpoint their spending trends, it helps boost cash flow and reduces pointless overspending. Here are a few of the ways that companies can benefit from a cloud cost management software: 

• Provides real and tangible data about SaaS spend, usage, subscriptions, and wastage
• Pinpoints exactly where SaaS costs are spent or wasted
• Protects from redundant SaaS stack and unused software
• Streamlines the SaaS buying and approval process
• Promotes mindful spending which can increase a company’s gross margin

To understand this in-depth, you can read more about the six benefits of SaaS spend management you didn’t know about, and make the best choice for your business. 

You can start the process of reeling in your SaaS spend by implementing the simple strategies given below.

Strategies to effectively manage SaaS spending 

A good SaaS spend strategy should align with company goals and policies in terms of spending, optimization, and efficiency. Cloud cost optimization requires some thought and effort. To help you get started, we have put together some strategies you can implement to efficiently manage SaaS spending:

1. Understand your purchasing power

Companies need to recognize and decide which teams, departments, and people can be involved in procurement. Let’s take the case of Urban Company which found its growing team needed more SaaS software.

The team took stock of their purchasing power and need, and realized that unmanaged SaaS spend and lack of visibility during procurement led to higher costs for the company. To bring transparency to the SaaS procurement process, the team adopted Spendflo. This effort helped Urban Company realize over 16% savings on average. 

Companies shouldn’t just purchase SaaS tools without looking at other factors. 

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Companies, therefore, need to set up a standard purchasing chain to avoid overspending along with a centralized dashboard to keep track of their SaaS stack.

2. Create an inventory of SaaS information

Businesses need to have up-to-date information about their SaaS stack. A SaaS inventory should answer all the following questions:

1. Who is the vendor?
2. What are the vendor’s contact details?
3. What is the start date?
4. What is the end date?
5. What is the SaaS license type?
6. What are the billing and pricing details?
7. What is the type of cost (recurring or one-time payment)?
8. Who owns intellectual property rights (IPR)?
9. What are the SaaS usage statistics across the company?
10. When is the software renewal date?
11. What is the cancellation or auto-renewal policy? 
12. Who are the users of the SaaS product in the company?
13. Are these users making full use of the SaaS application? 

    3. Conduct a quarterly review

SaaS companies are constantly updating or improving their software. Companies should perform a quarterly review to understand if their SaaS stack meets their current business needs. This review is for each product and whether it is fulfilling its purpose. This information can be used for cost-benefit analysis and to identify areas of improvement.

    4. Understand your data thoroughly 

Businesses need to calculate their total number of SaaS users and analyze the daily or monthly login rate. This is useful data for observing the effectiveness of the procured cloud software and eliminating inactive accounts. Data-backed insights can also guide businesses during approvals, negotiations, or setting price points. 

Let’s look at a case study. Drip Capital, a FinTech company, scaled its business with over 70 SaaS tools, but faced difficulties due to a decentralized system. Lack of data about SaaS spending led to problems during vendor negotiation and software optimization. To streamline their entire purchase process, they subscribed to Spendflo. They set processes for negotiation, procurement, and approval, and achieved a 4x ROI in just one quarter.

     5. Do proper vendor security reviews

Companies can save themselves from potential security risks and penalties by doing careful checks of the vendor’s cyber safety policies. The vendor should comply with all data safety policies based on the business’s industry and location.

     6. Invest in SaaS spend management software

All of these processes take away a company’s valuable time and energy. SaaS management tools optimize the process, cut costs, and provide the business with much-needed central overview. To understand this better, take a look at these in-depth case studies and see how Spendflo has helped companies save thousands on SaaS spends. 

Even with the best strategies in place, you might encounter some difficulties with SaaS spend management. Take a look at these common pitfalls so that your business can be better prepared.

Manage SaaS spend by avoiding these common pitfalls

SaaS spend is globally estimated to reach $208 billion by 2023. With such exponential growth, companies need to know what to look out for when it comes to cloud-based software. Here are some ways to prevent a costly mistake:

Avoid SaaS subscription overlap

Large organizations have many employees with a wide range of professional needs. A SaaS subscription overlap happens when multiple teams or employees purchase duplicate software or software with overlapping functionalities. Subscribing to multiple SaaS programs providing the same services only increases overall costs. 

A centralized SaaS dashboard can help companies make proactive decisions about duplicate apps and save them from costly, retroactive decisions. Crownpeak saved 30% on its annual SaaS expenses through Spendflo’s insight-driven dashboard.

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Remove inactive SaaS applications

SaaS licensing is the process by which vendors provide software to clients in exchange for a monthly fee. The license details which services a customer can use, the usage restrictions, and the number of authorized users. 

A company may pay for its SaaS license to cover 20 employees but only 5 employees might actively use the service. That means that over 75% of SaaS licenses are going to waste. This wastage of resources can also happen if an employee leaves the company and their license has not been revoked. An unused SaaS license can end up costing the company hundreds of dollars over a couple of months.

Beware of shadow SaaS

A hidden risk to companies is the ability of employees to purchase and use any SaaS applications very easily. This is called shadow SaaS or shadow IT, when many of these services are not officially sanctioned by IT. This can pose a threat to the company’s data and security, and SaaS budgets take a hit.

