How to Create a SaaS Spend Management Strategy

Your stomach clenches. A bead of sweat rolls down your forehead. Yet, determination swells in your heart. You know you must get rid of the ring – er, software waste. Your organization depends on you.

While you’re not Frodo Baggins walking up to the fires of Mt. Doom, your quest to manage your SaaS spend is not for the faint of heart. While there are many benefits to SaaS (a conversation for another blog), it can wreak havoc on your budget and bottom line.

Software is often your second or third largest spend category. And as much as it costs today, the hard truth is that spending only continues to increase. 

If you want to keep your software spending in check, you need one plan to rule them all. A robust SaaS spend management strategy.

Why Do You Need a SaaS Spend Management Strategy?

Without a dedicated SaaS spend management strategy, keeping your software and technology spending in check becomes virtually impossible. We’re seeing a few trends that emphasize the importance of having such a strategy.

High software expenditure

While one of your greatest operating expenses, SaaS is also a largely untapped opportunity to optimize costs. We find that the average organization spends roughly $45M on SaaS. That equates to about $4,000 per employee, according to the 2024 SaaS Management Index. 

Hidden SaaS spend

The ease of purchasing SaaS is also a curse to your bottom line. On average, about one in six employees will purchase a SaaS application using a credit card or expense reimbursement. Uncovering hidden purchases helps you address all SaaS spending and enact governance policies to better control costs.

Skyrocketing costs

SaaS costs and spending are rising with no end in sight. Gartner projects worldwide IT spending to reach $5.1 trillion in 2024, up 8% from 2023. SaaS accounts for 20.5% of that  IT spend – or $1.04 trillion! And by 2025, organizations will experience a 15-20% increase in SaaS costs. Getting ahead of this trend now is imperative.

Decentralized budgets

Four in 10 boards of directors say they’re shifting the digital business budget to line of business units. This decentralization rightfully gives departmental leaders more control. Yet, it becomes more challenging for IT to keep tabs on the larger picture. Having a strategy ensures the right visibility across the organization to efficiently manage your SaaS spend.

Software waste abounds

In a 30-day time period, nearly 51% of all SaaS licenses remain unused. That equates to $18M in wasted spend annually. Reducing waste not only saves you money but drives efficiency and enables you to fund innovation.

3 Steps to Creating a SaaS Spend Management Strategy

The key to establishing a robust SaaS spend management strategy involves understanding your organization’s complete SaaS inventory, making data-driven decisions for optimizing your spend, and forecasting future costs. 

Follow these steps to establish your SaaS spend management strategy.

Step 1: Discover All Your SaaS Apps and Spend

You can’t manage what you can’t see. These are words to live by, especially in SaaS Management. Proper SaaS spend management begins with discovering all software and tools across the entire organization, including each business unit, team, and department. 

This may seem like a simple process. The challenge lies in the vastness of the modern SaaS portfolio. 

Zylo’s research shows the average organization has 269 SaaS applications in its environment. That soars for large enterprises that employ 650 applications. On top of that, many of these applications are purchased unbeknownst to IT teams. 

You can certainly keep track in a spreadsheet. But, they’re often out of date, risk data integrity, and are burdensome to maintain. There’s also no discovery mechanism. 

We find that 51% of software purchases aren’t properly categorized as software within expense platforms and other financial systems. This is a huge blind spot to uncover before you can take any meaningful action. 

Discovery of your SaaS starts with using a tool. There are five types of discovery methods employed by SaaS management platforms – and SaaS spend management tools – today:

• AI-powered matching model: relies on pattern behavior, using machine learning to identify both known and unknown SaaS applications. 
• Rule-based matching: depends on logic and known information to classify whether an expense is related to SaaS. 
• Cloud Access Security Brokers (CASB): utilizes and monitors company networks to track app usage and security details. 
• Browser extensions: similar to CASB, these rely on employees using company devices and/or networks and monitor data usage through their browsers.
• Single sign-on (SSO): unifies employee access to a single sign-on credential. This credential is linked to an application that can gather and visualize data.

