SaaS Spend Management – 5 Practices to Reduce SaaS Overspending

Updated Time : January 18, 2024
SaaS Spend Management

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If you’re navigating the world of SaaS Spend Management and looking to master the art of controlling your software expenses, you’re in the right place. 

Here, we’ve compiled strategies for optimizing your SaaS spending and ensuring your resources are put to the best use. 

Join us on this journey to become a pro and make every penny count.

What is SaaS Development?

SaaS development is like making a new tool or app for your computer. It involves controlling your software costs; the process being discussed revolves around creating those software applications. It’s about producing rather than purchasing tools. Imagine devising a new device that enhances business operations and reduces expenses.

Thus, this process entails constructing these valuable online tools streamlining and optimizing work tasks.

What is SaaS Spend Management?

Understanding, supervising, and taking charge of your company’s SaaS strategy is what we call SaaS spend management. It might sound straightforward, but in the world of SaaS, it’s a multifaceted process.

A potent SaaS spend management framework should enable you to:

  • Budget Control: Keep a close eye on the costs tied to your SaaS usage, making sure you’re not overspending.
  • Centralize and Illuminate: Gather all your SaaS tools in one place, creating clarity and visibility across the board.
  • Track Efficiency: Gain insights into how well your SaaS subscriptions are actually being used. It’s like checking if your tools are doing their job.
  • Cut the Waste: Identify and eliminate any unnecessary spending, just as you would trim the fat from your expenses.
  • Renegotiate Smartly: Make the most of your SaaS contracts by renegotiating when necessary, similar to haggling for a better deal.
  • Adapt on the Fly: Monitor SaaS usage and make changes when needed, like adjusting your plans when circumstances change.
  • Plan Ahead: Create forecasts for your SaaS spending, helping you prepare for future costs just as you plan for future expenses in life.

Key Statistics of SaaS Spend Management

According to a recent CIO Dive article, departments now control 56% of company apps, a substantial rise from 4% in the last year. They typically employ 40-60 applications each, resulting in over 200 apps companywide. 

Shockingly, Gartner indicates that 30% of SaaS spending is wasted on unused licenses and features, similar to paying for services you don’t use. 

Many businesses possess 2-3 times more SaaS apps than they realize, often incurring hidden expenses. Without proper oversight, the risk of overspending on SaaS is comparable to an uncontrolled shopping spree.

The following image states the percentage of SaaS spend growth rate of different types of companies.

Average SaaS Spend growth rate

Why Does SaaS Spend Management Matter?

With these insights, it becomes evident why SaaS spend management is crucial. Let’s break it down:

  • Cost-Efficiency: Proficient SaaS spend management leads to cost savings by redirecting resources away from redundant or unnecessary expenses. It ensures you only pay for what you genuinely require.
  • Operational Streamlining: It’s all about streamlining your operations. Efficient management ensures that your team utilizes the most appropriate tools for their tasks, enhancing productivity.
  • Financial Control: SaaS spend management allows for a precise grasp of your financial allocations, enabling you to invest where it’s most impactful.
  • Enhanced Security: Maintaining oversight of your applications is akin to securing your digital assets. You can better control who has access to your valuable resources, bolstering your data security.

SaaS spend management is a fundamental component of modern business strategy. It’s about optimizing your resources, enhancing operational efficiency, and safeguarding your digital assets. 

5 Best Practices for Managing Your SaaS Spend Effectively

Managing your Software as a Service (SaaS) spend is crucial for optimizing costs in your organization.

Let’s list the 5 best practices for efficient SaaS spend management.

1. Procure Wisely

When choosing the right SaaS tool for your business, making wise procurement decisions is the first step. So follow these advice –

  • Evaluate the Market: Before making a selection, assess various alternatives available in the market.
  • Understand Pricing Models: Examine the pricing structures of different tools to find the best fit for your budget.
  • Negotiate for Savings: Leverage the multitude of options to negotiate and potentially reduce costs.

2. Ace Contract Negotiations

Efficient contract negotiation can make a significant difference in your SaaS spend management strategy. You can grab the following benefits –

  • Tailored to Your Needs: Opt for custom plans that match your specific requirements, avoiding unnecessary expenses.
  • Negotiate Duration: Adjust contract lengths to align with your usage patterns, increasing the potential for discounts.
  • Priority Support: Custom plans can provide priority support, ensuring your business needs are met promptly.

3. Manage Your SaaS Stack

Effectively managing your SaaS stack requires clear accountability within your organization. Following these suggestions will surely help:

  • Assign Ownership: Designate finance and procurement teams as responsible for the stack’s management.
  • Control Access: Grant access to the employees who need it while preventing resources from going to waste.
  • Contract Oversight: Keep a watchful eye on contract details, ensuring they match your requirements and track expiry dates.
  • Monitor Usage: Detect any signs of non-compliance or overuse to avoid potential pitfalls.
  • Data Security: Protect sensitive company information from falling into the wrong hands.
  • Cancellations: Analyze the terms for product discontinuation as you approach the end of usage.
  • Open Communication: Maintain direct contact with support teams for prompt issue resolution.

