7 Steps to Reduce SaaS Costs

Every organization has a unique SaaS profile. Much like a digital fingerprint, the SaaS makeup of a company varies to reflect business goals, demands, and culture. Regardless of the multiple approaches that lead to cloud-based software selection or which industry an organization operates in, there are universal steps any business can take to reduce SaaS costs.

Use this seven-step roadmap to help contain, reduce, or optimize SaaS-based spending.

Step 1: Discover All SaaS tools

Most businesses like to think they have a comprehensive view of their SaaS stack. Despite that belief, Gartner studies have found that shadow IT comprises 30 to 40 percent of IT spending in large enterprises.

Zylo data also shows this trend of decentralized purchasing. IT continues to own less and less, with lines of business and employees being responsible for 72% of software spending and 83% of applications.

Increased visibility into the software stack provides an immediate opportunity for savings as duplicates, and orphaned purchases are frequently uncovered.

To reduce SaaS costs, these are the attributes businesses need to identify for each new previously unknown applications as it becomes visible or known:

• Which SaaS applications are used: Usage metrics provide transparency into the overall value of a subscription. If a few individuals only are using a SaaS tool, it may be time to find an alternative that drives improved utilization or to eliminate the under-used application.
• What department, team, or employees are using the applications: If one team is using a tool they prefer, but there is a top-dollar SaaS application that offers the same functionality, consolidating under a single application represents a cost-savings opportunity.
• How much each software subscription costs: A cost comparison can help determine ROI and evaluate the effectiveness of each application.
• How applications get used: Options may exist for enhanced feature sets in some SaaS tools, which could allow for the elimination of other underutilized subscriptions.
• When does each SaaS contract renew: Having plenty of lead time before renewal allows for more informed contract negotiations and budget optimization.

Various methods of SaaS discovery exist, but when it comes to cutting costs, it’s especially important to look through a financial lens. To truly reduce costs and eliminate redundancies, spend-based discovery is needed.

In particular, this ensures that no overlaps occur between Accounts Payable and Expenses. Often, business users will purchase software with credit and outside of the purview of IT, quickly building up duplicate applications. Spend-based discovery enables visibility into those lines of business (LOB) purchases.

Take a sneak peek to see how Zylo’s Discovery Engine works using spend-based analysis.

Step 2: Prioritize Applications from Highest Overall Cost to Lowest

The next step is to prioritize applications by cost. If the discovery process brings a long list of SaaS applications to light, the quantity can often seem overwhelming. On average, most companies underestimate their total application quantity by two to three times.

Zylo data shows that most large enterprises maintain a SaaS stack of more than 600 applications. Prioritizing by cost allows for an informed comparison of SaaS features versus cost, enabling businesses to select an application based on the value it provides to the overall organization.

Where can you expect to find the most spend? The highest costs are often attributed to mission-critical tools used across an organization. These may include e-commerce platforms, CRMs, ERPs, or comprehensive office tool suites, among others.

The good news is that these SaaS tools frequently contain opportunities to reduce costs. These platforms usually come with robust toolsets that provide the functionality often found in lesser-used applications, allowing for a consolidation of SaaS tools.

Step 3: Reduce Subscription License Waste

Unused licenses often comprise a large chunk of wasted spending. Our data shows that 51% of license go unused in a given 30 day period, equating to $18M annually. Increased visibility into the SaaS stack helps to identify who is using which subscriptions. Better transparency of usage metrics allows for a re-allocation of current licenses and lets organizations determine future licensing needs.

A clear picture of license utilization also enables informed contract negotiations to limit overages on excess licensing. To help accomplish this step, begin identifying applications with wasted licenses at least three months before contract discussions to ensure unused licenses do not get renewed.

Step 4: Establish Best Practices for Future Purchases

To ensure spending stays wrangled in the long term, analyze purchase processes to see how the organization came to acquire duplicate and unused applications in the first place.

To continue to see cost optimization, the next step involves an analysis of organizational purchase processes.

Address these practices to help contain SaaS spend.

• Multi-channel purchases: Often, the same application is purchased via Accounts Payable, Expense, or through resellers, leading to duplicate instances of the same tool.
• Employees expensing applications: It’s common practice for employees to purchase one-off licenses or features without coordinating with IT, causing unnecessary spending.

To combat these inefficient processes, implement some purchasing best practices. Here are some suggestions.

• Manage all SaaS through a central system of record that contains all contract details.
• Appoint a SaaS manager to oversee all application purchases and contract renewals.
• Require all SaaS purchases receive review and approval via a cross-functional review team, a SaaS manager, or sourcing/procurement.

Step 5: Eliminate Overlapping Functions and Duplicate Applications

Department-specific SaaS tools emerge constantly. Companies frequently possess multiple tools that do the same thing. This becomes further compounded when LOB purchases go undocumented with IT.

Overlapping functionality is a common occurrence for Project Management, Sales Intelligence, Team Collaboration Tools, and File Storage and Sharing. To help eliminate overlapping functions, compare and contrast feature sets across all SaaS applications.

Tip: It’s often wise to get user input before making decisions to fully understand if one subscription is of better service over another.

Step 6: Use Benchmarking to Drive Negotiations

Renewals for most applications only come once a year. And that means it’s the one time of year you can make a real impact on your SaaS spend. That’s because a renewal offers an opportunity to negotiate with your vendor. However, how can you use renewal time to drive negotiations to reduce SaaS costs? SaaS benchmarking.  

Benchmarking allows you to compare the price of your current contract against similar companies so that you can leverage that information in negotiations. This really takes the guesswork out of knowing if you’re paying a fair price for each license and app. Rather, a SaaS management platform with real-time benchmarking allows you to know what your competitors pay for the same SaaS tools. Plus, you can set your own benchmarks by license price, application, and license type. 

Not only does this support budget planning via quantity and cost scenarios, but SaaS benchmarking takes renewals to the next level. With this data, you always come to the negotiating table with a full understanding of your current price compared to your peers – whether you’re acquiring a new application or renegotiating an old one.

Here’s what a benchmarking tool like Zylo Benchmarks can do for you: 

• Find where you’re overspending: The average company overspends on SaaS by 25% according to Gartner. With Zylo Benchmarks, you’re able to utilize real data to help you save on spend in your SaaS stack.
• Compare your SaaS stack to your Peers’: Zylo’s portfolio benchmarks allow you to assess your annual spend, new applications, total number of applications, and amount of spend through expense reports against your peers.
• Find the right applications for the job: Identify the best application for the job with popular application benchmarks. Discover what applications are popular with organizations like yours, and find recommended applications for your business.
• Get the most for your money: Price benchmarks with Zylo let you get the most for your money, saving you from the stress of renewals. Renew with confidence because you know how your pricing compares. Application knowledge is negotiation power.
  

Step 7: Implement a System of Record for SaaS Applications

The final stop on the spend-reduction tour is the implementation and maintenance of a central system of record for all SaaS application details.

Optimizing the SaaS stack is no small feat, so it is wise to continue utilizing the information that’s been collected.

Ideally, organizations should compile all details into a single system of record and designate a SaaS manager to oversee SaaS contracts and negotiations. Maintaining ongoing records will enable budget optimization and allow for usage metrics to help guide informed SaaS purchasing.

To learn more, download our Guide to Managing SaaS Costs and get the most out of your SaaS investments.