Predicting the Impossible: Forecasting a SaaS Budget Webinar Recap

Cory Wheeler

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The new year is just around the corner bringing the inevitable process of budgeting. In the age of SaaS, forecasting your company’s technology investment is especially difficult. With over $3 billion of managed cloud-based spend, our customer success team consults our customers through the budgeting process while driving collaboration among LOBs.

With this expertise, we hosted a webinar entitled “Predicting the Impossible: Forecasting a SaaS Budget for 2019”. Led by Customer Success Director, Thom McCorkle, and Customer Success Manager, Matt Renie, this webinar discussed the overwhelming reality of the challenges of budgeting for SaaS. We then provided best practices and actionable steps to accurately budget while making the most of the process.

Challenges of Budgeting for SaaS

Often overlooked and under-prioritized, SaaS is a growing industry and a large source of business spend. In fact, “Gartner expects SaaS to reach 45% of total application software spend by 2021.”* Furthermore, most companies lack a complete system of record for their SaaS subscriptions. This contributes to several identified challenges when budgeting for SaaS.  In this webinar, Thom and Matt discuss five of these specific challenges:

An Unclear Starting Point

Simply put, the attempt to accurately budget for SaaS across an organization is daunting and overwhelming. Current attempts and process are often disjointed, manual and driven by rough estimates leading to inaccurate forecasts. This is inevitably caused by a lack of system of record for tracking any SaaS applications. Thus, we often hear from our customers that even beginning the process is a challenge.

Discovering Applications

The introduction of the subscription economy changed how software is purchased, leading to the phenomenon of shadow IT. Today, IT organizations are unable to keep track of SaaS application spend. Even when attempting to manually track SaaS applications, companies underestimate the number of applications in their environment by 2x-3x.  It is impossible to budget for applications that are not identified by an organization.

A system of record for all cloud software a company has purchased by whom and when is now a necessity. Having an active inventory of tools in use provides a huge advantage and starting point when analyzing the budget.

Identifying Cost Drivers

Discovering applications is only the beginning. Once discovered, it is imperative to understand what drives the cost of each application. This takes time and energy as each application subscription and contract is unique and requires analysis.

Furthermore, SaaS vendors are often changing the way in which they price their software. While purchasing SaaS products by user and license is still common, we are beginning to see more vendors shifting to selling Enterprise or platform agreements based on company size or different consumption models.

In order to accurately estimate the cost for a tool in the coming years, the driver of the application must be identified — taking time, effort, and continual maintenance.

Predicting Changes

After determining the cost drivers, the next challenge involves predicting changes of the cost variables for the next year. For instance, after determining that an application’s cost is driven by employee headcount, the next step is to estimate if and how this headcount will change and whether or not this will affect the overall license agreement.

Other changes in the business such as increased sales or number of customers can also impact the cost of an application, further layering on complexity and complications to the budgeting process.  

For simplicity, organizations often apply a flat expected percentage increase in cost to their tools in order to provide a buffer for growth in these cost variables. However, this strategy does not provide insights into the growth thus limiting strategy and collaboration for the future.

The Question of Ownership

Finally, in the midst of this process, the underlying political question arises: Who is in control? Since 50% of an enterprise’s technology spend is bought and managed outside of IT, who else is in control of these applications and their correlated budgets?  

The introduction of SaaS and the subscription economy has layered in different levels and opportunities for ownership. Without having predefined definitions of ownership, blind spots form, leading to gaps in the SaaS stack and accountability for what is purchased and utilized.

Budgeting Approaches

SaaS and the subscription economy enables business units to buy software directly. While this allowed individual functions to have autonomy, flexibility, and immediate responses to their technology needs, this decentralized approach brings its challenges as well. SaaS management ownership now lies on a spectrum between IT and the business: Who is in control?  

With IT solely in control, IT researches, purchases, subscribes and allocates software to the business. Typically a “top-down” approach, tools tend to be standardized across the business, yet with the introduction of SaaS, shadow IT and rogue spending are more likely. When budgeting, the IT department is solely in control, creating a top-down approach with only estimated spend.

When the business unit is solely in control, each business unit buys software as needed. The business unit is thus responsible for maintaining licenses, driving strategy, and creating the budget internally. This often distracts from a business unit’s core competencies and creates unnecessary overlap across the business. This bottoms-up budgeting approach is created solely by a previous application spend analysis often leaving gaps of unidentified applications.

In reality, each business is different. Most customers fall somewhere in the middle as it is near impossible to have only one part of the business solely in control. Understanding the inner-workings of your business is key to begin to wrap arms around the budgeting challenges.  Regardless of who ultimately owns the final budget, close collaboration is necessary between IT, Procurement, and the business.