4. Track Return on Investment

Understanding the return on investment (ROI) for your SaaS tools is crucial to gauge their effectiveness. For this, you need to do the following:

  • Measuring Impact: Define ROI as the positive impact created since adopting a specific SaaS tool.
  • Long-term Assessment: Even if ROI isn’t immediately evident, assess its impact over time.
  • Value Assurance: Make sure your investment in the tool is delivering the value your organization needs.

5. Utilize SaaS Spend Management Software

SaaS spend management software can streamline your efforts and make the entire process more efficient. It also offers the following advantages –

  • Complete Vendor Coverage: Ensure you have insights into all your SaaS vendors.
  • App Usage Insights: Negotiate more effectively with data on app usage.
  • Optimize Spending: Identify and eliminate low-usage apps and unused subscriptions to save costs.
  • Reduce Costs: Detect and remove duplicate apps to avoid unnecessary expenditures.
  • Enhance Negotiations: Utilize price benchmarking data to improve vendor discussions.

Efficient SaaS spend management is achieved through strategic procurement, contract negotiation, diligent stack management, ROI assessment, and the use of management software. 

These 5 best practices can help your organization optimize SaaS spending and maximize value.

Creating an Effective Strategy for SaaS Spend Optimization

Without a solid plan, controlling your software and technology spending can be a challenging task. 

According to Zylo, the following statistics were so alarming that these state the significance of having an effective strategy for SaaS spend optimization. 

  • About one in six employees buy a SaaS application with their own money or through expense reimbursement.
  • The average company spends approximately $4,600 per employee each year on SaaS software.
  • Nearly 44% of SaaS licenses go unused within a month.

3 Steps to a Solid SaaS Spend Management Strategy

Effective management of your Software as a Service (SaaS) spending is crucial for controlling costs and optimizing your organization’s resources. 

Let’s outline the three key steps to establishing a potent SaaS spend management strategy. 

Whether you’re dealing with underused licenses or seeking to streamline your software expenses, these steps will help you navigate the path to cost-effective SaaS management.

3 Steps to Follow for Building an Effective SaaS Spend Management Strategy

Step 1: Discover Your Software

You can do the following to learn about the intricacies of your software:

  • Know Your Inventory: You can’t manage what you don’t know exists. Start by finding all the software used across your organization.
  • Complex Task: This may seem simple, but large organizations can have over 600 SaaS applications, and many are purchased without the IT team’s knowledge. So identify these tasks first.
  • Effective Tools: Use proper spend management software or a SaaS management platform to analyze financial transactions and uncover all software.

Step 2: Optimize Your Usage

You must do 3 things to optimize your SaaS spend:

  • Reduce Underused Licenses: With so many licenses going unused, there are opportunities to cut costs by eliminating or downgrading unnecessary tools.
  • Trim Overlapping Functions: Employees sometimes buy similar software, leading to redundant applications. This includes training software, video conferencing tools, and more.
  • Consolidate Subscriptions: When multiple teams buy the same tool separately, it’s not only costly but also inefficient. Consolidate to save money and improve features.

Step 3: Plan for the Future

Though this is the 3rd step, yet the most important one. To plan for the future of your SaaS, do the following:

  • Continual Monitoring: Keep a complete record of your software inventory to forecast future spending.
  • Automate Discovery: Consider using a SaaS management platform for automated tracking and trend analysis.
  • Use Data: Data-driven decisions help you plan and allocate resources effectively.

Managing your software spending is essential to save money and streamline your operations. By following these three steps, you can create an effective SaaS spend management strategy for your organization.

Benefits of Effective SaaS Spend Management

Think of SaaS spend management like managing your household budget. 

You want to make sure you’re spending your money in the right places and getting the most value from it. Without proper management, you risk wasting resources. 

Here are some key benefits to consider.

1. Proper Utilization of SaaS Applications

With a SaaS expense management system in place, companies can understand how well their teams are using their software tools. 

This ensures that they’re getting what they paid for – not more, and certainly not less. 

It’s like making sure every family member uses the things you buy without having duplicates or unused items.

2. Better SaaS Budgeting

When businesses look at their expenses, they consider their financial capabilities, including how much they can allocate for software tools and what kind of return on investment (ROI) they can expect. 

Every SaaS tool should serve a purpose and deliver results, ensuring that money isn’t wasted. 

It’s like making sure that everything you buy for your home has a purpose and adds value to your life.

3. On-Time Renewals

Renewing SaaS subscriptions can be tricky. Some providers make it challenging with late renewal notifications and automatic payments. This urgency often leads to paying more than necessary. 

Effective SaaS spend management software helps keep track of renewals, allows for contract renegotiation based on usage, and ensures renewals happen on time, saving costs. 

It’s like ensuring you renew services like insurance or memberships before they expire so you don’t end up overpaying.

Managing your SaaS spending efficiently is not just about saving money; it’s about making sure you’re getting the most out of your software tools. 

Just like you manage your household budget to make wise financial decisions, businesses benefit from effective SaaS spend management to maximize the value of their investments and avoid unnecessary expenses.

Top 5 SaaS Spend Management Platforms

Managing your organization’s software expenses and optimizing SaaS spending is crucial. 

