SaaS license management: Everything CFOs need to know

The SaaS market is projected to cross $800 billion by the end of this decade. Our study shows that nearly 40% of companies spend more than $1 million yearly on SaaS, of which 14% spend more than $5 million. This is bound to grow dramatically as high-growth companies adopt more tools, technology and automation to accelerate their growth.

It is not uncommon today for organizations to use 250+ tools across departments. Depending on the size of the organization, this means thousands of licenses. With decentralized SaaS buying, these contracts will likely be spread across various email inboxes, Slack channels, local folders, etc. This creates shadow IT, complicating matters due to data security and compliance risks.

What CFOs need is a comprehensive SaaS license management that solves the problem of uncontrolled spending by offering real-time visibility into expenses and ownership.

Let’s understand how SaaS license management helps embrace decentralized SaaS buying, control sprawl, prevent wastage and save costs. 

In this guide, we'll share,

• What is SaaS license management?
• Why is SaaS license management important?
• How does SaaS license management work?
• What are the different user roles in a SaaS licensing management platform? 
• What are the best practices in SaaS license management?

‍Ready ? Lets dive in.

What is SaaS license management?

SaaS license management involves the organization, management and access control of cloud-based applications on a single platform. It enables a company to track SaaS licenses, analyze usage and control permissions to all its SaaS tools.

A SaaS license is fundamentally different from a traditional software license. In that, a SaaS license is an agreement between a user (person/company) and a software vendor that gives the user access to a SaaS tool for a monthly or yearly fee. Unlike traditional software buying, which offers a perpetual license, SaaS licensing is a fee to merely use a tool built, hosted, managed, upgraded and secured by a vendor. 

A typical SaaS license would include the following terms and conditions:

• Scope of the license - number of users, devices and locations
• Pricing and payment terms 
• Restrictions on use, transfer and modification
• Provisions for data security and confidentiality
• Warranties, support and maintenance
• Termination terms

As the number of tools and users increases, managing all these licenses appropriately can become complex. 

Why is SaaS license management important?

You can’t optimize what you can’t see and manage. SaaS license management prevents cost leakage, wastage, duplicate licenses, overpaying, non-compliance, etc. Here’s how.

1. Unused licenses

SaaS contracts are typically signed for a specific number of licenses. Let’s say you negotiated a ticket management system for your customer support team of 50 people. Over time, when the team grows, it might get broken down into smaller teams using different tools for their specialized needs. This can lead to unused licenses. This is just one example. Licenses go unused for several reasons:

• Team members have left the organization
• Another tool, initially bought for a different purpose, does the job better
• Team members find it challenging to use the tool for their needs
• The tool itself is not critical to their everyday tasks

Without comprehensive SaaS license management software, you might end up paying for unused tools, some of them getting automatically renewed without alerting anyone. 

2. Overpaying 

When employees/teams buy a SaaS tool directly from the vendor — a trend we call decentralized buying — instead of routing it through the procurement/finance team, they lose the leverage to negotiate better deals. 

Also, since there are hundreds of SaaS tools with different features, pricing tiers and contractual clauses, employees cannot negotiate effectively by looking at a single contract without benchmarking data and expert insights.

3. Duplicated purchases 

Decentralized buying also causes duplicates. Without a central database for SaaS, teams are not aware of the SaaS licenses that have already been bought. So, they may end up buying duplicate licenses. This is extremely common among project management tools or customer relationship management tools. Each team would want to use a tool they prefer missing out on the leverage of negotiating deals based on no. of users.

4. Redundant SaaS tools 

Teams may use multiple paid apps with overlapping functions. Such redundancy is a waste of money. 

5. Unnecessary automatic renewals 

Most SaaS contracts come with automatic renewals written in. When this happens, CFOs don’t get the opportunity to evaluate the ROI of their tools. For instance, there may be a tool that is neither critical nor liked by the team using it. Without user sentiment surveys, CFOs and procurement leaders don’t have this data to conduct effective negotiations. 

When renewals for SaaS tools are not proactively tracked, companies lose money if teams don’t use the tools, and they get automatically renewed each month. 

6. Discovering shadow IT 

The risk of security breaches due to data leaks is high when employees buy and use SaaS tools without the IT department’s knowledge or approval. A centralized license management system can prevent this by providing complete visibility into the entire SaaS stack.

7. Non-compliance 

When employees buy SaaS tools of their choice, the organization does not get the opportunity to evaluate them for security standards. Unauthorized tools may cause compliance issues with regulations like CCPA, GDPR and HIPAA.

8. Going off-budget 

High-growth teams do not have the time to go through the procurement cycle for every tool they need — our study shows SaaS procurement often takes over 60 days! So, they buy it themselves and reimburse later. As a result, the company ends up spending beyond the planned budget. 

