What is SaaS Spend Optimisation?

Tech vendors are going the extra mile to help their customers trust them.

“Try it free for a month” always sounds interesting.

The aftermath of trying it for free, for some of us, looks like this: we subscribe to tech solutions available online temporarily, to address an immediate need and the next thing we know is that its free subscription ended a while ago, and our company has now been paying for the service we subscribed to, for months.

But until we make room for regret to kick in for using the free subscription, it is too late for the IT department to ask for a refund from the vendor. 

Such shortcomings of SaaS Management are an excellent source of wasteful spending for the IT department.

A lot of focus is placed on software’s ROI in companies but how do we plan to keep up, when their volume itself is unknown? Such is the case of SaaS software, whose standalone prices aren’t high enough to draw the attention of the ROI police but cumulative and unoptimised, they represent a significant share of wasteful technology spend.

In this article, we’ve discussed all the possible optimisations in SaaS operations and assets.

Definition: SaaS Spend Optimisation

SaaS Spend Optimisation (or SaaS Cost Optimisation) aims at reducing the costs incurred from unoptimised SaaS platforms (often existing as unused, overlapping tools) and their unmanaged renewals, cancellations and possible consolidations.

What are the steps of SaaS Spend Optimisation?

Discussed below, is a 3-step process of obtaining relevant data, assigning stakeholders to process that data and finally optimising the SaaS spend based on the gathered insights.

Step 1: Complete visibility

Overspend results from incomplete visibility on subjects like unknown app users, unmanaged subscriptions and so on. Mapping and tracking this missing information could've been a job already half-done for locating the source of overspend. But most organisations are behind schedule and for them, the best time to start is right now. 

Maintaining a standard SaaS directory is the best course of action for getting started.

This SaaS directory should be a manual spreadsheet, shared between the project owner (PM for SaaS Spend Optimisation) and the individual application stakeholders (discussed later in detail).

The directory should ideally include the following information:

1. Application name

2. Users (individuals and departments)

3. Adoption percentage

4. Owner of the app

5. Renewal dates

6. Expense History

7. Cost per user

As the project advances, other important information can be introduced after a deeper investigation and involvement of other departments.

These data can be obtained by means of an audit - a pan-organisation check which should include the financial footprint from the SaaS purchases to locate each and every application which is paid for and can also be extended to a screening of the personal devices in hybrid working environments.

This step of 'discovery' gives us a blueprint of the company’s SaaS environment, now available for further optimisation.

This directory will also serve as an MVP for further advancement in the project using an automated discovery dashboard and an internal real-time app store for the company’s SaaS ecosystem.

Step 2. Assigning an owner to each SaaS app

With ample information now available, we can move on to the next step. Which is assigning a stakeholder (or owner) for each application, who will oversee its management throughout the SaaS app’s lifecycle. 

An owner can be anyone with an understanding of the SaaS tool and the ins and outs of the external provider.

External SaaS providers also tend to compromise their client organisations' security in the form of data leaks and security breaches. Such scenarios signify the importance of having someone accountable for the application and its provider, to keep the situation from going haywire.

In large companies, the collaboration distance between the IT department and the end-users (employees, who procure the SaaS software) is extremely wide. Astronomical amounts of SaaS tools await proper management and new apps keep appearing in no time. In such instances, it is highly recommended to assign a business application owner from the get-go for all apps to avoid any mismanagement later on.

An application owner(s) should be responsible for the management of the following:

1. Vendor relationship

2. Contracts

3. Renewals

4. Application spend justification

5. Level of adoption by users 

6. Coordination with other owners and more.

A one-man army cannot optimise hundreds of SaaS and it should be expected of the Finance or the Procurement department to be involved in all the stages of SaaS Spend Optimisation as their insights will only refine the raw data.

Step 3. Optimisation

Optimisation should be approached in two ways:

In-depth optimisation: An enterprise-level approach, which includes operational actions to address the most urgently required optimisations in the current tech stack. These optimisations will ideally have an extensive influence on the company’s budget and will allow the setting of the best course of action for future SaaS investments.

Long-term optimisation: A long-term optimisation approach should address all the ongoing and future optimisations of the tech stack based on the in-depth benchmarking, adequately defined processes and accountable stakeholders to prepare an unfailing foundation for any future tech needs. 

7 Best Practices in SaaS Spend Optimisation

1. Deprovisioning abandoned or underused SaaS apps:

Over 30% of new SaaS tools are added to the SaaS portfolio, year over year, in Beamy's client organisations.