It is important to have a centralized approach to purchasing products or getting approvals from the procurement team. Spendflo’s dashboard can help businesses get total clarity of their SaaS spending including the number of active users and licenses.

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Exceeding SaaS usage

Some pricing models for software as a service follow a system of usage-based billing. This is the process by which a customer is charged based on how much or how long they use certain features for. SaaS companies add a standard subscription and charge additional costs or overages if a company crosses its usage limit. 

If a business is not keeping a track of its SaaS operations, it might end up exceeding spending limits by hundreds of dollars. If you can forecast a higher usage, bumping up to the next pricing tier might be more economical than staying on a lower tier and paying overages. 

Forgetting renewal periods

If each organization uses an average of 110 SaaS apps, a couple of contract renewal dates will likely slip through the cracks. The old spreadsheet method of keeping track is not going to cut it anymore. SaaS companies have made it easier for businesses to keep using their services by enabling auto-renewals. 

But with auto-renewals, if a business does not pay attention to the renewal date, it will end up paying for services that it might not use or want anymore. This creates many missed opportunities to renegotiate pricing, reduce app wastage, or look for other SaaS products to  improve organizational efficiency.

SaaS buying and management solutions such as Spendflo make sure that businesses don’t miss out on renewal dates or other important information in the contract. There is no need for auto-renewals anymore. Airmeet, an all-in-one events platform, managed to save 80+ hours with the help of Spendflo’s dedicated SaaS buying team. 

Missing the cancellation cut-off

As established, many SaaS companies rely on auto-renewals. An auto-renewal clause allows the vendor to extend a company’s contract and billing without requiring supply chain approval. This might seem like a great idea for businesses that do not want to waste time following up with vendors. 

Businesses that have a large SaaS stack with ineffective and outdated apps might want to terminate or modify their licenses. If they do not understand the terms of the contract or miss the payment notice period, they will need to pay for a whole year and most probably at an inflated price. That is why information about canceling services or disabling auto-renewals is buried deep in the contract.   

Security concerns

Cloud-based apps do not follow traditional endpoint security solutions, which can make them more vulnerable to cybersecurity issues. This problem is further compounded when businesses do not insist on employees enabling two-factor authentication (2FA) for new apps. This security issue to data sharing can have costly effects. 

A vendor breach in 2017 cost Equifax over $600 million and exposed the data of more than 147 million customers.  

Many SaaS tools collect Private Personal Information (PPI) and other data, which is the business's property. It is important to have proper security systems and user access provisions internally to eliminate security risks. 

A growing business needs to be aware of the way they are spending money on subscriptions for better SaaS-based expense management. Cloud spend management software can help you avoid some of the most common SaaS challenges that businesses face. Read this to understand why you need a SaaS spend management software and how to choose the right one. Let’s understand some of the reasons for adopting SaaS spend management software.

Need for SaaS spend management software and how to choose one

There are several benefits to using SaaS spend management tools. Here is a list of functionalities to look out for while picking the software that suits your company’s needs:

Manage all SaaS contracts in one place

SaaS spend management software can help companies consolidate and access important information without getting lost in mail trails. When all contracts and documents are in one place, it helps businesses stay ahead of their SaaS spend and renewal dates. It is the best way to manage your SaaS inventory. 

Discover similar products which might be a better-fit

Companies can get access to SaaS market intelligence and find services that better suit their needs. SaaS spend management products recommend other similar products and provide complete context of new products so that businesses can make well-informed decisions.

Data-backed insights

Organizations can make better SaaS spend choices with detailed data about app usage, spending trends, and active or inactive licenses. SaaS Management platforms like Spendflo analyze all of this for you and go a step ahead by providing actionable insights so that businesses can plan better

Do a free savings analysis and see how much you can save with Spendflo.

Accelerate security reviews

A great SaaS spend management software helps you collaborate efficiently with vendors and internal stakeholders. It ensures that security reviews don’t end up being a bottleneck to the end-user. 

Quick workflow approval

Businesses do not have time to sift through email threads and multiple messages. On average, companies take 3.5 hours per contract and approval takes much longer. They need a quick and easy system for approval, negotiation, renewal, and procurement. 

Must read: Eight ways to manage SaaS spend effectively.  

Spendflo - a one-stop solution

Spendflo’s software asset management includes all of these benefits and much more. The entire focus is on customer success and ease for businesses. The handy dashboard and Slack channel keep companies in the loop for every important SaaS decision. Different teams can use it to automate the entire buying and management process.

• Finance teams can effortlessly use it, with a guaranteed up to 3x ROI 
• Procurement teams get data-backed insights, set up approval workflows, and outsource negotiation to experts
• The IT department gains easy access to information and collaborates better
• Infosec and legal teams can collaborate effortlessly with all stakeholders

Summing up

SaaS products come with security concerns, complicated contracts, unstructured data, and hidden costs. SaaS spend management is critical for companies. We hope this comprehensive guide helps your business improve SaaS efficiency.

Looking to learn more about how it works? Read how SaaS spend management works in the current financial landscape.

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