If 2020 taught us anything about procurement, it’s that SaaS purchasing will continue to take a larger role in organizations.
As the need for software grows, the challenge for finance and Procurement leaders is optimizing and controlling SaaS spend management. It’s a moving target for a few reasons:
- With SaaS growing year over year, the tech stack (and pricing model) is always changing and evolving.
- Pricing can be obscure and changeable. This makes every SaaS negotiation a blank slate based on product, volume, market positioning, and other factors.
- Purchasing software is a time-consuming process. There’s a need for input from several stakeholders in any given negotiation.
Despite the challenge, there are ways to make the buying process smoother and fairer. Our very own Jake Holt and Paige Wojda recently sat down to discuss the ways to spend less on SaaS, and get the best terms when you do buy.
Jake is an Account Executive here at Vendr. Paige serves as one of our Executive Buyers, where she leads a team of buyers working on behalf of Vendr’s customers. Paige’s background also includes work on the supply side as a software and tech sales rep, giving her a unique perspective on the process.
Get the top 3 takeaways from the conversation below or watch the full webinar recording here.
1. Track your stack and manage SaaS contracts
When it comes to controlling SaaS spend, you have to know what you’re working with to take control of costs. This is where tracking 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 smaller companies, this could be as easy as a spreadsheet (though as the company scales, so does tracking time and labor. There are other options, such as a SaaS tracking tool, or a platform like Vendr to help you manage and negotiate your software stack.
To get started on tracking, keep it simple. Get a breakdown of apps and services by department. One way to begin implementing this is to have each department lead provide a list of their top 20 tech stack. This gives 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 this process, you may realize you have multiple solutions for the same problem.
“For instance, owning four project management solutions doesn’t make sense, but you can narrow it down to one or two.”
This de-duplication can save you money and provide better leverage in negotiations at renewal time.
To accomplish this, 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 stack and acting as a source of truth.
2. Optimize your SaaS buying process
Having visibility into your tech stack allows you to take the next critical step: getting savvy about how, when, and with whom you spend your budget.
First, optimize your internal SaaS buying process. “The first thing to think about are the four ‘yeses.’” Get a workflow for new contracts and renewals that brings together buy-in from the four critical departments: the department head, the head of Finance, the head of Security, and Legal.
This is important for several reasons. Firstly, you’ll go into negotiation knowing you have the support of each department stakeholder. You’ll have consensus 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.
“They need to understand the risks associated with each tool,” explains Paige. “There are a lot of non-negotiables when it comes to security, so knowing up front whether they have any issues with a tool is important.”
Legal is the last, and sometimes longest, barrier to a deal. Paige recommends knowing who at your company (internal or outside counsel) will be reviewing these contracts. There could be quite a few. 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 the process. 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.
Setting financial thresholds that allow a director or VP to approve the purchase preserves bandwidth for bigger deals. This allows the team to move quicker, 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 these pieces in place, don’t go with the first supplier (or the biggest). Even your dream supplier might not be able to provide the best pricing or suite of services, so looking around is beneficial.
Paige recommends the “three bids and a buy” method of negotiating. Make an honest assessment of your top three options, and use your time in demos to fully understand their offering 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), you’ll know you’re getting the fairest price.
3. Consider a drawdown model when purchasing software
There are many ways to pay for the services you need to run your business. Not all are built with price optimization in mind. For variable use apps or companies in growth mode, 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 this scenario, the contract is billed on a per-year consumption basis. For instance, a contract might allow for $100,000 of usage 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 usage you expect over the coming term, and 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.
The effectiveness of the drawdown becomes apparent then. 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 of the contract.
The advantage here is for both parties. 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 arrangement is ideal.
“You shouldn’t be penalized for growth.”
This contract structure is a good example of future-proofing 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.
If it’s time to get your tech stack and negotiations in better shape, we’re here to help. Our clients benefit from a database of deals representing $300m in transactions, with a team of buyers committed to getting fair and honest pricing for your most important tech needs.