How to Build an Effective Cloud FinOps Strategy with Vendr

The infrastructure of cloud computing is necessarily complex with variable resource demands and dynamic pricing models, which makes its costs potentially high and hard to control. 

If your organization has multiple departments, each with its own workflows and spend models, achieving optimal spend across end-to-end cloud operations requires a lot of manual effort and, in the end, might not yield the results you need. 

However, with the right tools and expert assistance, you can have a tailored cloud FinOps strategy that maximizes efficiency and cost-effectiveness.

In this guide, we’ll provide you with a comprehensive overview of cloud FinOps by:

• Looking at its principles and components
• Discussing its key benefits and challenges
• Walking you through the steps to build an effective cloud FinOps strategy
• Explaining how to reduce costs with tactics like strategic contract negotiation and using a centralized platform to consolidate your spend data

To help do this, we include insights from Vendr’s principal SaaS consultant, Raven Howard.

What is cloud FinOps?

Cloud FinOps is a cloud financial management practice that helps you understand the complexities of IT financial management and financial accountability. It aims to minimize cloud costs, boost company profits, and gain a competitive edge.

The three pillars of the cloud FinOps lifecycle

Cloud FinOps typically cycles through three key stages: Inform, Optimize, and Operate.

Inform

The Inform phase helps your teams understand how they use the cloud and the costs involved. 

It focuses on:

• Comprehending unit economics (cost per transaction/customer/workload)
• Allocating costs to appropriate business teams/projects
• Comparing cloud costs and usage with industry standards to identify anomalies

Optimize

The Optimize phase helps your teams minimize spend without impairing service deliverability. 

It includes:

• Ensuring the use of cost-effective spend models
• Rightsizing resources in proportion to workloads
• Automating processes and improving deployment for increased cost efficiency

Operate

The Operate phase involves implementing cloud FinOps principles into day-to-day operations. 

It consists of:

• Implementing processes to regulate cloud spend for individual teams
• Predicting future spending budgets for cloud cost optimization
• Regularly reviewing and updating FinOps practices to meet evolving cloud usage

Key components of a cloud FinOps strategy

There are six key components of a Cloud FinOps strategy:

1. Team collaboration

Data silos stop teams from sharing resources. You need to increase efficiency by communicating better and sharing cloud tools and services to maximize the value of cloud investments.

2. Ownership

You must hold every employee accountable for their cloud usage within the allocated budget. This helps eliminate waste in terms of cloud costs.

3. Centralized control

You need a centralized, cross-functional FinOps team to create spend rules and minimize cloud costs.

4. Accessible reports

Engineering and DevOps teams often engage in reckless spending. Accessible reports provide real-time, granular data to all stakeholders, promoting data-driven decision-making.

5. Variable cost model

The public cloud's variable cost model optimizes resources, manages usage on demand, and selects the best pricing options. This enhances scalability and maximizes return on ROI.

6. Business-driven decisions

You need to evaluate the value of services in terms of flexibility, speed, scalability, and results, besides costs, to align cloud use with business goals and make the best decisions.

The benefits and challenges of cloud FinOps

Companies using multiple cloud services can benefit from real-time detailed reporting and actionable insights provided by cloud FinOps. These advantages include:

Benefits of cloud FinOps

1. Improved cost control

You can reduce cloud spend using demand management, resource rightsizing, and variable pay-as-you-go pricing practices. 

2. Enhanced financial predictability

Stakeholders can picture cloud bills and usage clearly using Finops principles, helping companies improve their financial performance.

3. Increased transparency and accountability

Real-time visibility into cloud spending and usage fosters accountability across teams, ensuring everyone is aligned with budget goals and cost management practices for more strategic decision-making.

‍

Despite these advantages, there are certain challenges you can face in implementing Cloud FinOps. Here are the most common issues to consider:

Common challenges in Cloud FinOps

1. Lack of cost visibility

With a FinOps strategy, companies using a large tech stack can capture all relevant contract data. This helps improve cost visibility and enables favorable pricing terms.

For example, Luno, a digital wallet and cryptocurrency exchange, achieved significant improvements in cost visibility and minimizing shadow spend with Vendr’s price benchmarking data and spend reporting dashboard.

Check out the case study here.

2. Decentralized workflows

A FinOps framework helps decentralized companies consolidate their tech stack, streamline SaaS tools, and reduce contract-related security risks.

