SaaS spend optimization: 5 best practices to implement today
Discover the five best practices to optimize your SaaS spending and implement them in your SaaS spend management strategy today to cut costs and boost value.
For many companies, SaaS spend optimization is an elusive practice -- or non-practice.
Individual department leaders are in charge of buying software for their teams. Then, they’re in control of managing vendor relationships—canceling and renewing contracts.
Implementing an effective and structured SaaS optimization approach will reduce risk, cut costs, and drive more value from every software supplier relationship.
Discover the five best practices to optimize your SaaS spending and implement them in your SaaS spend management strategy today.
What is SaaS spend optimization?
SaaS spend optimization is the ongoing monitoring, management, and control of software expenditure.
Reducing costs is an important goal of the SaaS cost optimization undertaking, but it’s not the only one. The “optimization” of your SaaS spending is the focus point. That is, getting the most value out of every dollar you spend on software.
To achieve this objective, SaaS spend optimization looks to:
- Reduce the number of SaaS apps in your tech stack by canceling unused subscriptions or consolidating platform usage
- Cut the number of licenses per contract by identifying underutilization
- Maximize value from SaaS contracts by monitoring and driving feature adoption
- Right-size contracts by understanding feature and volume requirements and engaging in vendor negotiation conversations
- Control risk by implementing purchasing policies, approval workflows, and security compliance reviews
- Control out-of-contract spending by centralizing SaaS purchasing
Why is SaaS spend optimization such a critical undertaking?
In many organizations, SaaS buying is decentralized.
Decentralized buying means department leaders individually purchase the software their team requires. For example, the VP of Sales determines which CRM their team will use to manage sales leads.
Indeed, many business owners fail to see the consequences of this decentralization. After all, licenses are relatively cheap. It makes sense for the expert on the topic to assess and choose the correct software vendor.
However, decentralized SaaS purchasing power creates several common challenges that require a more robust SaaS spend optimization program.
SaaS platforms are rarely department-agnostic. That is, multiple departments may have a use for a similar product.
If, however, software buying is in the domain of the department head, companies very regularly end up with overlapping licenses.
Your Sales VP might purchase one CRM and your Marketing VP another. The two don’t collaborate on procuring this product, and you end up with two licenses for two different products that essentially do the same thing.
Department leaders are concerned with their team's goals, not so much with controlling the cost of the tools they use to meet them.
As such, they’ll typically be unconcerned with pushing the boundaries of their contract if team requirements demand it.
Say, for example, Marketing’s CRM has a limit on monthly email sends. As your email list grows, you exceed that limit, and your supplier starts charging overage fees.
From the VP’s perspective, this is a necessary evil. For procurement professionals, however, this problem needs to be solved (likely through a contract renegotiation).
In most buying arrangements, we understand that the price advertised is the price paid.
We go to the supermarket for milk and pay the fee on the tag. We go to the Apple store for a new iPhone and pay the recommended retail price.
If SaaS buying is decentralized, this mentality can leak into procurement. Department leaders pay the price on the tag, not understanding that procurement pros can almost always negotiate software contracts.
As a result, many companies enter into agreements where they overpay.
IT compliance risks
Department leaders are rarely experts in risk identification—it’s not what you hired them for.
As such, they don’t thoroughly analyze the risks presented by a new vendor relationship (such as SaaS security risk). Worst case, this can open your company to potential data breaches.
Poor or undefined SaaS spend management protocol regularly leads to issues with utilization that leave your company paying for licenses that aren’t used.
The most common problems that emerge are:
- Individual license underutilization—when a given employee seldom uses their license
- License non-utilization—when some users’ licenses go completely unused despite you paying for them
- Non-cancelation—when nobody on your team is using a product, but the department head forgets to cancel it
- Missed renewal opportunities—when the department head misses the opportunity to negotiate a more appropriate agreement at the point of renewal
Best practices to optimize your SaaS stack
1. Centralize SaaS purchasing where possible
If SaaS buying is currently the domain of department leaders, look to centralize as many aspects as possible.
Department heads should still be involved in sourcing, vendor assessment, and decision-making. Their input and expertise will be invaluable in choosing a software supplier that ticks all of your procurement boxes and serves your end users' exact needs.
2. Document and distribute purchasing policies for decentralized buying
In some cases, it may be inconvenient to centralize decision-making.
For instance, it's too much work for your VP of Sales to request permission from the procurement team each time they onboard a new sales rep and wish to add another CRM user.
To effectively control buying when it doesn’t go through procurement, determine and document policies for purchasing compliance.
In these policies, outline:
- Who is responsible for what kind of purchasing decisions
- When department leaders need to involve procurement or seek purchase approval
- Workflows and requirements for approval (such as the creation of a purchase request)
- How to handle new user requests or the addition of new features
3. Use overlapping spend analysis to consolidate licenses
A key practice in SaaS spend optimization is finding opportunities to reduce the number of software contracts you have. Then, you’re running a lean ecosystem of regularly used and highly relevant SaaS applications.
One method for achieving this goal is analyzing overlapping spending, which is the process of looking for instances where you have two or more products doing the same thing.
Comparing software licenses by category is the place to start (i.e. project management, CRM, or payroll automation). If you find that your organization is using two different project management apps, dig into utilization to understand if a single platform would better serve all team members.
Pay careful attention to how given software platforms are used, as not all offerings are clearly described by their category name.
monday.com, for example, might be the platform you choose to use as your project management tool. But monday.com also offers some CRM capability, which may be sufficient for your team’s needs, allowing you to cancel your existing CRM license and consolidate your SaaS apps even further.
4. Put someone in charge of SaaS license management
License management is one of the most important aspects of managing SaaS costs.
Consider having a procurement professional in charge of all SaaS license management or implementing specific license management policies for the managers of each of your SaaS vendors to follow.
Perform quarterly audits to identify:
- Licenses that are no longer being used (and cancel)
- Licenses that are being rarely used (and investigate if they are still required)
- Feature adoption (and provide support for users to engage more with features they aren’t currently taking advantage of)
- Unused subscriptions (and remove those tools from your SaaS inventory completely)
5. Manage costs through contract and renewal management
Proactive contract management with your SaaS is a crucial element of controlling software costs.
Manage these relationships through the contract lifecycle by holding quarterly vendor management review meetings where you analyze supplier performance against contracted expectations to hold vendors accountable.
As your contract renewal date approaches, review your current SaaS usage and compare your current needs against your existing agreement. Make note of:
- Features you’re no longer using
- Features you don’t have access to that would be helpful
- Your current license count vs. requirement
Use this information to inform contract renewal discussion. For example, you may be able to reduce your user count if you currently have more active licenses than you require.
Optimize your SaaS spending with Vendr
Vendr is the SaaS spend management software that helps finance teams reduce expenditure on SaaS tools and maximize the value they receive from software vendor relationships through:
- Real-time spending data by vendor, department, and category
- Overlapping spend analysis
- Price benchmarking from the biggest data set of SaaS buying transactions around
- Contract renewal support from our team of software buying experts
- Automated approval workflows to drive purchasing compliance
Discover how much you could be saving on SaaS today with our free cost savings analysis.