Most companies are quickly adopting SaaS solutions since they provide superior results than on-site IT software. An efficient SaaS stack can optimize business processes, and save time and money. SaaS also makes it easy to mobilize a workforce across geographical locations. According to the Vice President Analyst at Gartner, cloud computing has an agile, elastic, and scalable nature which has helped companies innovate and grow during uncertain times.

Cloud spend has shown a steady increase of nearly 10% each year. These software solutions form a large part of IT budgets. Easy access to SaaS subscriptions has caused problems such as overspending by employees subscribing to a large number of applications. It is also hard to evaluate SaaS usage data, stay ahead of cyber security concerns, and keep track of duplicate applications in a company’s SaaS stack. 

That is why it is important to have a clear strategy for SaaS spending that circumvents these concerns. Let’s do this by first understanding more about SaaS spend management.

What is SaaS spend management?

Uncontrolled SaaS spending can eat into a company’s budget. That’s why cloud spend control needs to be a priority instead of the last resort. SaaS spend management is the process of tracking how much a company spends on SaaS software by keeping an inventory of subscriptions, renewals, contracts, and usage data.

The key is to understand an organization’s SaaS stack and make data-driven decisions. This can include removing shadow apps or underutilized licenses and creating a central structure for procurement, negotiation, and contracts. 

A central SaaS management system will lead to better spend transparency and help your company identify new opportunities for savings. The first step to doing that is to understand the different types of SaaS expenditures that occur regularly.

10 types of excessive SaaS spend and its effect on businesses

Cloud software has far-reaching benefits for a company’s growth. But the pressure that inefficient spending puts on a company’s margin can start to outweigh the benefits.

“Software companies generally observe cloud spend being 75-80% of their cost of revenue (COR).”

That is why it is important to be vigilant about SaaS costs. You can start by taking note of these areas of excessive cloud spend:

1. Choosing the wrong pricing plan

Businesses need to consider several pricing models when procuring SaaS. The correct pricing plan fits a company’s needs and aligns with the budget. Let’s take a look at the different pricing models:

• Flat-rate pricing 

SaaS companies charge a single monthly fee for unlimited use of the software’s features. This means that every feature and perk is consolidated in one convenient package. 

The advantage of this model is cost transparency. Businesses that prefer a straightforward pricing model can opt for this. The disadvantage of flat-rate pricing is that companies might pay more for SaaS that does not provide enough value to their team.

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• Usage-based pricing

This is also called pay-as-you-go pricing. If more of the SaaS software is used, companies are charged more, and if they use less their spend decreases. For example, certain SaaS social media tools might charge per scheduled post. 

An advantage of this is the absence of upfront costs. Businesses pay based on the effectiveness of the SaaS tool. The downside to this kind of pricing is the difficulty in predicting the final cost.

• Per-user pricing

This model gives businesses the flexibility to pay for each team member who is actively using the software. The final cost is dependent on the total number of SaaS users per month. 

The advantage of this pricing model is that the cost is equivalent to the effectiveness of the product per user. The disadvantage of this is similar to usage-based pricing since businesses might find it hard to predict the final cost.

• Tiered pricing

This pricing model allows companies to purchase multiple SaaS package combinations. The SaaS tools and features are offered at different price points usually set at low, medium, and high.

The advantage of this pricing model is the ability to tailor requirements and costs based on the needs of the team. Growing businesses that outgrow one tier can move to the next stage of pricing. The disadvantage of this is the difficulty in predicting a team’s monthly SaaS usage. 

• Feature-based pricing 

Similar to the tiered pricing model, feature-based pricing creates tiers with different levels of functionality. Companies will be able to customize and choose features that suit their business needs. 

The downside is that businesses might miss out on new SaaS features if they keep choosing a similar plan each time.

• Freemium pricing

SaaS companies initially provide a free version of a SaaS application supplemented by additional paid features. Companies can subscribe to the service and use the free product with limited functionality. If they wish to upgrade, they will have to pay a subscription fee. 

The advantage of this pricing model is the ability to test the SaaS application without an upfront investment. 

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2. Agreeing to the wrong contract 

SaaS companies provide one-year contracts or multi-year contracts that come with discounted terms. A business might jump at the chance of getting a discount on SaaS software only to realize that they have locked into services that aren’t useful for the entire team.

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Before signing a contract it is important to estimate how long you will need the software, and learn about the vendor and the effectiveness of the SaaS stack for your entire organization. With nearly 110 SaaS applications per company, it might get tiring to read through every contract. To make it easier, here are 9 clauses to watch out for in SaaS contracts.

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3. Not negotiating price

SaaS vendors provide many discounts and promotional deals to businesses. That is why companies should not jump at the initial price for SaaS software. Without a set of detailed data insights, it can be difficult for businesses to understand how much to negotiate. They might end up paying extra for support packages, implementation services, or integrations that are not useful.

The main goal is to get the best SaaS value for your business at the best price and this can only be achieved with the help of research and data.

4. Purchasing the wrong SaaS product

Many teams make the mistake of choosing the first SaaS software they come across without evaluating other options, checking the contract, or understanding the effectiveness of the application. 

Companies need to make data-driven decisions about their SaaS stack that include understanding its features, pricing, and contract terms. Purchasing SaaS that does not meet your team’s needs can end up costing you hundreds of extra dollars.

5. Buying duplicate software

Companies may pay for two or more SaaS apps that solve the same purpose. This is because it is easy for different departments to purchase cloud software without informing the IT team. Sometimes employees might also buy a new tool and fail to cancel the old licenses. 

This decentralized spend creates a SaaS sprawl and makes it harder for managers to keep track of company expenses.

