What is SaaS Spend Optimization? Everything to Know

Effective SaaS optimization has remained a distant dream for B2B industry.

While analyzing pricing and features of a software, buyers don't pay attention on software spend management, user adoption and user consumption. Not prioritizing these factors can lead to ineffective SaaS monitoring, duplicate licenses, and underutilization of services. 

Auditing your software stack in real-time with SaaS spend management software helps build system of records, sets automated renewal reminders, tracks app usage and prepares a catalogue for you and your teams to eliminate software redundancies. 

In this article, we’ll learn more about SaaS optimization and how it can help you achieve financial success along with some measures to prevent SaaS overspending. 

Here’s the scary part: Wasting money with SaaS is relatively easy. Often the process is quiet and discreet until you crunch the numbers and realize, woah, you bought this software last half but still only have one registered user.

Purchasing software that you fail to implement is a complete waste of money. You’d think that goes without saying, but it’s more common than you think. In fact, according to Zylo, the average organization is only using 49% of it's provisioned licenses, that leaves a staggering 51% ripe for optimization. These licenses are eating up into company's marketing budget and making companies cut their paychecks for no tangible return on investment (ROI) as employees aren't utilizing the SaaS solutions.

Why should you implement SaaS optimization?

It’s also important to get everybody well-versed on the why: Why are you implementing this particular software, why it’s important they start using it, and why it’s going to help you push the needle on your company’s goals.

One of the major reasons is decentralization of SaaS software. Sometimes, employees, blithely unaware of the fact that the software credentials they need are available within the company's SaaS suite, would go ahead and buy a license on their credit card and list it under expense reimbursement. This results in ambiguity of multiple software licenses that degrades your IT compliance and gives rise to shadow IT.

Additionally, using software to less than its fullest capabilities is another sneaky way to waste money. For example, if you’re paying top $1 for a marketing automation tool, but only using it to build landing pages and send a few emails a year, you’re missing out on a around $99 worthy of features. Ideal software consumption efficiency is 90% but most companies are only utilizing software to 30-40% which degrades the IT administration and gives room to potential data breaches and DDOS mitigation attacks as idle software inventory is prone to more downtime and wastage. 

Again, this circles back to why adequate training is so important. Employees should be well-versed on most features of the software tool – not just what they’ll be using in their day-to-day. This knowledge does more than ensure you’re using your software to its highest capability.

Benefits of long term SaaS optimization

Below are some of the benefits of long-term SaaS optimization that can help your company optimize productivity and information technology (IT) audits better. 

• Decrease spends:  Managing your SaaS software stack would help you decrease your upfront B2B investments.Targeting the right vendors and setting clear expectations in terms of overall ROI that is expected during contract renewal can help you get the right subscription plan and onboard teams on it in a better way.
• Consolidate duplicate applications: Cutting down on decentralized or duplicate software purchases is yet another perk of SaaS optimization. It allows you to centralize software operations and maintain a catalogue of active licenses that company owns for your employees to be mindful of additional expenditure. 
• Re-negotiate purchase contracts: Before getting stapled with another fixed-tenure contract, based on app consumption and user base metrics, you can renegotiate purchase agreements. 
• Improve collaboration: Putting regulations and data governance on software spends can encourage teams to maximize software utilization and improve collaboration with other departments based on the software catalogue. 
• Maintain IT compliance : Before onboarding any new software integration, consulting IT service specialists and system administrators to set data regulations and system record of software seats would optimize utilization n the long run.
• Optimize SaaS inventory: Auditing your current software inventory and analyzing uptime and downtime, number of seats and subscription license cost gaps and doing a cost-benefit analysis can help you rule out zero-day softwares and narrow down your stack to most software licenses. 
• Proper training:  Giving proper training to your employees can help make them well-rounded professionals and utilize software better. Empowering employees to become well-trained in different software tools contributes to their professional development and their overall job satisfaction.