Here you can identify the best SaaS spend management platforms, each with its unique features to help you streamline spending and control costs effectively.

1. Spendflo

Spendflo is an end-to-end SaaS management and spend management platform offering a range of features to optimize your entire SaaS lifecycle. 

It streamlines approval workflows, saving time and reducing manual effort. 

Spendflo also provides in-depth spend analytics, helping you gain a 360-degree view of your software spending and effectively plan your budget.

Features

  • Automated approval workflows.
  • Comprehensive spend analytics.
  • License optimization to save costs.

Pricing

  • Starting at $2,500 per month (billed annually).

2. CloudEagle

CloudEagle is a powerful spend management platform designed to offer comprehensive visibility into your organization’s SaaS expenses. 

It goes beyond just tracking costs; it integrates with your internal systems, providing insights into your entire SaaS stack. 

This rich platform helps you make data-driven decisions, eliminate underused applications, and take control over shadow IT.

Features

  • Automated procurement workflows.
  • Expert assistance for software selection and negotiation.
  • Timely renewal reminders and escalations.

Pricing

  • Starting at $1000 per month.

3. Spendesk

Spendesk is an intuitive spend management solution that stands out with its automation features. 

It simplifies expense management by automating repetitive tasks and offers virtual cards with predefined budgets. 

It excels at streamlining expense reconciliation by employing Optical Character Recognition (OCR) technology to match invoices and expenses accurately.

Features

  • Virtual cards with predefined budgets.
  • Automated expense processing for consistency.
  • Create and share comprehensive expense reports.

Pricing

  • Custom quotes are available.

4. Payhawk

Payhawk is an all-in-one solution that combines corporate cards, multi-entity management, expense management, and accounts payable. 

This unified approach enhances visibility into cash flow, optimizes spending, and streamlines financial processes. 

The platform allows for proactive budget control, simplifies bulk card management, and streamlines expense tracking and reimbursement.

Features

  • Proactive budget control with smart limits.
  • Bulk card management for departments.
  • Streamlined expense tracking and reimbursement.

Pricing

  • Premium cards at €199/mo, All-in-one spend at €299/mo, Enterprise pricing customized to requirements.

5. Expensify

Expensify is a cloud-based business expense management system that excels in real-time expense and transaction management. 

It offers a range of features to streamline expense tracking, analyze spending patterns, manage vendor relationships, and create robust budget plans. 

Its strength lies in its ability to detect and prevent unauthorized spending.

Features

  • Smart expense control with limits.
  • Simplified receipt management with OCR scanning.
  • Easily compile and share expense reports.

Pricing

  • Free version available; Collect plan at $5/user/month with Expensify card, Control plan at $9/user/month with Expensify card.

These SaaS spend management platforms offer a range of features to help you optimize spending, control costs, and prevent shadow IT. 

Choose the one that best fits your organization’s needs to make smarter financial decisions and enhance cost control.

Key Metrics for Managing SaaS Spending

Understanding the performance of your SaaS (Software as a Service) spending is essential for optimizing costs and measuring the impact of your investments. 

Let’s have a look at ten key SaaS spend management metrics that can help you track and improve your spending over time.

1. License Count: How many software licenses do you have in use or available? Knowing the number of licenses helps you manage costs and ensure you’re not overpaying.

2. License Cost: What is the total cost of your licenses? This metric helps you understand the financial aspect of your SaaS spending.

3. Total Used Licenses: How many of your licenses are actively in use? This metric indicates how effectively you’re utilizing your software.

4. Shadow IT Utilization: Are employees using unauthorized or unaccounted-for software (shadow IT)? Identifying shadow IT can help you control costs and security risks.

5. Active Accounts: How many users are actively using the software? This metric shows the real impact of the SaaS on your organization.

6. Inactive Accounts: How many user accounts are dormant or rarely used? Identifying inactive accounts can lead to cost savings.

7. Unused Accounts: Some accounts might never be used. Identifying these can help you avoid unnecessary expenses.

8. License Expiration/Renewal Dates: When do your licenses expire or need renewal? Keeping track of these dates is crucial for budget planning.

9. Frequency of Use: How often is the software used? Frequent usage indicates high value and justifies the cost.

10. Duration of Use: For how long are users engaging with the software? A long duration of use can signify a strong ROI.

These metrics provide valuable insights into your SaaS spending, helping you make informed decisions to optimize costs, prevent waste, and measure the impact of your investments.

Wrapping Up

In the realm of modern business, effective SaaS Spend Management is not just an option; it’s a necessity. 

By implementing these practices and embracing the power of data-driven decisions, you can take control of your software expenses, streamline operations, and secure your digital assets. 

Remember, SaaS Spend Management is the key to optimizing costs and maximizing the value of your investments. 

So, take charge and make every penny count.

Picture of Shahria Emon

Shahria Emon

Emon, a blockchain enthusiast and software development expert, harnesses decentralized technologies to spur innovation. Committed to understanding customer needs and delivering bespoke solutions, he offers expert guidance in blockchain development. His track record in successful web3 projects showcases his adeptness in navigating the complex blockchain landscape.

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