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We’d sound a broken record telling you that SaaS costs are rising and you need to address them. But, we’re going to say it anyway.
SaaS costs are on the rise, and it’s only going to continue growing as a line item in your company’s budget. In fact, Gartner predicts that Worldwide IT spending is projected to total $5.1 trillion in 2024, an increase of 8% from 2023. In addition, the analyst firm expects SaaS costs to increase 15-20% annually.
To dig into this further, we interviewed Chris Ortega, the CEO at Fresh FP&A and Fractional CFO. In this Q&A, we cover:
- Why it’s important for CFOs to pay attention to SaaS costs
- Common pitfalls, opportunities, and challenges around SaaS spend
- Where CFOs can make an immediate impact
- What the future of SaaS spend management is for CFOs
Why should CFOs care about SaaS costs right now? And what’s the level of awareness with CFOs today?
When you look at all the priorities CFOs have on their plate right now, they’re trying to navigate a business. They’re trying to be technology adopters. They’re trying to make sure they have the right people in the right seat. They’re making sure that they’re delivering high value. Among all those priorities, cash management and optimization is number one.
Nobody wants to say the big R word, right? But, we don’t know if we’re entering a recession or when that’s going to happen. So a lot of CFOs are saying, “We need to maintain our cash burn and our runway.”
Traditionally a lot of CFOs will do their Excel exercises and see that the biggest cost attribute in the business is their people. That’s the first place they go.
To me, that should be the last place you go as a modern CFO. Look at your operational spend. Look at all the different SaaS tools. And when I’ve been a part of SaaS businesses and startup and scale up organizations, it’s often you have six or seven project management tools. You have four or five collaboration tools. You have Zoom, Slack, all these different solutions.
If you have a platform, that provides you a strategy as well as overall awareness. Getting the complete picture of where your spend is and where you have operational loss in efficiency. Delivering the tools and technology our people need to be successful. Doing that in a cost effective way to manage our cash burn and optimization.
That is a greenfield opportunity that a lot of CFOs can get immediate cash flow impact and big wins that don’t necessarily need a big swoop of cost cutting measures around your people.
What are some pitfalls, or common challenges, CFOs are running into around SaaS?
I think it’s a lack of awareness. When I put on my CFO hat and think about SaaS spend, does that sit with the Chief Information Officer? Does that sit with Finance? Does that sit with IT? That’s commonly the first piece of it, because a CFO’s traditionally like, “I see the cost that we have for Salesforce, but that’s a sales technology.” And you look at Paylocity and it’s like, “Well, that’s an HR tool.”
Then it’s: who owns SaaS spend inside the business? This is where I think the partnership element outside of the finance organization becomes really valuable – a partnership with your Chief Human Resource Officer, Chief Information Officer, and Chief Technology Officer.
Often, CFOs might say, “Look, the overall objective of what we need to look at is not set in the rigor. We want to reduce SaaS spend by 50% in the next six months.”
I think that’s the wrong approach. Instead, it should be more like, “We have these tools. What makes sense from a productivity perspective? What still gives our employees the tools and technologies for them to be effective? Where can we partner together to see what is actually the right long term solution?”
What do you think is going to happen with SaaS in the future, and where do CFOs need to be involved?
I think, traditionally, the office of the CFO has been technology laggards. Meaning, lagging in terms of technology adoption. We want to make sure all the boxes are checked, it’s compliant, there’s no audit risk, it’s collaborative. We got our SOC2 audits. We got all these different things before we adopt the tool and technology.
So for the office of the CFO, they may say, “Why would I get another SaaS tool to maintain all my other SaaS tools? I’m already spending money on SaaS.” However, you must think about it as a long-term strategy.
I’ve been inside organizations where you find that technology is siloed. You have your marketing group that has four or five marketing technologies. And if you ask them why they have all these technologies, it’s because they thought they needed it.
That’s where CFOs can benefit using a SaaS solution to manage that entire ecosystem. Now you can go develop a strategy. Now you can go and say, “I see that in our marketing group, we have these five solutions. Here’s how much we’re paying.” Now you have the data to have an informed conversation.
A lot of times I see it where CFOs say, “We have four project management tools. We’re just going to pick this one and get rid of the other three.” Now you’ve made what I call pencil Excel solutions. You don’t even know what the strategy is.
Where I really see the opportunity and value add for SaaS solutions is that comprehensive ecosystem. Now you can get data. Now you can get insights. And that gives you an advantage when it comes to negotiating and getting better pricing.
Not only do you gain a system for comprehensive record keeping, but you also have a partner to help you procure the right licensing fees and costs that make sense for the organization. That’s where the future is going and that collaboration, connection, and comprehensive view of looking at your SaaS.
Do you have any guidance for financial leaders thinking about budgets in the year ahead?
The prioritization of your SaaS spend is what creates cost savings. One of the things CFOs should do is use a tool that can guide your strategy for, build collaborations, and drive a valuable partnership. Maybe it is that budget planning tool, or business intelligence tool. And you’re looking for a way to self fund that investment. Well, this is a great opportunity to do that.
Find the tools that don’t make sense anymore or an old tool that’s no longer supported or in use. Here’s the spend that was on people’s corporate credit cards that we can get back. Now you have a funding avenue to actually invest in a new tool in technology. You don’t have to find the incremental cost.
I think a lot of times, the CFO has that lens of we find it, we save a dollar, that dollar needs to go directly back down to the bottom line. No. You can invest that dollar to give $2 in partnership, in collaboration, in clarity that you’re bringing to the business. And the ability to take complexity and make that clear and concise for the business.
When CFOs think about funding strategies of the future, the worst thing that they can do is find all this extra spend and be like, okay, fine. We just completely attributed another 12 months of runway around it. Was that the right thing to do? Is that the right thing for the business to be thinking about? Is that the right thing for the people? Is that the right thing for how you’re delivering value to your customers?
Now you’ve created this funding avenue that you can make those investments, and it’s already incremental spend that you’ve already spent. It’s not like you’re going above and beyond what you already have.
Or you can find those opportunities to say, “We created these quick wins in the next three to six months, eight to 12 months.” Because getting ahead of those renewal cycles, that is the most important. But how do you do that if you don’t even know when the renewal cycles are happening?
Through visibility. It creates an internal funding strategy that you have to now go look at technology and tools that make sense for the long-term vision of the company, versus just saying, “We save these costs, add them to the bottom line, and onto the next initiative.”
The things that CFOs need to be thinking about is how do you balance that out, and how do you get the maximum ROI out of those initiatives?
Any final words of wisdom you’d like to share?
Budget planning cycles are starting right now. So when you think about the strategies and tactics to manage your cash burn and improve runway, I would highly recommend leveraging tools to look at your spend and solidify a strategy.
Companies follow due diligence and process when looking at their revenue and people strategies. So, you should take that same diligence into your operational SaaS spend, and partner with tools like Zylo to help you on that journey.
Being a CFO, when you have the right people, knowledge, and partnerships in place, it is a tremendous value that you bring to the organization. So that will be my to-do for all those finance and CFO leaders. Really take perspective and be proactive in building the partnerships and the connections around maintaining your operational SaaS spend. Huge dividends for you.
About Fresh FP&A
Fresh FP&A is a consultancy focused on finance transformation and scale solutions for businesses. The team of dedicated professionals have over 70 years of combined experience in accounting, finance, FP&A and CFO leadership, and serve as a value-added partner. Learn more at www.freshfpa.com.