As I mentioned in my last post, 2022 was a tough year. Many organizations started the year with goals of scaling and growth. But as the economy took a turn, inflation rose and talk of a recession loomed – plans changed quickly as organizations focused on capital preservation.
Most companies look for ways to reduce operational spend whenever the economy shows signs of slowing. For a large subset of our customers, cost savings became a critical and immediate company goal in the second half of the year.
One area of operating expenses that often goes overlooked? Your software. After all, it’s typically the second largest operating expense right after headcount. With such a large budget, how can you be certain you’ve maximized investments and cut all waste possible?
For most companies, the answer is that you haven’t. Here’s what we’ve found from processing over $30 billion in business software spend:
- 40% of software licenses are wasted
- Companies spend $2,500 to $7,000 per employee on software
- And companies overspend on software by an average of 15%
As such, software is an excellent place to buckle down during financial hardship.
The following steps outline how we work with our customers to help them capture the savings lurking in their SaaS stack today and set them up for success long into the future.
Use Data as Your North Star
Driving OpEx reductions with a programmatic, strategic approach means you must have comprehensive visibility into where OpEx lives. SaaS, one of the largest OpEx drivers, lives all over the company – in different departments, functions, teams and even with individuals. And because of that decentralization it can be nearly impossible to see the entire purview of your organization’s SaaS stack without the help of a SaaS management platform. In fact, we find that more than 55% of SaaS purchases aren’t tagged as software, which means that there’s more SaaS in your business than you realize. But the good news is that more SaaS, means more opportunity for optimization. A comprehensive data set ensures you find ALL of the overlapping applications, shadow IT, and SaaS purchasing that lives outside your existing governance structures.
Operationalize Your Renewal Process
Once you have visibility into your apps, now you need to understand when you can realize cost savings and opportunities for optimization. For SaaS, this golden window of opportunity exists at the point of renewal. Renewal dates and terms live in contracts and your existing contract lifecycle management (CLM) solution. But for most companies, this isn’t exhaustive. That makes payment data the next important “forensic” component to understand when each of your SaaS applications renews. Map out every application to the renewal, and begin aligning your opportunities to your renewal schedule.
Establish a Governance Framework
Driving OpEx reductions requires buy-in and support from IT, Security, Legal, Finance, and Procurement. Once there is an internal initiative around OpEx reductions, the following recommendations allow teams to establish a governance framework and drive change:
- Organizational Announcement
Let the business know that there is an initiative around OpEx reduction – and better yet, have that communication come from your C-suite. Employees in 2023 understand that optimization is a priority, and the cultural impact of limiting open purchasing of SaaS will be met with greater understanding in today’s environment than it would have been over the past 5+ years. This announcement empowers the teams on the front lines driving SaaS optimization.
- Establish a Software Review Board
Assemble a cross-functional team to review new SaaS requests on a monthly basis. Ensure that only critical software purchasing is approved, and steer other use cases to existing applications or other in-house solutions.
- Establish Preferred SaaS Solutions
Standardizing on tooling allows for the consolidation and leverage of your company’s expenses to existing solutions that are vetted and negotiated. This also provides the added benefit of speed through the purchasing process for new requests.
- Roll out a SaaS Application Catalog
New purchases often come via employees not knowing what applications are approved and available. Once you have your preferred application list (see the step above), place those tools into an enterprise application catalog for easy review and employee requests.
Address Low Hanging Fruit
Now that your governance processes are established, you can begin your optimization journey. Start easy, and find applications that can be sunset without considerable impact to the business:
- Shadow IT
Individual applications purchased on company credit cards present a large security risk to your organization. Not only do most of these applications use clickwrap legal terms, they can grow unchecked across the company. Consider putting “technology” limits on company credit cards to prevent the ongoing purchases of new software. Communicate to end users that their existing shadow IT purchases will be consolidated into company preferred applications at renewal.
- Small Purchases in Existing Larger Categories of SaaS
Often, categories of SaaS such as project management, video conferencing, file storage and sharing, and design tools tend to sprawl, with many different solutions providing similar functionality. Target these applications to sunset quickly.
Identify Other, Ongoing Optimization Opportunities
- Large SaaS Overlaps
Do you need 5-10 different “approved” project management applications? Begin to assess the harder decisions of moving larger, more adopted products to company standards. This provides cost optimization and also drives efficiency across the organization when multiple teams are leveraging the same technologies.
- License Rightsizing
As I mentioned before, Zylo data shows that up to 40% of all licenses go unused in a 30-day window. Begin to assess and pull back licenses that aren’t being leveraged. Complete these activities programmatically across your stack by surveying your users and pulling back licenses for each app 90-120 days before each renewal. This ensures that you head into your renewal with a tighter view of license needs, allowing you to bring down your total investment with each application.
Last But Not Least, Share Your Wins
Be sure to report on the progress of your program. Share the wins with leadership and the C-suite to ensure that your company is aligned with overall goals. Make this a company initiative that everyone can get on board with. Leverage the current market, where RIFs and hiring freezes are slowing innovation and pace. And highlight this initiative as a proactive approach to ensuring your company prioritizes financial fundamentals that matter. You’re now a SaaS Optimization superhero!
In my next post, I dig into what you need to keep in mind if you’ve already conducted a RIF to ensure you don’t fall into any SaaS management blindspots. Check that out here.