And while you always want to have enough software logins and licenses for your team to get their work done, be wary of “overbuying,” or paying for too much. This increased spending can often result in underutilized logins, licenses without employees, and overall, some wasted cash.

How to create a SaaS spend management process 

Building a SaaS spend management pipeline offers real-time actionable insights into active licenses verses user adoption rates. It provides a real-time view of SaaS analytics and ensures that you utilize these software to their maximum efficiency. Here are some ways to build SaaS optimization workflows:

• Conduct an IT audit: Auditing your software repository to find user login sessions from past 30, 60 or 90 days would give you an idea of active app consumption. When you get an idea of employees who use these software on a regular basis, you can downgrade or rightsize your software licenses. Knowing the active users also allows you to effectively shortlist the right software vendors.
• Create system of record: System of records can analyze the current contract costs and renewal rates before you send in your teams for renewal meetings. These system of records summarize the actionable spend metrics, IT team service ticket data, contract costs, post-implementation costs and earlier renewal cost during the next contract meeting. 
• Eliminate shadow IT: Eliminating shadow IT to a manageable threshold is important because companies need to know where their bottom line is being spent. Investing in SaaS resources and adding on unnecessarily to your bottom line would cause a leak in your B2B budget and bring down the IT throughput of your company.
• Check for attrited users: Employees who have left your organization could still have user profiles on your enterprise resource planning (ERP) on-premise or cloud application. Removing license permissions and accounts for attrited users can also right size your software utilization processes. 
• Downgrade licenses (if required):  If you purchased a premium license but in the due course of time, realize that per user per seat numbers are low, you can downgrade your license. Investing in enterprise applications can be tricky because the subscription plans are exhaustive, but features are utilized on a minimal scale. 
• Utilize integrations: Club software tools that cater to similar services across teams. For example, CRM software can be integrated with ERP software to automate functional operations in the business. 
• Analyze SaaS utilization metrics: Check whether your software credits are being overutilized or underutilised. Encourage your teams to use more applications from your SaaS stack so that business efficiency doesn't suffer.
• Build a software review board: Build a review board consisting of team members from IT, finance, project management and revenue generation teams to have a holistic strategy for SaaS optimization and save more cost upfront. 

How to Avoid SaaS overspending

Let's see how you can avoid SaaS spend oversight and reduce your risk of splurging money on underused tools and services that your company invests in.

• Conduct your research:  Research for an accurate software tool for your business. Buying a software tool based solely off of the pitch you got from the salesperson is an easy way to choose the wrong solution. And when you select the wrong software, it’s likely you won’t achieve high implementation rates.
• Look for free trials: Free trials are game changers. Typically, these will last around two weeks, which is plenty of time to indicate whether or not you’ll use the software. If you use it for 14 days and immediately realize that you can’t live without it, it’s probably a safe purchase. On the other hand, if you had to go out of your way just to log in, it will likely waste your money in the long run.
• Company-wide software audit: Multiple times per year, consider executing a company-wide software “audit" with the help of IT service management tools to effectively evaluate your cost. Allow each team to document which tools they’re paying for, what business problems they help solve, and use your findings to determine if the software you’re paying for is necessary. 
• Implement a software asset management platform: If you are truly concerned that your software is just wasting money, consider implementing asset maintenance of you software. While it does mean investing more capital, but would give you a unified tool to purchase, negotiate, implement, utilize and even dispose your software. 

Don't cut corners without the complete picture

Analyzing your SaaS spends is crucial because it determines your entire buying journey. By referring to half-baked data metrics, companies won't be able to optimize their software budgets and cater to revenue growth. Understanding and evaluating each parameter of your SaaS spend and monitoring a data repository to back new ideas and strategies during software contract renewals can not only optimize revenue, but also pass of a great impression of you as a buyer in the market.

Learn how you can build effective surveillance strategies to audit your SaaS resources with SaaS operations management software in 2024. 

This article was originally published in 2018 and has been updated with new information.