How to optimize your SaaS spend

SaaS spending on the rise

SaaS has empowered team leaders to choose and purchase the technologies their employees need with minimal oversight from an IT department (or in some cases, with no IT involvement at all). Clearly, that approach is resonating—the rise of SaaS has been astronomical, with no signs of slowdown. Today, the average SMB spends $20,000 per month on SaaS.

The real issue for organizations is not SaaS spending in and of itself—it’s the lack of overall awareness or visibility to where the IT budget is going and whether it’s being spent efficiently (assuming teams are choosing the best possible apps for the job). Arguably, the right SaaS tools can help scale a business and give its employees superpowers to do their best work. The problem is that at a certain point in an organization’s lifecycle, it becomes nearly impossible to be strategic about SaaS spending, leading to wasted precious resources.

Even if it doesn’t seem like a painful issue today, uninformed IT spending could amount to tens of thousands of dollars per month (or more) in waste that could have been added to the bottom line or reallocated toward another budget line item (perhaps more effective apps). Often SaaS spending doesn’t see the light of day until finance makes it a priority and discovers that the organization is being wasteful with dozens of unused or underused apps.

Instead of waiting until it’s too late, in this guide, we’ll show you how to be proactive and strategic about SaaS spending, as well as how to implement a more collaborative approach to IT at your organization.

Changing IT = lack of visibility

If you rewind to a decade ago, you’d see a very different picture of IT spending than you would see today. Centralized IT departments were responsible for sourcing and managing software vendor relationships using a companywide IT budget. If finance ever had a question about IT spending, there was usually one person to ask—the IT lead or CIO. And, if a team leader needed a certain software, the request would be managed by IT.

SaaS has changed the game and made it a lot more difficult for IT to control its own budget across the organization. Today, team leaders are self-servicing IT sourcing and budgeting by buying SaaS and expensing it with their credit cards, or treating it as a line item on their individual team budgets. This process redistributes IT spending and creates a silo around the IT organization. Everyone owns SaaS, but there’s no clear-cut stakeholder responsible for the overall IT budget.

All of this raises the question: if everyone owns SaaS, is it up to finance to discover the potential budgetary chaos?

Does finance always discover SaaS spending issues?

The answer to that question is “Not always, but most of the time.” In many cases, a first finance hire or someone assigned to dig into SaaS spending throws light on the dark corners of SaaS spending across an organization.

After this finance hire discovers an IT spending issue, one of two things usually happens:

IT, operations, or office management are empowered to solve the problem. In this case, finance will assign ownership of the issue to a single person or small team, who reports to finance on whether the organization is being responsible and strategic with app spending and utilization. This same person may find the issue of SaaS management runs much deeper than spending alone, into other areas including compliance, security, and employee onboarding and offboarding. Generally this leads to the creation of a SaaS subscription spreadsheet.

Finance tries to solve the problem themselves. In some scenarios, finance will drive a conversation with individual team managers on the apps they’re using, asking questions about not only why these apps are in place, but also how they’re being used, and by whom. This also typically leads to the creation of a spreadsheet to track SaaS spend.

In either case, a lack of overall visibility between the team leaders buying SaaS and the stakeholders trying to solve the spending problem can lead to to a lot of frustration. Often manual, time consuming processes such as repetitive one-on-one meetings and spreadsheets are used to discover and track information, which can become quickly out of date. Ultimately, you can’t improve what you can’t see, and a lot of time can be lost in the process of attempting to gain visibility to SaaS.

Company size plays a role in IT maturity

Sometimes, the issue of siloed IT and a lack of visibility may affect companies differently, depending on their size and stage of growth. Here are some examples of the pain points and IT maturity models at different phases of growth:

Early-stage:

In a startup phase, many organizations tend to be cost sensitive, but the investment in SaaS is still relatively low. Employees are typically making their own SaaS purchases, but the level of visibility across the team remains clear. Whether you can shout across the room or send someone a Slack message, it’s relatively easy to maintain a baseline level of knowledge about the apps that are used company-wide.

Informal IT: At this stage, the IT approach is very informal, with spend optimization taking place on a more ad-hoc basis. The issue of IT spending is less critical, as the number of employees lends itself to increased visibility.


Growth:

Growth stage organizations are inherently less sensitive to cost, and in many cases are willing to do whatever it takes to drive aggressive growth goals attributed to revenue, user acquisition, or other benchmarks set out by company boards and leadership teams. In this phase, visibility tends to start to get lost, and spending on SaaS can grow exponentially without any real strategy behind why or how.

Collaborative IT: When companies grow out of Informal IT, they care about process, and realize they’re spending way more than they need to on tools. Teams require a more rigorous approach than Informal IT, but are not yet at the scale or cultural fit for Enterprise IT. (*More on collaborative IT later.)

Maturity:

At a certain stage of maturity, many organizations have realized they need to control SaaS chaos. Mature organizations are controlling IT spend a variety of ways, and typically have someone in IT/Tech Operations focused on the problem as well as someone in finance. They are trying to find and eliminate overlapping, unused, or underused apps (sometimes a combination of all three!) In this phase, a lot of cleanup happens, leaving stakeholders with a big job to do.

Enterprise IT: At this stage, a dedicated IT manager and centralized, Enterprise IT approach is most common. IT owns SaaS spending optimization, reporting to finance on spend across the entire organization. Unlike “informal IT,” Enterprise IT has more centralized processes around procurement and approval, and IT is often the primary gatekeeper to adopting new technology.

