SaaS Cost Management: Stop Paying for What You’re Not Using!
Tech companies are moving fast and breaking things, taking products to market and looking for hockey-stick-style growth. No matter their stage of growth, these scaling companies need the right tools — Aircall, Atlassian, Intercom, Pipedrive, Salesforce and other Software-as-a-Service (SaaS) platforms that are designed to support their business objectives. Unfortunately, cost management is rarely a priority.
But cost management matters. In the startup phase and beyond, each dollar invested in operations — SaaS platforms included — should deliver a return that drives toward overall business objectives. Using an Excel spreadsheet for SaaS cost management is malpractice, as information breaks and grows outdated, cross-department access becomes an issue, it’s easy to lose track of costs, and a series of other risks threaten your data. In short, cost management via Excel does not help companies achieve the desired return on their investments in SaaS.
So what are the right ways to approach SaaS cost management? At Sastrix, we exist to help our clients avoid common SaaS buying mistakes. Here’s a closer look at why it’s so easy to let SaaS cost management spin out of control — and what you can do to optimize your spending on SaaS platforms.
5 Principles for SaaS Cost Management
SaaS can appear to be so affordable that most companies don’t establish adequate cost-control measures up front. This is a mistake. According to Forrester Consulting, SaaS cost management benefits could amount to millions of dollars in savings. If nothing else, following these 5 cost management principles can help any company prevent SaaS costs from spinning out of control:
1. Centralize Your SaaS Procurement
In fast-growing companies, SaaS procurement tends to take place within departments. Sales needs a CRM, so it seeks out the best software to meet its needs — and signs up. The development team needs a product for tracking bugs and managing projects, so it evaluates its options — and signs up. The marketing team needs an email marketing tool, so it conducts research on different platforms — and signs up.
There’s no doubt: The teams that will ultimately use specific software products need to be part of the decision-making process. But the decision-making process needs to be centralized so that the company can best manage costs. With a centralized SaaS procurement process, your company will be able to identify (and limit) redundancy while ensuring that it’s also maximizing savings.
Gartner studies estimate that as much as 30–40% of technology spending results in hidden costs within the organization, making it impossible to accurately assess what any given company is procuring — and actively using.
For example, one employee subscribing to a SaaS application for less than $10 a month does not trigger any alarms. But, when you multiply that one instance by 100 over 2 years, the numbers start adding up quickly. The cost of SaaS subscriptions and licenses can spiral out of control and eventually swamp your company’s bottom line. But, if all of those subscriptions and licenses are managed centrally, your company will enjoy a level of transparency that helps identify opportunities for savings.
This problem is not unique. According to the IDC, 70% of US tech spending now occurs from business-unit budgets, and this number will continue to grow in the following years. That is, few companies are taking a centralized approach to their spending. If these companies do not find a way to centralize their SaaS procurement, they will be plagued by budget overruns and missed opportunities. Effective SaaS budgeting is nothing without centralized management.
And there’s another step beyond centralization that you can take to improve SaaS procurement — using a platform that automates the process. At Sastrix, our software automates the procurement process by quickly collecting information, navigating the approvals process, and then providing data visualization and other insights that help keep costs under control. See the graphic below for a comparison of decentralized procurement, centralized procurement, as well as automated procurement through a platform like Sastrix.
2. Monitor License Usage
Perhaps the most common SaaS mistake companies make is paying for licenses that aren’t getting used. For example, if you’re paying for 100 licenses with your CRM provider but your company only has 70 members on its sales team, 30 licenses are going unused. Fluctuation in the number of team members is typically the problem, but vigilant monitoring of license usage can solve that problem.
And the price of unmanaged SaaS software is much larger than anyone assumes. According to Gartner’s research, more than 30% of the growing cost of “software and cloud services” will go unused in any given month through 2022. That’s a lot of money getting invested in technology that no one is using.
There are 2 common reasons why licenses go unused:
- Turnover: Team members come and go over time. In many cases, new team members get added to SaaS platforms, taking up licenses. But too often departing team members aren’t removed from those same SaaS platforms. Over time, it may appear that your company is maxing out its licenses for a platform, though many of those licenses belong to employees who are no longer working with you.
- Growth Assumption: Scaling companies sometimes assume that they will grow rapidly, necessitating more licenses in the future than they need in the present. Using the CRM example above, perhaps a company knows that it only needs 25 licenses in the moment — but it expects to rapidly scale its sales team to nearly 100 members by the end of the year. That’s an inspired goal, and one that is realistic for startups that are gaining traction. But most SaaS platforms will let you upgrade to new service levels and add licenses as needed. There’s no reason to spend for licenses you might need in the future until you truly need them. It’s just money spent that could be saved.
This sounds obvious, but your company should only pay for essential applications and the exact number of licenses needed for each. If you monitor usage closely and identify when subscriptions and licenses become superfluous, get rid of them. Deactivate unused accounts, analyze inactivity hotspots, customize workflows, monitor unexpected consumption and re-harvest unused licenses.
3. Cancel or Archive Unused Licenses
This next part is easy: When you discover unused licenses, cancel or archive them. Again, this is just another reason why centralized management of SaaS applications and subscriptions is so essential to cost management. Without centralized management, administrators are reluctant to cancel or archive licenses they suspect are going unused. After all, what if someone in a different department is still using that license?
Centralized management of SaaS licenses means that a single team or group within the company has full access to information on how SaaS applications are being used, who is using them, how much that usage costs, and if/when someone with a license no longer needs that license. The sooner you can centralize SaaS management at your company, the easier it becomes to cancel or archive unused licenses.
4. Re-Allocate Users to the Appropriate Package or Service Levels
SaaS usage isn’t always as simple as providing licenses to users who need them and archiving licenses for users who don’t. In some cases, one user needs a lower level of service while another user requires a higher level of service. In many cases, ensuring that each user has the appropriate level of service within a SaaS application can lead to significant savings.
