When should your company invest in a SaaS spend management tool?

Key takeaways:

• If your organization's SaaS buying is decentralized and managed by end users, a spend management tool can drastically improve leadership spending oversight. 
• If your SaaS agreements auto-renew and you don't have the spend management tools in place to monitor those, your company is probably wasting 20% of SaaS spend on shelfware. 
• A lack of spend management and, therefore, a lack of oversight into the SaaS ecosystem can result in challenging and costly (indirect spend) approval bottlenecks. 
• Spend management software offers the spending visibility and control that organizational leaders need. 

With the rapid pace of technological change, new SaaS tools are available for practically every challenge stakeholders face. Gartner reports that public cloud-based SaaS spending worldwide was over $120 million in 2020 but by the end of 2022 will reach nearly $172 million. Gartner also predicts that by the end of 2026 public cloud spending will exceed 45% of all enterprise IT spending, compared to 17% in 2021. 

While the primary purpose of these SaaS applications is to automate workflows and help stakeholders become more efficient, it's becoming a reality that IT and supply chain leaders have hundreds of SaaS applications but dwindling control and oversight of them.

Why?

IT and supply chain leaders of the past had full control over software sourcing, purchase orders, implementations, and renewals, but things have changed. Now the control often lies in the hands of end users, especially in decentralized organizations. End users are often managing their own SaaS purchases and even paying for them with credit cards. As a consequence, leaders have little control and visibility into pricing models, spend data, renewals, and other critical parts of SaaS spend management. 

It’s a costly problem, and ultimately, it's up to organizational leadership to fix it. 

Here are six caution flags to watch for that indicate it's time for your organization to implement a spend management software. Dare we say, it may even be long overdue.

1. SaaS buying and management policies? What policies?

Does your organization have defined policies and procedures in place for software buying? How about renewals and cancellations? If not, your organization is probably not effectively managing company spending on software. 

With increased end-user decision-making in SaaS buying, many organizations lack streamlined processes for new software buying, renewals, and cancellations. 

If your company's stakeholders manage and negotiate their agreements independently, critical steps and information might be missed that could have otherwise meant big time and cost savings. 

Is the company paying for more users than it needs? Perhaps heavy price increases are being overlooked due to auto-renewals? You may be spending critical budget on shelfware. Without a detailed spend analysis, it's nearly impossible to know these things. 

A spend management solution helps establish, automate, and streamline these essential processes, providing real-time oversight to the organizational leaders who need it the most. 

2. Stuck in a spend management spreadsheet

Many companies, even big ones, are still tracking their SaaS spending in a spreadsheet.  

Depending on the size of your organization and the number of SaaS tools it uses, this isn't necessarily a bad way to do it. Even though it may not be the most efficient way, it may be the most practical for the company's needs. 

If your stack is large, it's a whole different story. If managing that spreadsheet was the only thing you had to do, it might be more feasible, but it's probably not. Am I right? 

If you evaluate the time cost of maintaining the spend analysis spreadsheet and the missed opportunities for automation, you'll probably find that it's time to explore a spend management tool.

3. Auto-renewals

Do any of your SaaS agreements include auto-renewals? If you're not sure, they probably do. However, if teams are not on top of the window of time they have before each auto-renewal occurs to provide notice of non-renewal, there is a high likelihood your company is paying for SaaS it isn't using. 

In one conversation we've had with an IT leader at a high-growth company, he had a piece of software his team stopped using months prior to an auto-renew for over $75,000. Unfortunately, he wasn't aware of it, and the team did not provide the supplier with notice of cancellation. As a result, his hands were tied, and the company had to pay the full subscription.

That may sound like an extreme case, but it isn't uncommon. In 2020, Gartner reported that more than 20% of software spending may have been on shelfware. That means, if your organization spends $1 million on SaaS each year, $200,000 of that could be wasted. That's money missing from your current cash flow. Auto-renewals paired with a lack of spend management tools create the perfect environment for wasteful spending. 

4. Unknown end-user satisfaction and engagement 

IT and procurement leaders should gauge what products their team likes and why, and how they support the function of individuals and teams to make them more efficient. They should also know the drawbacks of, at least, their enterprise SaaS solutions. But without spend management, leaders aren't often in the know on what solutions are being used, much less their satisfaction. 

When a renewal approaches, end-user satisfaction information can be shared with the supplier as part of the supplier relationship management process. Doing so can help them enhance the product to your company's use case and grow ROI, or you can use it as a negotiation strategy to get a better price. Poor satisfaction is also an early indicator that the software could become obsolete in your company.

5. Leadership is sinking days into managing software purchases and renewals

We’ve found that the average stakeholder spends 4-6 hours on one software purchase or renewal.

What does this mean in terms of days spent?

If your stack consists of 200 technologies, that equals 1,000 hours a year spent on SaaS purchases and renewals. 

If you assume an eight-hour workday, it comes to over 41 business days per year that IT, finance, engineering, or whoever else is managing renewals could be driving value to the company in more strategic ways.

6. Security/legal backlog

Stakeholders each think that their SaaS need is the most important. And they're not wrong. But where the stakeholder may be working on one SaaS deal, security and legal teams often have a backlog of agreements, renewals, and cancellations to review and approve. This often creates a frustrating bottleneck and ultimately slows down the whole software procurement process.

If this sounds like a norm for your organization, it's time to consider investing in a spend management tool to help streamline and forecast these needs. 

SaaS spend management: Is it time?

If any of these caution flags resonated with you, it's time to consider a spend management system for your organization. 

Here are some benefits to spend management tools you can expect:

• Real-time visibility of SaaS expenditures 
• The ability to control spending
• Improvements in strategic sourcing and negotiations
• Oversight into what the company has paid and what is still payable
• Enhanced supplier management and contract management processes
• Easily accessible usage metrics
• Spend metrics to compare with industry benchmarks
• Increased end-user feedback on the SaaS applications
• The ability to quickly identify overlapping applications
• Decreased waste on shelfware or unused seats

Once an IT leader has a better grasp of their software stack, they can find further cost savings in net-new purchases and renewal negotiations. In addition, less time on manual processes means more time to drive value back to your organization's bottom line.

Need more time to focus on strategic initiatives instead of categorizing spending? Talk with Vendr to learn how we can help lighten your load.