The complete guide to SaaS cost management
Master the fundamentals of SaaS cost management with six actionable strategies you can put in place right now to reduce your total software spend.
Managing your company’s expenditure on software tools should be a crucial focus for your finance and procurement teams.
It’s a simple calculation: reduced SaaS costs = lower overall spending = greater profitability.
But SaaS cost management isn’t just about figuring out which tools you can manage to live without.
Most companies can cut SaaS spending significantly without sacrificing functionality or efficiency.
Master the fundamentals of SaaS cost management with six actionable strategies you can put in place today to reduce your total software spend.
The importance of SaaS cost management in modern business
SaaS cost management monitors company spending on software, then identifies opportunities to reduce those expenditures.
Cost savings might come from:
- Reducing the number of licenses in your agreement
- Improving renewal negotiations
- Consolidating teams onto the same platform
- Adopting more stringent risk analyses
- Using a centralized approach to making SaaS buying decisions
A well-established SaaS cost management strategy is crucial for modern business because SaaS buying continues to make up an increasing portion of total spending.
Today’s companies are incredibly reliant on software—and that number is only trending upwards.
But perhaps more important than the pure volume of Saas usage is that SaaS apps are sold on a subscription basis, typically with a relatively low per-user cost.
When companies can buy software tools at the seemingly inconsequential price of $9 a month, there doesn’t appear (at least to the end-user) to be a need to involve the procurement department.
As such, SaaS spending is often decentralized, with business unit leaders and end-users making buying decisions.
Several problems emerge as a result of this decentralization:
- Employees purchase SaaS licenses on a company credit card and forget about them, allowing continued renewals without procurement or IT knowledge
- Multiple departments purchase similar tools with overlapping functionality (this is becoming even more common as software providers become increasingly vertically specialized)
- Appropriate vendor vetting and risk analysis procedures aren’t followed
- License utilization isn’t managed correctly, meaning you end up paying for more users than you have
The six SaaS cost management solutions we discuss below will help you tackle each of these problems.
Six SaaS cost management strategies to implement today
1. Centralize SaaS spending
The biggest win is centralizing software purchasing and spending decision-making as much as possible.
In the most stringent applications, you might require that your procurement team sources and decides on all potential SaaS purchases.
When a department wishes to purchase a new tool, they must request the appropriate information (e.g., non-negotiable features) and let your procurement department handle it.
This might throttle agility, however, so if working fast is a priority, consider one of these blended approaches:
- Department leaders can source their own SaaS, but the CIO (or other IT department authority) must sign off on each purchase
- Teams can procure software tools within a certain spend limit (e.g., up to $1000 per month)
- Team leaders must follow a specific purchasing workflow (overseen by a department VP) and provide proof that activities like vendor vetting and risk analysis are complete, with a final sign-off by the head of procurement
2. Create clear purchasing policies for decentralized buying
If you take a hybrid or decentralized approach—where department or branch leaders have decision-making authority for SaaS purchases—you need to lay out the rules of engagement.
Begin by building out policy documentation that clearly defines:
- Who is allowed to make purchasing decisions and within what limitations (for instance, a monthly dollar value cap)
- At which point teams must seek approval from a higher-up
- What information do they need to provide when requesting approval, and through what channels (email, Slack, your procurement platform, etc.)
- How to perform activities like vendor vetting and risk analysis
- Who to reach out to if they need help with any of the above requirements
Ensure this documentation is readily accessible using a shared hub like Google Drive or a more advanced workplace wiki tool like Notion or Slite.
Then, use your procurement tool to build automated workflows that ensure team members never miss a step.
Learn more about this process in our guide: What is workflow automation? Examples and tools.
3. Use overlapping spend analysis to consolidate licenses
With clear SaaS cost management strategies in place, you’re far less likely to see instances of overlapping spend—when you pay for two or more software tools that offer similar features.
But these strategies won’t work retroactively, meaning you need to hunt down overlapping licenses to cut costs.
This can be done manually (by listing all your software tools and the features they include and then searching for matches across platforms), though this is time-consuming and fairly imprecise.
The more effective way forward is to use a software-buying platform—learn more about those here—with overlapping license alerts built right in.
For example, Vendr’s team of SaaS buying experts lets you know exactly when and where to consolidate licenses and cut costs.
4. Prioritize broad-fit software solutions
SaaS applications are becoming increasingly vertical as the software landscape becomes more saturated, and SaaS companies are looking for meaningful ways to differentiate their offerings.
While a vertically specialized tool may mean more department-relevant features, the flow-on effect for SaaS cost managers is a bloated tech stack.
A support-focused customer communications tool may look and operate slightly differently from a sales-focused one, but a broad-fit platform often completes both jobs equally well.
If minimizing SaaS expenditure is a core mission, prioritize broad-fit software solutions over vertical or department-specific tools.
A broad-fit solution allows you to take advantage of economies of scale—because you pay for 100 seats with one provider rather than 50 seats apiece with two—and also minimizes time spent on vendor management activities like risk assessment and quarterly review meetings.
5. Initiate a utilization monitoring protocol
Many companies don’t know who uses the tools they’re paying for and how often.
Set up a procedure for monitoring SaaS usage to minimize total IT spending and maximize ROI. Your SaaS vendor should be able to provide this information.
Here are the main issues to look out for and what to do about them:
- All licenses are unused: Cancel your subscription
- Some licenses are unused: Revoke those licenses and renegotiate your software agreement to a lower user count
- Licenses are used irregularly: Investigate whether the tool is still needed (can the need be solved with a different method, allowing you to close your subscription?)
6. Develop a contract management and renewal process
Prevent software agreements from renewing automatically by implementing a SaaS contract management process.
For this, you want a SaaS vendor relationship management tool that gives you at-a-glance insight into all your current contracts.
Vendr automatically notifies you when a contract is up for renewal, so you can get in front of negotiations or cancel SaaS subscriptions you no longer require.
A good contract management process also helps you improve purchasing compliance, as you can create automated approval workflows and track exactly where each renewal is in the process.
Vendr: The SaaS buying platform for cost-focused procurement
Nailing SaaS cost management requires real-time insights into where and how your company spends its IT budget.
To achieve this degree of visibility, you need a SaaS spend management solution that pulls all your spending data together and delivers actionable advice.
Vendr is the SaaS management platform that allows cost-focused procurement, finance, and IT teams to cut down on software spending, with features like:
- Overlapping spend notifications that optimize your tech stack and reduce bloat
- Automated approval workflows to see where every contract renewal stands
- Real-time cost savings data
- Integrations with the ERP and accounts payable tools you already use to manage spending