How to buy software: 3 ways to improve your procurement process
It's no secret that the last few years have changed the procurement landscape. Almost every company is relying more and more on software solutions that make their employees more efficient and their work better.
As the need for software grows, one main challenge for finance and procurement leaders is optimizing and controlling SaaS spend management. When there's always a new software-as-a-service solution, the process for budgeting for and purchasing this software becomes critical.
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Streamlining your software spend can be a challenge for a few reasons:
- With the entire SaaS landscape growing year over year, the available options for your tech stack (and pricing model) are always changing and evolving.
- Pricing can be obscured and is rarely fixed. This makes every SaaS negotiation a blank slate based on product, functionality, volume and market positioning.
- Purchasing software is a time-consuming process. There’s a need for input from several stakeholders in any given negotiation.
Despite these challenges, there are ways to make the SaaS buying process smoother and fairer for all involved. Vendr's Jake Holt (Enterprise Sales) and Paige Wojda (Executive Buying) recently sat down with Vendr customers to discuss how they can neogiate better SaaS deals with more functionality and better pricing.
Their recommendations for improving your purchasing process are:
- Track your stack and manage SaaS contracts
- Optimize your SaaS buying process with the 'four yeses'
- Use the drawdown model when purchasing software
How to buy software at the best price
1. Track your stack and manage SaaS contracts
When it comes to controlling SaaS spend, buyers have to know what they're working with to take control of costs. This is where tracking your software vendors becomes critical. Even in small organizations, it’s not uncommon to handle dozens or even hundreds of apps, with varying license volume across departments.
“You need a solution for centralized SaaS management no matter your size,” explains Paige.
For small businesses, SaaS management could be as easy as a spreadsheet. Though as the company scales, so do your software needs, and so does tracking time and labor. There are other options, such as a SaaS tracking tool, or a platform to help you manage and negotiate your software stack.
To get started on tracking your business software, keep it simple. Get a breakdown of apps and services by department. One way to begin implementing this is to have each department decision-maker provide a simple list of the top 20 apps in their tech stack. This will start to give you visibility into your biggest line items, and gives you a way to keep runaway spending in check.
Getting visibility for each department can also surface overlap. Through the process of building your software list, you may realize you have multiple software options for the same problem.
“For instance, owning four project management solutions often doesn’t make sense, but procurement managers can lead narrowing it down to one or two.”
This de-duplication of software solutions can save you money and provide better leverage in negotiations at renewal time.
To accomplish true SaaS management and begin your process in saving money on software, having a centralized owner is important. Having a project owner for the stack from within Finance or IT team means that someone is monitoring the software database and acting as a source of truth.
2. Optimize your SaaS buying process with the 'four yeses'
Having visibility into your tech stack allows procurement to take the next critical step: getting savvy about how, when, and with which software companies budget is spent.
First, optimize your internal SaaS buying process.
“The first thing to think about are the four ‘yeses.’”
Create a procurement workflow for new contracts, renewals and upgrades that brings together buy-in from the four critical departments: the department head, the head of finance, the head of security, and legal.
This workflow is important for several reasons. You’ll go into negotiation knowing you have the support of each department stakeholder. You'll understand the business needs of the department. You’ll have an approved software spend from finance and the ability to proceed with a budget in hand.
Once those early hurdles are out of the way, you’ll be able to focus on satisfying the requirements from Security.
“Security needs to understand the risks associated with each tool,” explains Paige. “There are a lot of non-negotiables when it comes to software security, so knowing upfront whether they have any issues with a tool is important.”
Legal is the last, and sometimes longest, barrier to a deal in the software buying process. Paige recommends knowing who at your company (internal or outside counsel) will be reviewing these contracts. Legal can take the longest. Four to eight weeks, depending on the situation.
For this reason, it’s important to create enough time for the above four stakeholders to complete their individual processes. Leaving 90-120 days for large or complex contracts is a good idea.
Another area is spending thresholds. While many deals need the attention of the above four stakeholders, the truth is that some smaller purchases can avoid the full process. Software products that fall under a certain cost can be automatically approved without waiting for a corporate purchasing decision.
Setting financial thresholds that allow a director or VP to approve the purchase preserves bandwidth for bigger deals. This allows team members to move quicker once they identify the best software solution, and reduces the need to rely on one person or enduring bottlenecks.
“Regardless of your process,” Paige says, “don’t overcomplicate it.”
Once you have the software approval pieces in place, don’t just go with the first or biggest software supplier. Even your dream supplier might not be able to provide the best pricing or suite of services, so looking around for the right software solution is beneficial.
Paige recommends the “three bids and a buy” method of negotiating. Make an honest assessment of your top three SaaS options. Once your shortlist is complete, use your time in sales demos to fully understand each of their functionality, offerings and pricing.
“Don’t be afraid to ask pointed questions,” explains Jake.
Even if your supplier isn’t of a mind to give a discount (Jake and Paige use the example of LinkedIn with its dominating market share and unique offering), optimizing your SaaS buying business process lets you be sure you’re getting the fairest price.
3. Use the drawdown model when purchasing software
There are many ways to pay for the current software products you need to run your business. Not all pricing models are built with price optimization in mind. For variable use apps or fast-growing companies, Paige recommends a consumption model, but with a caveat.
Rather than the typical consumption model, where usage per month is billed at a certain rate and overages incur fees, a drawdown model may be preferable.
In a drawdown pricing model, the software contract is billed on a per-year basis on how much your team uses the product. For instance, a contract might allow for $100,000 of consumption from your end users over a 12-month period. In this model, the user is free to consume any amount over the course of the year, without incurring overage fees or surprise bills.
The challenge here is to accurately forecast the software usage you expect over the coming term, and then to negotiate software contracts accordingly.
“It's difficult to forecast usage,” says Paige. "You can look at the previous year to see how you grew, and that can help you make an informed decision for the next year."
Here, the effectiveness of the drawdown pricing model becomes apparent. In the event you run out of usage before your term is up, you can either negotiate for credits at a fair price or agree to an early renewal and upgrade of the contract.
The drawdown model provides advantages for software buyers and sellers. On the buy side, you don’t get surprise fees in the event you go over. On the supply side, the rep is getting an early commitment of continued support from the buyer. This contract arrangement is ideal.
“You shouldn’t be penalized for growth.”
This contract structure is a good example of future-proofing software contracts to ensure they can keep up with you as you grow.
With good practices and a well-oiled SaaS buying process, you can keep finances in check and ensure the best terms for your growing organization.
Interested in learning more? Watch the full webinar.
How Vendr can help you buy and negotiate for the best software prices
If it’s time to get your tech stack and negotiations in better shape, we’re here to help. With expertise in getting stakeholder buy-in, negotiating beneficial contracts, and keeping your software costs low, our software procurement experts are changing how companies discover, buy and renew their SaaS products.
Vendr clients benefit from a database of deals representing more than a billion dollars in transactions, with a team of buyers committed to getting fair and honest pricing for your most important tech needs.
Today, Vendr has facilitated SaaS purchases across 1,200+ suppliers for Finance and Procurement teams at companies like HubSpot, Brex, Canva, Reddit and Toast.
Learn more about how Vendr can help your team with our Free Savings Analysis.