Fast-growing companies are becoming more and more dependent on SaaS applications; consider that nearly 73% of companies say nearly all of their business apps will be SaaS by 2020 (BetterCloud Monitor, 2017). They’re smart to power their businesses with the right tools and technologies for them and their employees, but they’re not smart about how they buy and manage their SaaS.
As a company grows, they’re constantly adding new products, and SaaS contracts are grow linear to headcount. But with dozens of vendors and contracts, who’s staying on top of renewals, usage, and getting the best rate?
Managing SaaS relationships and contracts has become a full-time job for IT, Finance, and Engineering leaders. At Vendr, we think that’s a problem. Part of my job is to partner with leaders to understand the challenges they experience as their tech stack grows, and help them find solutions so that they can save both time and money on SaaS.
While helping some of the fastest growing companies in the world overcome these challenges, I’ve found ten best practices that the smartest organizations are doing to manage their SaaS stack, saving themselves millions of dollars and headaches in the process.1. Create a System of Record
I talk to big companies every day who have 100+ SaaS products, owned by different stakeholders, with little visibility into how those products are being used or managed. While decentralization can help an organization scale, it can also hurt you if it’s not organized. Renewals can slip through the cracks, and you can end up spending budget on products your employees aren’t actually using.
Many companies use SaaS optimization tools to stay organized like Intello, Blissfully, and G2track, but you can also start organizing your products in a spreadsheet that includes the following for each product:
Getting systematic about tracking and organizing your SaaS can help identify product overlap, and monitor spend. But it also frees up leaders to think strategically and focus on building teams and product, not worrying about mismanagement of SaaS vendors.2. Turn Off Auto-Renewal
Auto-renewal seems to be in the fine print for the majority of SaaS contracts. High-growth companies move really fast, and resources are stretched, so catching this and acting on it isn't usually a top priority..until it's too late.
Organizations in the US wasted over $30 billion on unused software over the course of a four year study (CIO.com, 2016). One forgotten auto-renewal could cause your rate to automatically increase dramatically. At worst, you could be auto-renewing an expensive piece of software you don’t even want to use anymore. Don’t let auto-renewal turn shelfware into a big hit to your budget.
Luckily, there’s a simple solution. When conducting an audit of your renewals, turn off auto-renewal by emailing your sales rep or account manager.3. Get 90 Days Ahead of Renewals
Some IT, Finance and Engineering leaders I talk to wait for SaaS vendors to tell them that the product is up for renewal. (But if it’s still set to auto-renew, a lot of vendors won’t even give you that courtesy.) The problem is, vendors are unlikely to give you enough notice at the end of the contract for you to have time to evaluate and install an alternative product.
This isn’t an accident. Vendors know you’re busy and growing quickly, and it’s in their best interest to not give you the opportunity to meaningfully look at what you’re spending with them and figure out if it’s the right investment. That’s why you should be proactive and get at least 90 days ahead of the end of the contract date, giving yourself time to understand the future costs and potentially evaluate other vendors if necessary.4. Use Invoices, Not Credit Cards
A lot of decision-makers are paying for SaaS on company credit cards. This should be eliminated across the board. There should be one company credit card for small SaaS purchases and it should be controlled by one person. If multiple stakeholders have the ability to put SaaS on a credit card, managing overall spend and provisioning licenses can become a nightmare.
If you can afford to pay an annual contract upfront, there are usually financial incentives provided by the vendor to do so. Moving to annual payments allows you to have more control of your overall spend, can eliminate overages, and keeps your spend organized.5. Ask About Overages Upfront
True-ups are one of the biggest SaaS headaches that growing companies deal with. You signed an annual contract, and in month 8 you are already over your usage limits, or have exceeded your license count. This happens all of the time. That’s why it’s important to remember that when you sign a contract, you’re entering a partnership. It’s important to partner with vendors that don’t penalize you for growth during your contract period, and that want to grow with you. Make sure this is checked off upfront before partnering with a SaaS vendor.6. Save with Multi-Year Agreements
For products that your team loves or one that drives critical infrastructure, like AWS or Salesforce, you should consider a longer term partnership (e.g. two-year renewal at a fixed license count/rate). Growing companies will absolutely benefit financially from longer term agreements, but we typically recommend testing it for one year before engaging in a two year term.
If your organization is unable to commit to multi-year agreements, you may want to consider putting in cap rates for your upcoming renewals, for example, agreeing with your vendor that the price will only increase a certain % range.7. Focus on Economies of Scale
At a rapidly growing company, it’s important to future proof your contracts. It's critical to think about what this contract could look like in 12 months, and make sure that the vendors you partner with take your growth into consideration for future renewals. This is often taken into consideration for the largest vendors, but growing companies should be seeking economies of scale for the tail spend as well. Companies that fail to do this are either accepting the fact that they are grossly overspending on SaaS, or they are put in a position to cut tools that their teams find valuable.8. Monitor Usage. Better Yet, Have the Vendor Do It For You
Before renewing a license-based contract, make sure you know who needs it. But the last thing you want to do is send stakeholders on a wild goose chase to track down team members to see if they truly need each tool you renew. So, a rule of thumb before every renewal is to have the vendor produce a three month usage report. This should include who has used the product in the last three months, and how often. For your net-new purchases, make sure your vendor will be able to produce this information for you at the end of your term. For usage based contracts, you’ll find that in some cases you are underutilizing the tool, which means you are probably paying too much. This may also trigger your team to find ways to cut or shift your most expensive product usage.9. Invest in Relationships
Often times, you’re in a position to leverage your logo, a customer testimonial, or co-marketing efforts in order to secure a more favorable rate. Whether it’s critical infrastructure or just an app that your team is getting a lot of value from, it’s important to invest in relationships with your best vendors.10. Outsource Your Tail Spend
IT, Engineering, and Finance teams are already spending a ton of time managing the most critical vendor relationships (e.g. AWS and Salesforce). But growing companies we talk to with over a few hundred employees are finding that their tail spend is likely made up of 100+ products adding up to well over a million dollars.
The average time spent on a contract renewal is five hours. If you have 100 products in your stack, 500 hours of your calendar will be allocated to software salespeople. Outsourcing SaaS vendor relationships can provide material savings and will give your Engineering, IT and Finance teams a lot of time back in their day.
Any single contract is followed by a wide range of recurring commitments, deliverables, and obligations. By simply harnessing economies of scale, vendor management experts can streamline and improve these processes. Giving away full control is difficult. But, the results are worth it.