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What You Need to Know about SaaS Optimization

SaaS optimization

Optimization, by its very definition, is the process by which we attempt to make the most effective or best use of something. It’s the improvement of our daily activities and lives. We’re always optimizing. 

Maybe optimization in your life looks like budgeting out your monthly expenses, finding the fastest route to work, organizing your favorite websites into a single folder, or knowing the convenience store with the nicest staff. It’s the thing that saves you time and hassle. 

When it comes to SaaS, optimization is about making the most of your investment in tools for your business. This happens in a couple of different ways:

  • Directly through things like maximizing spend, ensuring adoption, and utilization of applications. This category belongs to changes that affect your business immediately and in trackable ways.
  • Indirectly through the reduction of security risks, avoiding potential costs, improvement of employee productivity, and the accomplishment of business goals. These benefits are less tangible and don’t always occur right away.

SaaS optimization covers a broad range of things like managing and taking action on spend, vendor negotiations and renewals, rationalization, and the management of licenses and users. All of which carry the potential to cost your company time and money if done improperly.

All SaaS optimization requires visibility into the applications your company is utilizing. You cannot take action until you know what your estate looks like. This process of figuring that out is SaaS discovery and it’s the first step in the process of SaaS optimization.

Why SaaS Optimization is Important 

SaaS optimization is one of the most important elements of business that a company can focus on. This is due to a variety of factors but the most important are:

Companies Spend a Lot on SaaS

According to Zylo’s 2022 SaaS Management Index, the average organization has 323 applications in its portfolio. This number translates to an average spend of nearly $65 million on SaaS alone each year. 

Many of these applications renew automatically if left alone, giving them the potential to continue charging the company long after outliving their usefulness. 

number of SaaS apps by company size

The Decentralization of SaaS 

SaaS decentralization: 2020 vs 2021Today, anyone can sign up for an application and expense it to their company. The role of IT procurement and management has undergone a complete shift as a result. This creates new challenges and opportunities around optimization. 

With the current state of affairs, IT manages just 27% of the software portfolio, while lines of business and individuals make up the remaining 73%. 

Low Utilization

The factors above contribute greatly to the meteoric rise in SaaS purchases. This increase in the number of applications a company uses has not led to a higher amount of utilization, however. In other words, we keep adding tools to the toolbox but we aren’t using many of them.

In fact, the average organization is only using 60% of its provisioned licenses. That leaves a staggering 40% ripe for optimization. 

So, more isn’t always better but, how many apps are too many

That depends on your organization and the goals you have for it. No two businesses are going to be the same, no matter how similar they are. Still, regardless of who you are and where you’re at, we always think there’s an opportunity to do better. 

Here’s why:

Five Reasons to Implement SaaS Optimization

#Decrease Spend

Managing your SaaS spend is one way to be a good steward of your company’s money. License management and SaaS subscription management can revolutionize the budget of your business.

Decreasing spend isn’t only about boosting the bottom line, though. It also assists greatly in budgeting your line items and funding projects that your company wants to focus on. 

Who doesn’t love to save money?

#2 Consolidate Duplicate Applications

top 5 redundant functionsWhether you’re approaching it from the perspective of productivity or cost, duplicate apps are a nightmare. Redundancies breed inefficiencies within the business and removing them can help make the most of your investments and boost your effectiveness.

While redundant applications can and do happen anywhere, we find that the top five most abundant functions for them are:

  1. Online Training Classes
  2. Digital Assets
  3. Team Collaboration
  4. Project Management
  5. Recruiting

#3 Increase Negotiation Power at Renewal Time

The average organization has 234 renewals each year. With only 260 workdays in a year, that means companies are renewing applications on a nearly daily basis. Consolidating apps can get you better contract terms and increase the power you have at the time of renewal.

Several elements of SaaS optimization contribute to this. The main three include:

  • Knowing what you (and others) are paying. If you don’t know what similar businesses are paying for the same service, how can you know if it’s fair or not? Go into contract negotiations with the knowledge of whether or not the deal you’re offered is worth taking. 
  • Managing SaaS contracts and vendors. Every contract is different and, the more you have, the harder they are to manage. Renewals, cancellations, licenses, and more all operate on various timelines. Companies like Zylo assist in making sure you stay on top of these and maintain control over them. In addition to SaaS contracts, companies must also consider Vendor contract management
  • Keeping a system of record. Contract costs and renewal dates fluctuate throughout time. Having a system to keep track of all these and set reminders when needed is vital. Help ensure that you are proactively accomplishing these tasks.

#4 Create Efficiency and Improve Collaboration across the Organization

Companies often swing between an iron-tight hold and a completely open process for procurement. Optimization means finding the sweet spot between enough variety and a set amount of tools for employees.