6. Not monitoring SaaS usage

A growing company might find it hard to keep track of its SaaS solutions. Without SaaS-based expense management, it is difficult to understand department-wise spend trends, per-employee usage data, or the impact of each SaaS software. 

These user engagement metrics can guide managers to choose better SaaS software, plan budgets, and improve the SaaS return on investment (ROI). 

7. Underutilizing SaaS applications

SaaS licenses are often wasted because organizations purchase too many and forget about them. This might happen due to impulsive buying by employees which is why managers need to have a central view of all SaaS spend. Scaling companies might also overestimate their growth needs and buy more SaaS licenses than they require.

Underutilized SaaS chips away at a company’s budget. Managers need to have a better understanding of all SaaS subscriptions so that they can get rid of unnecessary wastage.

8. Forgetting to revoke SaaS licenses

When employees leave the organization, businesses still end up paying for the SaaS license until the contract ends. This can be prevented if the IT department has a database of all employee SaaS subscriptions. Without a centralized SaaS view, these unrevoked licenses will cost the company extra dollars.

9. Falling prey to security breaches

When picking SaaS software it is important to thoroughly understand the vendor’s security protocols. The IT department should be aware of app misconfigurations with new SaaS software that put data control in the hands of the wrong people. Companies who do not ask questions or learn about their SaaS network security might leave their team and customers open to data breaches.

It’s important to learn about the vendor’s security protocols that are in place for data encryption, data storage, privacy, and disaster recovery. This in-depth knowledge can protect a company from security concerns in the future. 

Learn more about Spendflo’s vendor trust platform that helps companies to complete vendor security reviews in minutes instead of months.

10. Not creating a central SaaS repository

When companies do not have a proper understanding of their SaaS stack supply chain, it can lead to an increase in hidden SaaS expenses. A central and organized database can connect teams and involve all stakeholders during the procurement, buying, and renewal stages.

This level of transparency will allow all departments to weigh in on SaaS buying decisions. Managers will also be able to make sure that the cloud stack is providing the best value. This is why SaaS spend management is important. It can provide a 360-degree view of SaaS spend so that businesses can make better financial decisions. 

The SaaS spend management software market provides teams with a specialized understanding of their cloud purchases. Let’s take a look at some of the ways in which SaaS spend management software can help a company.

How SaaS spend management can positively impact SaaS spend

SaaS management software provides ample solutions to SaaS procurement, tracking, renewal, and cancellation. They audit a company’s entire SaaS landscape and provide an overall view of cloud spend. This can save time and money. Take a look at the 5 ways through which SaaS spend management software can improve your cloud spending.

1. Simpler SaaS procurement 

A SaaS spend management tool provides companies with expert advice and data-backed insights that make the purchasing process easy. 

These tools help you get the best deals for new and existing cloud software through SaaS data benchmarking. SaaS buying and optimization platforms like Spendflo can save companies hundreds of hours on negotiation. This is done by developing a thorough understanding of SaaS industry pricing trends. 

This insight helps businesses find the best price and pick a pricing model like buy now, pay later (BNPL), fixed-price, user-based, or any other pricing model that fits their needs. Companies also receive complete data about different SaaS applications so that they can make the best choice for their teams. This strategic SaaS procurement process can save a company lots of time and effort.

Check out how Tabby, a BNPL platform, achieved 4x ROI with Spendflo.

2. Easy SaaS contract management 

SaaS management platforms streamline the procurement process right from negotiation with vendors to evaluating the terms of the contract. These platforms provide all SaaS contracts in one place to make renewals easier so that businesses can draw on the data whenever required. 

This contract transparency helps the finance team to stay on top of their SaaS spending and create an effective community-led buying process for the company. It also pushes businesses to think strategically about the effectiveness of their cloud software.

Stay on top of all contracts and avoid being blindsided with the help of Spendflo’s handy SaaS finance approval checklist.

3. Effective data-backed insights 

Companies can save time and money on procurement, purchasing, and pricing when they have detailed insights about their SaaS stack. SaaS spend optimization platforms like Spendflo analyze a company’s spend trends to provide data-rich information.

The consolidated SaaS software dashboard helps companies make smart purchase decisions about new and existing subscriptions. 

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Managers can not only learn about spend insights but also view employee usage metrics. This data is useful to know which SaaS is providing the most value across the organization, how many duplicate applications there are, and which unused licenses need to be revoked.

4. Detailed risk and security categorization

SaaS software has become a target for hackers who can gain access to sensitive data. SaaS management platforms create centralized structures for approval and visibility that help protect against such security concerns.

Spendflo’s vendor trust feature allows you to gather detailed information about vendors, network security, and software permissions. The streamlined security protocol ensures that all SaaS software threats are dealt with effectively. These security checks protect businesses against data leaks and cyber hacks or attacks. 

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5. Automated cloud cost computing

SaaS spend management platforms make it easier to keep track of SaaS and cloud costs. Companies might require department-wide subscriptions to platforms like Azure for recurring Microsoft services. This becomes easier with Spendflo’s services. 

Cloud spend management platforms carry out detailed functions such as buying and selling Amazon Elastic Compute Cloud (Amazon EC2), managing Google Cloud Platform (GCP) or Amazon Web Services (AWS), and providing information about each cloud software purchase. The optimization of these services saves companies countless hours and leads to a higher ROI. 

Simplify SaaS spend management with Spendflo

Spendflo is a SaaS buying and optimization platform that can save up to 30% on your SaaS stack. 

With Spendflo you can:

• Discover new SaaS applications
• Let the experts handle the negotiation
• Shift to thoughtful SaaS procurement
• Compare SaaS software prices and pick the best fit
• Set up a centralized system for SaaS application management
• Protect your company against data breaches and security threats

Get started by trying out Spendflo’s free savings analysis to find out how much your company can save on SaaS.