9. Various pricing models 

SaaS tools have various pricing strategies—flat rate, usage-based, tiered and user-based—which makes it difficult to accurately predict spend before an invoice is generated. Without the means of forecasting SaaS usage, companies pay more than necessary for the tools. 

10. Unrevoked licenses 

For every new employee, the IT department approves access to SaaS tools. However, when the employee leaves, the IT department is unaware (unless they follow up with the HR department regularly), and the company continues to pay for unused licenses. 

Every drop of this adds to an ocean of wastage. Worldwide, companies waste around 30% of cloud computing spend. That ties in with what we found—68% of business leaders identify SaaS spend optimization as their most significant area of improvement. 

A critical pillar in SaaS cost optimization is centralized license management.

How does SaaS license management work?

A good SaaS license management platform brings together all your contracts, monthly and long-term, onto a single dashboard. It allows you to apply filters, track start and end dates, know what each contract costs you, and its status in one glance. It sends reminders for upcoming renewals or price fluctuations (especially for usage-based pricing tools). It also enables you to collaborate and add followers to your contracts. 

What are the different user roles in a SaaS licensing management platform? 

As team members join, leave or change positions, their internal roles may change. As a result, companies could risk a data breach by granting permission to the wrong people. Here’s a list of employee roles to manage SaaS licenses: 

• IT administrator can add or remove users on SaaS tools and modify permissions for any user.
• Contract owner is the primary decision maker who chose the SaaS tool. They hold a senior position, such as a department head.
• Billing recipient holds the contract to the SaaS tool. They may be the same person as the contract owner.
• User is any team member who uses the SaaS tool. The IT administrator determines their level of access.

What are the best practices in SaaS license management?

Some best practices to follow when managing SaaS licenses are:

1. Invest in a platform-based solution

Most organizations manage their SaaS licenses on a spreadsheet today. This is highly limiting, not just in features but also visibility. A SaaS license management platform built for this purpose can better organize your contracts and licenses, creating granular visibility. 

While choosing a SaaS license management platform, check if it allows you to organize your licenses by type, usage patterns, user permissions, renewal dates, etc. Try its reporting capabilities and available dashboards.

For instance, Spendflo’s management platform lets finance leaders view real-time SaaS spend data for each user. They can view the total spend for each SaaS tool, analyze how various teams use it and identify areas to save costs. 

2. Track costs, usage and ROI

To optimize SaaS spends, CFOs need to measure three fundamental metrics: Cost, usage and ROI. 

Cost: Clear and granular visibility into what each SaaS tool costs. Most tools today have moved to usage-based pricing, reinforcing the need to know the unit of usage and how much it costs.

Usage: This can take different forms. How many users hold licenses, what purposes do they use them for, how often do they use them etc. For cloud platforms such as AWS, Dropbox etc., the unit of charge might be computation capability, storage used or features used. 

ROI: This is the more complex metric. Overall, CFOs track SaaS ROI based on the increase in efficiency, productivity or new capabilities. A clear line of sight between costs and results will help make decisions or renewals.

While choosing a SaaS license management software, consider the visibility you will get across all these three metrics.

Spendflo collects all historical contract information from invoices, email chains and other locations and migrates it to the platform to generate a unified view. Teams can then track contract owners, start and end dates, costs and statuses. They can also modify or cancel contracts based on usage patterns.

3. Set up timely alerts

An important way to ensure your teams have all the tools they need while preventing wastage is to set up alerts. A SaaS license management tool helps remind procurement teams of upcoming renewals well ahead of time, enabling them to conduct comprehensive evaluations before making purchase decisions.

While choosing a SaaS license management tool, consider how you will receive these alerts. In addition to email notifications, Slack integration is also handy.

Spendflo sends reminders 90-120 days before a SaaS tool is due for renewal. The sentiment hub allows contract owners to conduct surveys and make renewal decisions. 

4. Manage the entire employee lifecycle

Given the SaaS sprawl, admins need the ability to quickly and immediately revoke licenses to those who no longer need them. For instance, when an employee leaves the company or moves teams, the IT administrator must be able to revoke access at the click of a button. 

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Spendflo enables finance/IT teams to view SaaS usage based on IT admins and user roles. It also allows granular insights into the usage of each department or each user. 

In conclusion

SaaS is one of the top five expenses in a company, and yet, we found that nearly 56% of companies still do not have a monthly cadence for SaaS spend review and optimization. 

A SaaS license management platform that consolidates information on users, permissions, contracts, usage and renewals can maximize the ROI on SaaS spending and streamline the process for SaaS procurement.  

See how Spendflo can consolidate and optimize SaaS license management for your organization. Book a demo today.