Finding this balance improves the collaborative spirit in a company and encourages team-building.

Take a look at our example of how this looks when it comes to marketing and IT collaboration. As you’ll see, working together to optimize and collaborate can help drive more value and allow teams to get the most out of their software and investment.

#5 Plan Ahead for Future Software Purchases

With the knowledge of where you are and what you have, you can begin preparing better for the future. Knowing that it’s optimized can help to make sure that you aren’t wasting any time or money as you prepare for the future. 

Visibility into what you’re currently spending enables better decisions when it’s time for new purchases, updating contract terms, and adding new licenses. From here, businesses can decide what to keep, what to discard, and what to invest more in. Without this knowledge, it’s impossible to forecast the future.

What needs will your team have? Zylo helps forecast software usage and needs to create a SaaS budget forecast accurately and with ease.

What Happens in the Absence of SaaS Optimization

We’ve spent a lot of time on the benefits of SaaS optimization but what are the risks of failing to do so?

Increased, Unnecessary Spend

On average, companies spend 15% more on their applications when they don’t use a tool to help optimize. Old-school spreadsheets might work at the beginning, but add in more than a few applications and they quickly become obsolete.

Zylo finds ALL of your SaaS and recommends areas of improvement based on your specific data. This includes highlighting opportunities and priorities to make optimization easy.

Low Adoption

Ever hear of the phrase “throwing good money after bad?” Companies that don’t optimize their SaaS may result in the underutilization of as much as 40% of their platforms. Meaning they keep throwing money away from over-provisioned, unused, and underused licenses.

Instead of wasting money on these problems, Zylo immediately highlights areas of improvement. Once you have found that unneeded 40% of your applications, you can cut them out completely.

Why pay for the premium license when a free or low-cost license will suffice?

Duplicated Functions

When companies permit multiple teams to purchase software on their own, SaaS growth can become unmanageable. In the old days, a single gatekeeper could be responsible for blocking purchases that aren’t needed. Today, it’s almost impossible to stand in the way of this.

Along with the uncontrolled growth of applications comes runaway costs and risks, duplicative purchases, and unused/underused tools. All of which could reduce purchasing and negotiation power over time, creating inefficiencies among your teams. 

SaaS Optimization Best Practices

The first consideration when thinking of how to optimize SaaS stack should be the goals you have for your specific situation. Depending on your goals, the right course of action will differ wildly. 

Broadly speaking, there are five different levers that companies can pull to adjust spend and usage. These are:

Lever #1: Rationalize Duplicate and Redundant Applications

Software rationalization, or application rationalization, refers to determining which software or applications you can replace, reduce, or eliminate. 

It is common for businesses to discover they have duplicate or redundant SaaS subscriptions. Automatic renewals and increased access for staff can lead to a bloated portfolio and excessive payments. Companies with duplicate subscriptions pay multiple times for the same tool whereas redundant applications mean paying for two subscriptions for a similar function.

portfolio insights microsoft 365

With both of these common concerns, companies overpay unknowingly ad infinitum. The only way to break the cycle is to first discover the cycle you’re in. Businesses must measure SaaS value consistently.

Say a company buys 100 seats for a project collaboration application. They do this through Accounts Payable or a direct supplier purchase. Then, an employee purchases the same application using a credit card and files an expense report for reimbursement.

These two payments for the same product will continue to drain the company’s finances until the company discovers it and cancels one of them. Consolidating duplicate subscriptions for the same tool enables you to improve your purchasing power and ultimately negotiate for a better deal. 

The Role of Discovery

SaaS discovery is the only way to prevent and understand how to reduce redundant applications. This cost often continues under the radar of most IT teams as they are not focused on employee reimbursements. 

Subscription costs – whether they’re $89/month or $599/year – quickly add up. Executives must consider the implications of their redundant and duplicate SaaS.

How to Pull the Lever

If this lever seems right for your business, the following steps are the way to utilize it:

  • Establish your SaaS Baseline – Planning a trip around the block is easy but it’s a lot harder if you don’t know your current location. Take a look at the example of Keap who found more than 50 applications they were unaware of through discovery.
  • Consider a SaaS Catalog – Curate your own list of applications that you can pre-vet beforehand. Narrow down the applications in your business and then communicate that list across teams.
  • Make Cuts When Appropriate – Identify and eliminate any non-business critical tools. If a SaaS application has no tie to a specific need, outcome, or process, retire it.
  • Reduce Apps Tied to Headcount – Develop a SaaS approval process and governance policy to reduce applications and subscriptions tied to headcount. Make sure it balances your organization’s need to innovate with your security and risk management requirements.