Information Needs

In order to begin creating a budget, the first step involves gathering the appropriate data to arm oneself to make a decision. The information needed can be summarized into three categories: current applications, new application needs, and contextual information provided by different LOBs.

To start, gather your current application information. Begin by looking to the past and analyze past spend behavior: What did you buy this year? For how much? On what cadence? Then, look ahead to the future by gathering information about current contract details, the cost drivers of the application, and estimated growth of the cost variables.

After gathering information on what your organization currently owns, the next step is to estimate what other applications and features you may need in the future. Business needs grow and change, often resulting in needing different solutions. This results in either a contract expansion to include more software capabilities or a new application altogether. An organization’s budget must allocate for these changes. By gathering this information upfront, your organization will be prepared when these inevitable needs arise.  

Finally, combine this data with other strategic information gathered by collaboration among different stakeholders within the organization. By providing the initial project application footprint, meetings with stakeholders can be centered around driving strategic thinking and allocation rather than gathering the quantitative data.

Best Practices: Utilizing the Process for Collaboration Opportunities

While budgeting and driving strategy is an ongoing process, implementing key best practices today will enable your organization for success far into the future.

Identify What You Have

Overcoming the first and biggest challenge should be your organization’s top priority. Thus, discovering and identifying what your organization has in its SaaS stack is the first best practice and step when budgeting. Garbage in, garbage out. Without having an accurate list of subscriptions to manage and budget for, the budget will inevitably be worthless and out-of-date from the beginning.

Zylo discovers every SaaS application across the organization and creates a single source of truth for our customers.  Consider ditching the spreadsheets and moving toward a tool that unearths shadow IT and provides visibility across the organization.

Be Realistic

Based on industry trend, SaaS will inevitably grow every year. Do not be surprised when your SaaS budget increases. By budgeting today, you will be able to unearth areas of high-growth potential and focus on reigning in these categories. Additionally, being proactive and placing guardrails on spending, especially with high spend applications will help contain growth. Remember that cost containment and visibility is the priority and best practice.  

Budgeting is inevitably difficult. By putting the time and energy in discovering and managing SaaS now, the easier it will be to manage and budget moving forward. The upfront work in gathering information and budgeting today will pay great dividends in the future as the historical information will greatly ease the process in the future.

Prioritize Focus

Alongside being realistic, it is important to prioritize your focus and tackle the largest and most important applications first. Typically with our enterprise customers, we recommend first analyzing the top twenty applications in your SaaS stack. While this is a great start and will cover a large portion of your SaaS spend, it is important to note that there will inevitably remain a long-tail of applications that make up material spendo of your business.

Commit and Revisit

Continual management of the budget is key. Not only is this impactful for future budgeting and making business decisions, but changes will inevitably arise, causing the analysis to be out of date if not appropriately attended to.

Without a tool like Zylo to manage these changes, the upkeep of the budget can be quite manual. Regardless, it is imperative to note how and when a budget changes, when application spend changes, and what causes these changes. These observations prove to be invaluable in the following years when future budgeting decisions are made.

Utilize the Process for Collaboration Opportunities

Finally, make the most of the budgeting process by utilizing this time to drive collaboration across the organization. Partner with, not against, different business units. Provide visibility of application spend and garner a greater understanding of upcoming business needs and pain points. Treat budgeting as a collaboration process rather than a policing practice.

Begin Today

It is never too late to begin to implement these practices and continue to improve in the following years. By knowing what you have, being realistic, prioritizing focus, revisiting the budget, and driving collaboration across the organization, the SaaS budgeting process becomes an incredible tool for strategy rather than a bottleneck.

For a more indepth look at the budgeting process and customer examples, download the webinar recording.

*Gartner Forecasts Worldwide Public Cloud Revenue to Grow 21.4 Percent in 2018, April 12, 2018

About the Author

Cory Wheeler

Cory Wheeler is the VP of Services and Customer Success at Zylo, where he helps tech-forward companies understand, manage and optimize their cloud-based infrastructure via the Zylo platform. Prior to Zylo, Cory spent 15 years in Finance and Procurement, managing categories and sourcing teams at Arthur Andersen, BearingPoint and both Takeda and Astellas Pharmaceuticals. Cory then built the Procurement organization at ExactTarget in 2012, and managed the integration of the new Marketing Cloud Procurement organization into Salesforce.com in 2015. He and his family reside in Indianapolis, IN, where they can be found cheering for the Purdue Boilermakers and Chicago Cubs.