The ideal discovery process requires a complete and thorough analysis of all financial transactions. For instance, Zylo uses AI-powered discovery to create holistic views of your SaaS stack, achieving 100% visibility—which is the standard you need.

Step 2: Build Your SaaS Spend Management Strategy

Once you have a complete view of your software inventory, you’re well positioned to effectively manage your SaaS spend. Creating a SaaS spend management strategy can help you:

• Forecast future SaaS spend
• Accurately budget for software
• Optimize and reduce costs
• Increase financial runway for your business
• Reinvest in innovation and business growth initiatives

Start by analyzing what opportunities are available. Then, prioritize the most impactful actions as they relate to your spend reduction targets and budget considerations.

Depending on what’s important to you, here are a few examples of opportunities you may want to address with your strategy:

• IT-owned, core – or birthright – applications
• Highest spend applications
• Redundant applications
• Multi-channel spend, or duplicate app subscriptions
• Employee expensed applications (shadow IT)

As with any plan or strategy, make sure you document your goals, the actions you will take, and how you’ll report back to leadership. 

Step 3: Optimize Your SaaS Spend

Next, take action on the optimization opportunities you prioritized in your strategy. Doing so is key to reducing costs and finding efficiencies. While there are a number of areas to focus on, we often find the greatest opportunities around licensing, redundant applications, and duplicate subscription purchases.

Reduce unused and underused licenses

Nearly 51% of all SaaS licenses remain unused over 30 days. This underutilization costs an average of $18 million a year in wasted spend.

As such, look for opportunities to trim down these licenses. If you’re mid-contract, focus on cost avoidance by deprovisioning and reassigning other users so you’re not purchasing new licenses. 

The rubber truly meets the road at renewal when it comes to cost savings. If an app is underused, consider reducing your license count. Alternatively, cancel the app if it’s not serving your business needs.

Trim overlapping functionality

When individual employees purchase software, it often leads to redundant applications in your stack. The biggest reason: employees simply weren’t aware of a similar tool already in use. 

From our research, the most common types of redundant SaaS applications include training software, digital asset management, video conferencing tools, and team collaboration platforms. 

Some redundancy can be ok, depending on license agreements and department spread. Yet, it can also be a hindrance to productivity and innovation and a source of wasted spend.

Consolidate duplicate subscriptions

Multichannel spend, or duplicate subscription purchases, are all too common. In fact, the average organization has 23 applications with multiple subscriptions. 

This not only increases the per-user price for each license, it weakens your purchasing power to lower costs and gain additional features. 

Using the visibility you gained in step one, identify where you have multiple subscriptions for the same application. Then, work with your vendor to bring them all together under one contract.

Leverage Technology to Support Your SaaS Spend Management Strategy

With a robust SaaS spend management platform, you can ditch the clunky spreadsheets. Start making real-time, data-driven decisions to lower spend and get the most out of your software investment. 

As you consider a tool to power your SaaS spend management strategy, look out for these components.

Powerful discovery engine

Choose a SaaS Management platform that can uncover and tag the likely hundreds of SaaS purchases hiding in your organization. Remember, true SaaS management requires year-round, ongoing discovery, so look for a platform that automates these processes behind the scenes.

Key usage insights

Your system of record should include the functionality to uncover core usage insights, down to the individual license. The average 1,000-person company wastes $2.32 million on unused SaaS licenses annually, so ensure you only pay for the apps you need and the functionality your team uses.

Actionable data

Look for a SaaS management platform that analyzes usage data, delivers actionable insights, and automates workflows. This saves you time when it comes to rightsizing licenses, consolidating duplicative subscriptions, managing renewals, and optimizing your SaaS spend.

Tracking and reporting savings

You want a platform that allows you to visualize and report savings wins. Not only does it show the value of your SaaS management program, but gives your career a chance to shine. Zylo’s Savings Center is perfect for this.

Ready to take your SaaS spend management strategy up a level? Get started by requesting a demo of Zylo today.