Lever #2: Rightsize Applications 

optimize salesforce licenseRightsizing involves reducing your application licenses to the correct size for your actual use. This involves cutting down on wasted applications as well as unused, underutilized, or over-provisioned SaaS licenses

When is it Time to Rightsize?

Rightsizing might be the right move for you if your application usage rate is below the recommended 90%. Say, for example, you provide Salesforce licenses to the entire marketing team (10 employees.) These licenses range in price but start at $25 per user, per month.

If two members of your team aren’t utilizing their license, your utilization rate would put your usage rate at 80%. While 90% is the goal, the less money you waste each month, the better.

Another example of this would be an application like Zoom. On this platform, there is a free option that fulfills the needs of many of its users. If you have employees that are using their Zoom license but could just as easily move forward with a free plan, that also means you are not optimizing your SaaS.

How to Pull the Lever

If you want to right size your cloud or SaaS licenses, there are a few ways that you can address it. Here’s the process for utilizing this lever:

  • Identify all of your SaaS Applications – The discovery process is crucial to every task related to SaaS management.
  • Analyze your Usage Data – Go through each application to ensure all employees that have a license actually need one. You can find this information in the admin panel of many applications, or consolidated in a SaaS Management platform. Additionally, identify who could use a reduced or free license instead of the premium ones.
  • Request Input from Users and see if they are willing to give up or downgrade underutilized licenses.
  • De-Provision Users when Appropriate – This happens most commonly when users have remained inactive for a set time or if they voluntarily return their license.
  • Determine if you would like to Reassign or Eliminate Licenses – If you have users that are waiting on access, consider handing them over to employees that can really use them. 

When it comes to de-provisioning, reassigning, and eliminating licenses, we always recommend automation. It makes the process much easier and more reliable through a streamlined experience for employees. 

Thanks to Cloud-Based Software License Management tools like Zylo, businesses now have the tools necessary to manage this all instantly from anywhere. Want some additional insight on how to manage saas licenses and users for some of the biggest culprits? Here are a few more resources for you:

Lever #3: Maximize SaaS Spend

Maximizing your SaaS spend is all about finding ways to save money and maximize the investment you are making in SaaS. 

You may find yourself in need of adjusting this if:

  • Your SaaS spend is growing each year (barring an explanation of high growth in the company headcount.)
  • You need to find room in the budget to support other initiatives.
  • You operate as a public company accountable for revenue and you need to show cost savings.

These are a few of the red flags companies should look for when they are evaluating SaaS spend. If you find yourself in this position, you likely need to reduce SaaS costs. Luckily, you are not alone and there are several tools to assist in SaaS Spend Management.

How to Pull the Lever

Managing SaaS costs is important for every business across all industries. While some companies may utilize more SaaS than others, almost everyone has some fat they can trim. When evaluating your SaaS spend optimization it is best to first start with your quick wins.

These include applications with the highest cost, which also offer the greatest opportunity for cost savings. Mission-critical tools across your organization are another great place to begin your evaluation process to find these opportunities. This include-commerce platforms, CRMs, ERPs, and other comprehensive office tool suites.

Other cloud cost management tactics include:

  • Eliminate or downgrade licenses – Fewer or less expensive licenses can translate to huge savings on ROI. For example, downgrading from Zoom’s “Pro” to “Basic” account results in a savings of $15 per month per user. In 2020, ViacomCBS cut its annual Zoom expenditure by more than 32% when they chose to right size saas licenses
  • Eliminating redundant applications – If you can go from 16 project management tools to 8, you will naturally cut costs by no longer paying for those subscriptions.
  • Consolidate subscriptions – Like the Zoom example above, consolidating your licenses is one of the biggest aspects of SaaS cost management. Depending on how many licenses you have, a SaaS Spend management software or other cost management system will likely pay for itself.
  • Proactive renewal management – Every SaaS spend management strategy must account for renewals. A system of record to track renewal dates and remind you of upcoming costs empowers your ability to manage cloud cost optimization. Plan 30, 60, and 90 days out for renewals and utilize your data as leverage for renewals to negotiate better prices. This is one of the biggest tools for enterprise SaaS savings as they have the biggest negotiating power.

Lever #4: Reduce or Eliminate Shadow IT

Shadow IT isn’t always bad but not understanding where it’s at almost always leaves a financial burden on companies. Understand where all your SaaS purchases are coming from and put a SaaS governance framework in place to reduce risk and compliance issues. 

Consider doing this if you don’t have a current process in place for application purchases or if employees are purchasing their own tools. Both of these can lead to security and financial risks from a sheer lack of visibility.

How to Pull the Lever

For starters, implementing any or all of the above levers will impact this one directly as well. The majority of our discussion thus far fits into the category of hygiene for your SaaS portfolio.