To get a sense of the various service levels that different SaaS applications provide, check out any platform’s pricing page. For example, a quick glance as Intercom’s pricing page reveals that users at higher levels can optimize performance, conduct A/B testing and implement conversational bots. Now, in many cases, companies using SaaS products like Intercom will have all of their licenses lumped into a single service level. But, in other cases, your company can access savings by allocating some licenses to a lower service level for users who do not need high-level features. SaaS providers often allow you to mix plans — all you have to do is ask in many cases.
For example, if you’re using a SaaS application across various departments, you may find that your product and development teams need a high level of service and more features — while your sales and support teams need a low level of service and fewer features. If you’re an enterprise-level user, you may be able to negotiate savings into a contract given the different needs across these departments.
5. Leverage Your Buying Power
Some companies dread the expiration of SaaS contracts. Expiration means renegotiation, and, in many cases, it can mean higher prices over the term of the next contract.
But companies should look forward to contract negotiation when they are centralizing SaaS management. When SaaS subscriptions and licenses are properly managed, contract negotiation is an opportunity for better cost management moving forward.
The first 4 steps listed above lead naturally to this 5th step:
- Centralize your SaaS procurement
- Monitor license usage
- Archive unused licenses
- Re-allocate users to appropriate package or service levels
When you follow these 4 steps, you’re armed with all of the information and data needed to successfully negotiate attractive terms with your SaaS providers. SaaS providers are almost universally willing to make concessions if you can make a compelling case for why you need to pay less given how you’re using the product. After all, it’s far easier and less time- and cost-intensive for a SaaS platform to retain a user than to go out and onboard a new one.
Remember that there’s power in numbers, which is just another reason why centralized management of SaaS platforms is so essential. By purchasing end-user licenses in bulk, your company can receive a reduced rate, just like any other provider. Look at the enterprise level of service for almost any SaaS provider, and you won’t see a price quoted. Rather, you’ll see a prompt to “contact sales.” That’s because enterprise-level pricing is often so good the provider doesn’t want to make it public. When you have power in numbers, you can even renegotiate better renewal times.
Are you researching enterprise-level pricing for certain SaaS providers? At Sastrix, we maintain a pricing database that allows us to provide you with pricing benchmarks based on your unique needs. You can also upload your SaaS invoices for analysis to find out whether or not you’re paying too much under your existing contracts.
The Power of Paying Less for Your SaaS Tools
When you’re in SaaS procurement mode and looking for the right tool at the best price, remember that there are 3 ways to save on software:
- Cheaper: Buying cheaper is all about negotiation. You can save on software by simply getting a better price. Again, it helps to be an enterprise-level user that enjoys power in numbers. You can also buy cheaper by switching from a monthly to a yearly plan, or through buying from a reseller rather than directly from the vendor.
- Less: Buying less is the approach outlined in this post: Only pay for the licenses that you’re actually using. When you have 85 employees but 100 licenses for a given SaaS platform, you’re throwing money out the window.
- Better: Buying better is all about optimizing your service level and plan. Find the right configuration for any SaaS platform your company needs, and ensure that you’re not paying for features that your team doesn’t need.
At Sastrix, we provide a SaaS cost management platform that helps your company do all 3 when appropriate: buy cheaper, buy less and buy better.
Remember: SaaS Platforms are Designed to Reduce Costs
According to Gartner, most companies around the world consider SaaS solutions superior to on-premise systems. Why? Because they are easier to buy and manage. Plus, SaaS platforms typically save time and money. For example, imagine trying to create your own system that replicates what Salesforce can do for a sales team. Doing so would require manpower and financial resources that far exceed what it costs to simply pay for Salesforce. While there may be some scenarios where it’s better to build than to buy, in most cases it’s simpler and more financially sensible to buy SaaS solutions than to build your own.
But SaaS companies need revenue, too, and they won’t stop you from spending more than your company needs to on a given solution. It’s far too common for startups and even mature companies to pay for more licenses and services than they need. If your company isn’t effectively tracking how your people are using a given SaaS platform and its services, effective cost management becomes nearly impossible. And, as noted above, creating an Excel spreadsheet is not an effective way to track licenses and SaaS usage.
So what’s the solution? Companies that need SaaS products are typically busy creating and selling their own products. SaaS cost management simply isn’t a priority (even though it should be). To simplify SaaS cost management, follow the 5 principles above.
How Can a Cost Management Platform for SaaS Help You?
This post emphasizes centralized SaaS management. But there’s a reason why so many companies continue to manage their SaaS subscriptions in siloes: Centralized management can be time-consuming, and creating the right systems and processes can feel overwhelming.
That’s where Sastrix comes in. We provide one system of record for all cloud-based software purchased across your company, enabling you to manage, measure and optimize cloud investments with real-time insights into spend, utilization and feedback data.
That way, you can make sure that every SaaS product is being used efficiently and with the utmost precision. You can also control renewal times and eliminate redundant and overlapping applications.
Rather than digging through your business app-by-app, Sastrix automatically detects redundant programs and highlights them so you can take care of them, ultimately saving you time and, of course, money.
In the long run, our platform significantly boosts your negotiation power by providing price benchmarks for popular SaaS providers, which helps you identify precious savings potential.
Are you ready to start saving on SaaS? We provide various tools to help you get started.
You can access our price benchmarks tool if you’re seeking information about a specific product.
You can also upload your SaaS invoices for analysis to find out where you’re spending too much.
And, finally, you can contact us for a general SaaS savings analysis.
Your business and its bottom line are too important to waste money on SaaS platforms. Make sure you’re spending what you should and getting the ROI you deserve when you get in touch with Sastrix.