A percentage of these new applications will eventually be abandoned with time as they become too outdated for further usage, or as new applications replace the older ones.

With this practice, organisations often end up with multiple SaaS platforms, with little to no significant usage. These SaaS tools exist in the background and the expenses keep piling up for their non-terminated licences.

The tangible ROI of the SaaS applications can only be proved through their level of usage or the level of adoption by the respective teams. Tracking usage also improves future purchase decisions.

With clear visibility of what apps have no longer a purpose to solve, companies can bring a balance between the budget spent on acquiring new SaaS apps and getting rid of the older, unused ones.

Application owners should be responsible for reporting such underused or abandoned tools, followed by their timely de-provisioning from the SaaS portfolio, thereby saving significant money on idle software.

2. Reducing duplicate and overlapping SaaS apps:

While companies cannot disregard employees’ satisfaction in using the tools of their choice, they sometimes tend to overlook the possibility that different departments could be using functionally redundant SaaS apps - different apps serving the same purpose.

For example, it is only wise that the Customer Success department uses a different video conferencing tool than the rest of the teams because their clients utilise that tool. But this comes with a cost.

Sometimes the features that a team wants in an app are not distinct enough from what was already present in the tech portfolio. For e.g. some employees choose Notion over Google Docs as their preferred collaborative workspace. 

In fact, in large groups, the tendency of duplication or overlap in SaaS apps is higher, as the redundancies occur on a business unit (BU) level instead of only between different business teams.

There lies ample financial opportunity to eliminate such redundancies by improving the overall visibility of SaaS software in use and its overlapping functionality. A collaboration between the business units (or departments) can help identify such redundant software.

3. Rightsizing unused or underused SaaS licenses:

Companies often purchase licenses in bulk quantities, but there is no follow-up process that checks the usage of these licenses. By rightsizing the licenses - discarding the unused ones and adding new ones as and when needed, SaaS-associated costs can be greatly reduced.

Unrevoked licenses from ex-employees are a common problem. Without having known what all apps the employee used, it becomes difficult to manage their offboarding from several SaaS apps at once. These non-terminations incur extra costs.

4. Excess & Auto Renewals of SaaS subscriptions:

Renewals of SaaS subscriptions can be manual or automatic. When a SaaS platform doesn’t have a responsible stakeholder, there is a fair chance that the deadline to renew the license can be missed.

This is also why vendors offer “automatic renewals”, but it hardly solves the entire problem and rather creates a new one. Which is that the tools that are no longer used will also be automatically renewed and their bills paid off, even if you didn’t know about it or didn’t want a renewal in the first place.

The point of optimisation here would be clear visibility of renewal dates, so no unexpected charges show up upon billing.

5. Optimising pricing tiers:

Further exploring the rightsizing of licenses, we can see opportunities where a certain department(s) has more SaaS features available to them than needed. Additional features come with a higher-priced tier, and not all employees engage with the premium features on a routine basis.

Departments are usually well aware of how they are not able to leverage the SaaS to its maximum potential, but there are hardly any follow-up actions to remove the high-priced option.

A semi-annual check should be sufficient to understand if the licenses are of the right price tier and if the teams require it for another semester. 

6. Consolidation of contracts:

Consolidated contracts allow companies, especially large entities, to group the software needs of their several business units under a single contract.

These contracts are win-win for both, the SaaS vendors and their users.

Did you know?

The user enterprises can negotiate a consolidated contract with the vendor and save up to 20% volume of the additional expanded services.

This also helps the vendors expand the scope of their services and be able to bag additional clients with minimal sales efforts.

Negotiating a 'multi-year deal' is also possible for large groups, thereby freeing up many resources for other projects.

Consolidation of contracts can take up to 2-3 months of time and should be thoroughly anticipated. A common strategy with defined volumes, prices and uses of each department can allow you to set clear expectations for a smoother negotiation.

7. Encourage SaaS platform use:

Cutting down on premium licenses or de-provisioning inactive apps are not the only ways to improve return on software investments. 

SaaS ROI can also be improved by encouraging the users to make optimal usage of their applications.

It is commonly observed that users are uncomfortable with changes in digital platforms. Workshops, tutorials and feedback forms can be circulated among the users to understand their pain points and educate them on the newly introduced software.

Conclusion:

The ease of procuring a SaaS tool has overshadowed the ways it can hurt a company financially, in the long run. SaaS Spend Optimisation is one of the many features of SaaS Management Platforms (SMPs), that are tailor-made to manage and secure an enterprise’s SaaS ecosystem.