Once you have reached a place where you are confident in the portfolio of applications you utilize, the next step is to maintain it. To do this, you must place a governance strategy into practice.

These strategies vary from business to business and range from hands-on control of every purchase to free reign among the employees. Our recommendation falls in between the extremes. We call this Freedom within a Framework.

With this strategy, businesses vet platforms and negotiate with them beforehand to provide a catalog of options to employees. Ultimately this allows them to choose the tool that works best for them while empowering you to control and maintain the subscriptions of the company.

How Zylo Makes SaaS Optimization Easier

It is impossible to begin optimizing your SaaS portfolio without first going through a process of discovery. SaaS discovery refers to the uncovering of all of your applications and subscriptions. It’s a way of mapping out your current location so that you can begin plotting a route forward.

Here is where Zylo provides a tremendous amount of benefit for companies. Zylo brings a multitude of different data points together in a single, unified system. In doing so, SaaS discovery is something that happens instantly and continuously. 

There are three differentiating factors with Zylo. These are:

Zylo Insights 

Software application integrations fuel the Discovery Engine, but the usage data gleaned is also what powers Zylo Insights. With our Insights tool, you don’t have to sift through all of the data on your own. We will provide you with highlights of the optimization opportunities along with how pressing they are.

usage insights screenshot

In doing so, we help to build your roadmap for optimization so you can begin delivering that value back to the business. In moments, information that would normally take hours of work organizes itself through our algorithms to present as actionable steps. 

The best thing about Zylo is that we offer a tremendous amount of integrations to seamlessly fit in with your current workflow. Artificial intelligence gathers and communicates this data in two main categories:

  • Usage Insights showcase action steps on high-impact opportunities for license optimization. This includes platforms with multiple unused or underutilized users.
  • Portfolio Insights will help you instantly understand the current state of your SaaS stack. Get alerted of newly discovered subscriptions, expired contracts, duplicates, and more. 

Zylo Benchmarks

SaaS benchmarking  is a helpful way to understand how your portfolio, applications, and spend compare to companies like yours. Its insights are useful in showing opportunities to rightsize and rationalize your applications. Additionally, this data works to your benefit when it’s time to negotiate better pricing for renewals.

On average, Zylo Benchmarks finds companies overspend by 15% on software licenses. This part of the platform seeks to rectify that by enabling companies to compare their applications with their peers.

zylo benchmarks

While everyone would like to believe they are getting a good deal on their platforms, it’s impossible to know without a comparison. With Zylo Benchmarks, you can filter and compare by category, subcategory, and even functionality on each application.

Harness this information to assess your annual spend and the total number of applications you use to others in your same field. In addition to this, these insights can show areas your peers are taking advantage of that you may be forgetting.

See the top applications as they pertain to any specific need along with how they stack up against similar tool options.

Automatic Workflows 

Managing the various licenses of a business can feel like juggling a bunch of objects of different weights and sizes. Some renew monthly, quarterly, or annually and, depending on the option, some renew automatically, billing to various parts of your organization.

Automation makes it easy to take action on SaaS optimization. Through Zylo’s License Management Workflow, IT leaders gain:

  • Visibility – Enabling businesses to analyze their utilization data in real-time creates unparalleled visibility.
  • Security – With so many different applications storing different types of information, an easy way to revoke permissions and view your sensitive data is vital.
  • Efficiency – Establish utilization thresholds and automate license de-provisioning and renewals.
  • Value – Harness this understanding to build the value of the enterprise-wide SaaS investment. Easily do this through the deprovisioning and re-harvesting of software licenses.

Automated workflows handle the tedious nature of day-to-day tasks in more efficient and more reliable ways than humans ever could.

Zylo is Here to Help

The optimization of your company’s SaaS is vital to a smooth operation. Companies invest large amounts of money into the tools and applications they provide. If this steep investment is not seeing a return, it’s important to know that as soon as possible.

Unfortunately, the positives of the decentralization of SaaS procurement in companies also carry the negative weight of decreased visibility. It’s hard to know exactly what your company is paying for on those recurring monthly bills.

Each of the levers we focused on comes back to this issue of discovery.

  1. You cannot decrease your spend if you do not know where you are spending it.
  2. Deleting or consolidating duplicate applications doesn’t work when there’s no insight into what is duplicated.
  3. You cannot negotiate a better rate if you can’t make a case for your own usage and spend.
  4. There is no balance and collaboration without visibility
  5. You cannot plan ahead when you are unsure as to where you currently stand.

Zylo operates as a SaaS Discovery Engine that can instantly and continuously find, track, and monitor your SaaS usage. Gain fast, reliable information on your team, your applications, and your competition.

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