Apr 6, 2023
4 min read

Spend management for SaaS: How to get control of your rising software costs

Finance team learning how How to get control of your rising software costs
Quick summary

The cost of almost everything is rising, and SaaS is no exception. But with SaaS pricing inflation rapidly outpacing market inflation, companies would do well to look at their software subscription spend. In fact, with $1 in every $8 now being spent on this area of the business, there are almost certainly opportunities to cut costs and get more from budgets.

Table of Contents

    The question is, where to start?

    Data from the SaaS purchasing platform, Vertice suggests that companies increase the number of tools they use by 18% each year, mainly to facilitate growth. The problem, however, is that the volume of tools makes it increasingly difficult for businesses like yours to keep on top of your SaaS stack, identify which areas are ripe for savings, and ultimately negotiate better prices for the tools your company relies on.

    Ultimately, businesses that fail to manage their software portfolios effectively will end up spending significantly more than they should on SaaS.

    The good news? There are ways to gain control over your SaaS costs.

    Where does all that money go?

    If you were to ask an executive where their SaaS spend goes, they would likely point to a few big contracts. While it's true that a few key tools tend to cost the most (and chances are you're still overpaying for them by at least 20-30%), these tools also often get the most attention when it comes to renewals.

    On the other hand, smaller purchases tend to fly under the radar despite the fact they can make up as much as 20% of a business's total spend.

    This is why effective SaaS expense management is critical.

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    What can you do to get spend under control?

    Categorise your spend

    Understanding your SaaS costs is the first step to gaining control. To do this, you must discover and catalog every software application your organization uses and then categorize your spend. Regardless of the purchase size, all expenses and invoices should be organized so that finance teams have oversight of where spend is rising and by how much.

    Payhawk makes this easy with subscription spend monitoring. By grouping costs by vendor, you can quickly highlight which purchases will incur recurring costs or subscriptions that may overlap across departments.

    It's also essential that you're aware of the difference between one-time fees, subscription costs, surcharges, and other add-ons. You need total visibility into which costs are susceptible to these changes to avoid racking up large future expenses.

    Analyse your usage

    Once you understand how much you spend on software, the next step is to evaluate whether you're using your purchased tools appropriately. Chances are, there are some areas where you could be pulling back.

    Research from Vertice has found that, on average, a third of software licenses are underutilized. And it's even higher in departments such as sales, where a staggering 52% of licenses go to waste. This translates into some seriously wasted spend.

    A tech-enabled SaaS purchasing platform such as Vertice can give you visibility into whether these tools are being used and how much, providing a clear understanding of how you could be right-sizing these subscriptions to benefit from potentially substantial cost savings.

    Negotiate all of your SaaS contracts

    Once you've armed yourself with the information about the tools your company is using, where there are overlaps, and where there are overages, it's time to make some decisions. Start by cutting out the overlaps. If you've discovered that two tools can accomplish the same thing, you should remove one from your SaaS stack. Similarly, you should get rid of licenses for the tools you want to keep but aren't utilizing correctly.

    You can equip yourself better to negotiate unique contract terms with a clear understanding of what you require from a subscription.

    In fact, several different software negotiation strategies can effectively drive down costs, the most important being to obtain leverage in the form of pricing benchmarks.

    SaaS costs are rarely set in stone, and for many vendors, there is often a huge disparity between the prices that companies of a similar size pay for the same plan. Ultimately, this means there are opportunities to secure a discount when negotiating a new purchase or renewal.

    Keep on top of renewals

    With 89% of SaaS contracts including auto-renewal clauses, it's crucial that you're also on top of these renewal deadlines and cancellation periods. Leaving it too late to amend or terminate a contract can put you at risk of paying for an unwanted tool or excess licenses for another year — often at a huge cost to the business.

    Auto-uplifts are another frequent challenge, with many software contracts allowing for price increases with little or no warning. Keep an eye on these terms when negotiating with vendors. Better still, ask for them to be removed.

    Keep on top of renewals

    With 89% of SaaS contracts including auto-renewal clauses, it's crucial that you're also on top of these renewal deadlines and cancellation periods. Leaving it too late to amend or terminate a contract can put you at risk of paying for an unwanted tool or excess licenses for another year — often at a huge cost to the business.

    Auto-uplifts are another frequent challenge, with many software contracts allowing for price increases with little or no warning. Keep an eye on these terms when negotiating with vendors. Better still, ask for them to be removed.

    Create a sustainable procurement process

    Once you get your stack in order, you will want to make sure it stays that way. When purchasing new tools, it's important to document contracts and have them governed by a central procurement team that can actively supervise the entire portfolio while providing further cost-saving insights.

    Centralizing and streamlining your procurement can also go a long way in terms of improving information security, protecting sensitive data from potential risks, and fulfilling compliance needs.

    By standardizing your purchasing process and adequately vetting each tool used within the organization, you can better protect your company files, intellectual property, and other sensitive data against costly security risks.

    At the same time, the process needs to be user-friendly enough to discourage team members from skipping the process altogether. Finding ways to automate the process as much as possible will balance the need for speed with the need for compliance.

    Find a partner that can help

    SaaS tools are evolving to solve all kinds of problems in modern organizations, and SaaS spend management is no exception. Partnering with companies like Payhawk and Vertice is the easiest way to achieve complete expense visibility on your contracts, streamline SaaS spend management, and use automation to turn your SaaS procurement into a seamless process. Book a demo and learn how.

    This is a guest blog from Sarah Monette, Head of Partnerships at Vertice.

    This article has been brought to you by our spend management editorial team.
    Payhawk Editorial Team

    The Payhawk Editorial Team consists seasoned finance professionals boasting years of experience in spend management, digital transformation, and the finance profession. We're dedicated to delivering insightful content to empower your financial journey.

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