Top three issues with SaaS spend

Regardless of the stakeholder investigating the issue or the company size, the same three issues with saas spend tend to emerge across the board, perhaps manifesting themselves in slightly different ways.

1. Unused licenses or forgotten subscriptions: Usually, this issue tends to happen if the ownership of billing changes, and visibility over the app no longer rests with the team leader (potentially when billing is shifted to finance). For example, the team leader may buy an app in 2017, discover there’s something better in 2018, and continue to pay for the 2017 app. Or, in some cases a team leader may sign up for a free trial with a credit card and decide not to subscribe. Meanwhile, the free trial converts automatically to a paid subscription, with the app going unused in the process.

2. Underused licenses or apps: Many teams could be spending hundreds or thousands of dollars a month on apps that aren’t used to their fullest potential. Maybe there are one or two power-users on the team, and the rest of the team isn’t using the app at all. Or, only a third of the app’s functionality is being used, meaning that the team could drop down a subscription tier or two. In some cases, a better app altogether could be found to meet more team members’ needs.

3. Redundant apps: Sometimes, teams are using multiple paid apps that have overlapping functionality. In other cases, teams are using both free, unsanctioned apps and paid, sanctioned apps that accomplish the exact same purpose. For example, a sales manager purchases videoconferencing licenses, but the individual reps are using free apps because they’re simpler or better. In some cases, paid apps can be eliminated altogether in favor of free, allowing budget to be reallocated elsewhere.

Adopting collaborative it

If organizations are outgrowing Informal IT, but don’t necessarily have the need for a highly centralized Enterprise IT setup, then what does the middle ground of Collaborative IT look like? Culturally, a command-and-control model of IT management doesn’t make sense, especially considering that part of the argument for SaaS is the convenience for teams to easily buy and use the tools they want. A more modern, realistic approach is “collaborative IT,” where both the team leaders and the budget stakeholders share responsibility for SaaS.

Using a collaborative IT approach, team leaders can identify which apps are most useful to their teams, and budget stakeholders can gain much needed visibility into SaaS usage and spending. The ultimate goal of “collaborative IT” is to balance process and compliance with flexibility and freedom of choice.

Optimizing SaaS spend

Optimizing SaaS spend and collaborative IT sound great, but where do you start? Getting proactive about app spending starts with having the right people and processes in place. Once you dig into the issue of SaaS spending, you may find that there are other important considerations, including security and compliance, as well as employee onboarding and offboarding. We’ve developed detailed guides on those past topics, but for the sake of simplification, we’ll focus the majority of the process below on spend optimization, giving you an idea of key stakeholders for each of the other areas.

Step 1: Identify the stakeholders

Since the days of command-and-control technology are over (or at least, very numbered), a more collaborative IT approach will ensure that the right people have visibility into the organization’s SaaS tools. This collaborative IT team should be comprised of the following people:

• Team Leaders: Include the leaders of any team in the organization that is using SaaS.
• Budget Stakeholder(s): This person’s main goal is to manage the overall IT budget, and could fall under any of the following roles depending on your organization—such as finance, IT, operations, or office management.
• Security and Compliance Stakeholder(s): If your organization has a CISO or security lead, they would usually handle this task, but if not, engineering, IT, or senior leadership may assume the responsibility here.
• Employee Stakeholder(s): An HR team lead, office manager, or operations manager may handle getting employees onboarded and offboarded to and from the right technologies when they join or leave the organization.

The outcomes of the assessments detailed in Step 2 should be shared with all members of the collaborative IT team to ensure visibility across the board. In organizations where there are no finance or IT roles, team leaders can allocate a budget stakeholder to manage the overall SaaS spend.

Step 2: Check yourself with regular evaluations

Now that you have the right team in place, it’s important to establish a process to regularly evaluate areas like SaaS budget, employee usage, and security. We break it down in the checklist below with an annual, quarterly, and monthly process for each responsible stakeholder on the collaborative IT team.

Annually

• Budget Stakeholder: Create an annual budget forecast report based on utilization data (including which apps people are using and how).
• Team Leaders: Share feedback on the apps employees are using most, or where there may be needs or gaps. This feedback can be gathered in the form of a survey or a meeting, and given to the budget stakeholder.

Quarterly

• Budget Stakeholder: Review actual spending vs. the annual budget forecast, and make adjustments based on whether teams are over or under the budget.
• Team Leaders: Check if there are any redundant apps on their teams, with an eye toward opportunities to eliminate apps with repeat functionality.

Monthly

• Budget Stakeholder: Check in on vendor invoices to ensure there are no anomalies, or that the services being paid for are regularly used.
• Team Leaders: Conduct an app review, specifically evaluating unused or underused apps or licenses across teams.
• Security and Compliance Stakeholder: Ensure that new vendors are meeting compliance and security requirements.
• Employee Stakeholder: Hold onboarding sessions for new employees, giving them an overview of the tools they need to do their jobs. Offboard employees from technology that have left the organization on their last day.

Step 3: Use SaaS management as a system of record

Establishing a collaborative IT process like the one above becomes much simpler when you have the tools in place to automate once-manual processes, including app evaluations, budget forecasting, security and compliance checks, and onboarding / offboarding processes. Vendr exists to streamline SaaS management, serving as a single source of truth for collaborative IT teams everywhere.

Vendr aligns your people, apps, and spending in a single place, with real-time data all your apps so teams don’t need to struggle to keep SaaS in check. Beyond spending alone, Vendr’s business management, compliance, and security features ensure that IT processes are running smoothly across the entire organization.

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