For example, Dashlane, a password management tool, increased tech stack visibility, realized opportunities for cost savings, and improved security in SaaS contracts using Vendr’s integration to NetSuite and thousands of valuable data points.

Check out the case study here.

3. Time-consuming renewal processes

You can centralize contract renewal data in a single place with an effective FinOps model. This can provide rich insights for assessing current usage, forecasting future needs, and securing favorable terms. 

For example, Deepgram, an AI-powered speech recognition platform, used Vendr to centralize supplier communications, current contracts, and upcoming renewals without needing to maintain any spreadsheets.

Check out the case study here.

Steps to build an effective Cloud FinOps strategy

Follow this step-by-step guide to build an effective Cloud FinOps strategy: 

1. Establish cost visibility

Cost visibility in SaaS procurement is crucial for accurate budget forecasting, identifying shadow spend, and optimizing service usage. It also enhances supplier negotiations and supports informed decision-making for cloud investments.

To achieve cost efficiency:

• Consolidate all SaaS and cloud expenses for easy tracking
• Implement cost allocation systems for teams and projects
• Continuously monitor app usage to find underused resources
• Use historical data to forecast expenses and set budgets
• Negotiate contracts regularly for competitive pricing

A full-scale, cloud-based spend management software like Vendr streamlines SaaS procurement, offering real-time visibility, custom workflows, and cost-saving opportunities by spotting overlapping spend and visualizing expenses.

2. Understand cost structures for different providers

Understanding the unique pricing models, discounts, and billing methods of different cloud providers helps SaaS procurement professionals:

• Choose the most cost-effective services and configurations
• Allocate precise costs across teams, projects, and departments
• Drive more efficient resource use
• Empower better contract negotiations
• Compare performance-to-cost ratios to find the best SaaS fit

Detailed contract analysis is essential for this. Vendr helps with strategic negotiation recommendations on your quotes, proposals, and order forms with our industry pricing benchmarks and evaluations of special risk terms. 

You also access Vendr's Buyer Guides for hundreds of SaaS sellers and enhance transparency in contract negotiations.

3. Optimize cloud costs

Optimizing cloud cost management through cloud FinOps involves:

• Cost management automation: Using workflows to scale down underused resources and tagging SaaS software for chargeback and accurate cost allocation.
• Resource rightsizing: Monitoring resource usage and applying Vendr’s recommendations to scale and choose the right pricing model.
• Leveraging reserved instances: Committing to long-term use of a specific cloud service in exchange for discounts and efficient cost-savings.

“We've found customers need to understand how optimized their instances are now vs. how optimized they could be,” says Raven Howard, our cloud procurement expert.

Raven goes on to say, “When negotiating discounts, it's important to be cautious about sharing projected usage as this is usually the biggest lever. Our customers have had success with projecting initially, so they have room to increase their commitments based on growth incentives.”

Other strategies include multi-cloud approaches, minimizing data transfer costs, and scheduling cloud resources efficiently. 

4. Negotiate discounts on cloud contracts

Contract negotiations with cloud service providers are crucial for optimizing SaaS procurement costs and negotiating favorable terms and discounts. 

You can align cloud spending with business goals and budgets using effective negotiation. 

Vendr can help with negotiations by automatically extracting contract details and providing strategic recommendations. It offers competitive quote support and real-time pricing validation to secure better contract terms.

5. Continuously Monitor Cloud Spend

Due to the dynamic nature of cloud environments and constantly evolving cloud services, continuous improvement is crucial. 

Setting up a spend analytics framework can help monitor cloud spend, mitigate risks, and identify savings opportunities. 

Start by defining clear objectives and key metrics (KPIs) such as cost per unit, utilization rates, and budget variance. Then, source internal and third-party data to compare spending with industry benchmarks. 

Using a centralized platform like Vendr facilitates data consolidation and provides actionable insights. Vendr's spend reporting features help translate insights into strategic recommendations for rightsizing resources, re-negotiating contracts, and adjusting usage. Review outcomes regularly to measure effectiveness and refine procurement initiatives.

Save on cloud spending with Vendr

Leveraging Vendr’s SaaS procurement features can help you enhance cost control, financial forecasting, and supplier relationships for your business. 

With features like price benchmarking, negotiation support, and customized approval workflows, Vendr helps organizations secure favorable contract terms, reduce dark spend, and align cloud expenses with business values. The outcome? Organizations achieve financial accountability and optimize their cloud costs.