In our conversations with CFOs, we discovered they often find themselves confused about navigating their SaaS expenses. Many organizations underestimate the true costs associated with buying their SaaS stack, which invariably ends up hurting their bottom line. In this blog, we dive deep into all the costs that come with buying SaaS and how you can optimize it. 

CFO, meet TCO.

Total Cost of Ownership(TCO) refers to the cumulative cost that comes with owning and operating a SaaS tool, and it is an important factor to consider when buying SaaS. Failing to consider the total cost of ownership or underestimating it might lead to unexpected costs later. 

The list of costs you need to consider while calculating TCO is as follows:

Licensing and Subscription costs

These are the ongoing fees for using and accessing the SaaS application. They frequently contain monthly or annual subscription costs based on consumption rates, feature tiers, and user counts.

Implementation and onboarding costs 

This refers to the costs incurred while implementing and deploying the SaaS tool of your choice within your organization, and each step comes with it’s own costs, which are:

• Integration, Data migration & management: Integration costs are those an organization incurs while integrating the SaaS tool with existing solutions and databases. This includes costs for middleware, data mapping, API development, and continuing data.
• Customization costs: SaaS tools are often tailored to suit an organization’s specific business requirements, like creating custom workflows or building specific features. The cost incurred for this customization adds to the total cost and is often overlooked.
• Training: Training costs encompass the costs involved in training employees on how to use the SaaS solution. These costs include technical support and assistance from the vendors. 

These costs will also come into play if you choose to switch to a different SaaS vendor later. 

The opportunity costs: 

Your choice of SaaS solution may limit your ability to integrate with other systems or may not be fully compatible with existing infrastructure. The opportunity cost lies in the potential missed efficiencies that could have been achieved with alternative solutions.

Security and Compliance costs

The costs associated with data security measures, such as encryption, access controls, and vulnerability assessments, should also be considered. Additionally, compliance costs may arise due to industry-specific regulations and standards.

The opportunity costs:

Opportunity costs related to compliance and security measures include the cost of implementation, the allocation of time and resources, potential constraints on innovation, the impact on user experience and productivity, and limitations on vendor selection and flexibility.

Updates 

SaaS vendors frequently release updates and enhancements to their products which sometimes come with additional costs.

The opportunity costs:

Opportunity costs related to updates when buying SaaS include potential disruption to workflows, the need for additional training and familiarization, adjustments to customizations and integrations, time spent on testing and quality assurance, and reliance on vendor support and response time.

Renewals and contract management

When your subscription term expires, you may need to get a new contract signed, negotiate with the SaaS vendor, and prepare for possible price increases by the vendor.

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Optimizing your SaaS costs

Rightsizing Your Subscriptions: Regularly assess your subscription plans to ensure they align with your actual usage and business needs. Identify any underutilized or redundant subscriptions and consider downgrading or cancelling them. This optimization tactic helps eliminate unnecessary expenses and ensures you are paying for what you truly need.

Conducting Regular Audits: Periodically review your SaaS stack to assess its effectiveness and cost-efficiency. Conduct comprehensive audits to identify any unused or duplicate tools and evaluate their relevance to your current workflows. By removing or consolidating redundant applications, you can streamline your SaaS ecosystem and reduce unnecessary expenses.

Exploring Consolidation Opportunities: Look for opportunities to consolidate your SaaS tools. Consider solutions that offer multiple functionalities or integrate well with your existing applications. By reducing the number of individual tools and opting for consolidated platforms, you can simplify management, improve integration, and potentially negotiate better pricing with vendors.

Monitoring Usage: Keep a close eye on user activity and usage patterns within your SaaS stack. Identify any inactive or infrequently used accounts and consider reassigning licenses or terminating them altogether. This proactive approach allows you to optimize user access and eliminate unnecessary costs associated with dormant accounts.

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