SaaS spend management: Best practices to optimize your stack

Key Takeaways:

 
• SaaS spend management is a company's method of monitoring and controlling spending on SaaS subscriptions.
 
• Things like decentralized SaaS buying, overlapping SaaS applications, and unused licenses are a few reasons SaaS spend management is vital. 
 
• Review and create important policies, keep an up-to-date SaaS inventory, do a quarterly SaaS review, and consider implementing a SaaS spend management tool to take the reins on your company’s spend management. 

What does your company spend on SaaS each year? 

If your answer sounds something like, "Oh, probably somewhere around (insert a shot-in-the-dark guess here),” you are not alone. 

If you've realized there is no end in sight for your SaaS stack, you're already on the right track. Today's cloud-based SaaS apps come in every shape, size, functionality, and pricing model to help businesses overcome the challenges and inefficiencies of manual processes. Have a unique business need? There's an app for that. These subscriptions are helping businesses all over the world optimize their value (and bottom line). 

But how are companies effectively managing all of that spending? Or are they?

If you're responsible for managing your company's SaaS spend, you know that a lack of SaaS spend management can come at a high price, namely overspending. In this post, I'll share some insights and best practices for how procurement, finance teams, and IT teams can proactively manage SaaS costs. 

What is SaaS spend management, and why is it important?

SaaS has been around, in some capacity, since as early as the 1950s. But it wasn't until the 2000s that the SaaS market took hold and began to impact nearly every aspect of our businesses. What started as a few SaaS applications quickly transformed into applications for applications and heavy SaaS stacks.

SaaS spend management, whether done via a spreadsheet or in a SaaS application (ironic, right?), is simply a company's method of monitoring and controlling its spending on SaaS subscriptions. 

Why is SaaS spend management so important? Here are a few critical reasons. 

Decentralized SaaS buying decisions

Depending on your company's structure, SaaS buying decisions may not be centralized to the procurement or IT department. In many companies, end users in various departments are selecting SaaS suppliers and even negotiating agreements. This is especially true now that more people are working remotely. Those end users are not usually full-time SaaS buyers and understandably may not be well-versed in SaaS contract and spend management.

Suppliers offer various SaaS pricing models that require regular review to avoid things like unused licenses or overages. Expecting that each end-user department will have the time and resources to manage those agreements may be expecting too much. This is where a SaaS spend management process comes in handy and empowers end users with the resources they need. 

SaaS app overlap

How many apps does your company use that overlap?

In my experience as a SaaS buyer, overlapping SaaS applications were an unwelcomed norm. In fact, I remember going through my spend management spreadsheet before we had a good spend management process and realizing we were using five different customer relationship management (CRM) solutions. That meant five different suppliers, agreements, renewal periods, cancellation clauses, risks, and potentially pricing models for solutions that essentially served the same purpose. 

My organization had many departments and more than 1,000 employees, so it isn't crazy to think that there may be times when overlapping applications may be necessary to meet specialized needs. But five overlapping solutions was overkill and inhibited us from leveraging volume for better pricing. An effective SaaS spend management process will provide the oversight needed to proactively (instead of reactively) make important SaaS decisions.

Unused SaaS licenses

Part of SaaS spend management involves looking at your licensed users vs. active users for any solution. For example, is the organization paying for 100 users, but only 50 users are active? If so, you're paying for 50 licenses your organization isn't using. 

The opposite of not enough active users is too many. Depending on the SaaS supplier and the agreement with your company, you may get bumped up to the next tier of pricing if more users are accessing the system than you planned on. Without real-time knowledge of this, you may quickly find the company over budget. 

Renewals and cancellations

SaaS spend management goes hand-in-hand with SaaS contract management, and a big part of that is keeping up with renewal periods and cancelation clauses. 

Suppose, you're missing renewal periods and just auto-renewing your SaaS subscriptions every year. In that case, you're also missing out on opportunities to reduce waste, negotiate better pricing, and update the agreement according to current needs.  

The same is true for cancellation terms. With a large SaaS stack and ineffective (or lack of) spend management, you may try to cancel an agreement only to discover you've missed the notice period and are now stuck paying for another year you don't need. 

SaaS spend management best practices and expert tips

If you’re in need of a spend management overhaul, here are some best practices that will help you take the reins on your SaaS spending. 

Polish up your SaaS policies

Does your company have SaaS buying and usage policies? This is a great time to make sure the policies are aligned with organizational goals and correctly communicate all requirements and expectations. Here are some things to think about when reviewing your policies:

 
• Who can purchase SaaS?
 
• Are there approval workflows in place for different tiers of SaaS spending?
 
• Is procurement and IT involvement required for SaaS buying?
 
• What are the approved methods of purchase for new SaaS? Recurring SaaS payments?
 
• What are end-user departmental responsibilities regarding the use and tracking of SaaS?

Consider creating a SaaS internal policy, to be signed by the end-user department, that succinctly addresses all internal expectations and responsibilities of purchasing and using SaaS. This may include things like usage of personally identifiable information (PII); requirements to notify procurement and IT of any contract breaches, issues, or changes in usage; and anything else deemed important by organizational leaders. 

SaaS inventory

Regardless of whether you are using a spreadsheet or a software subscription, successful spend management means keeping an up-to-date inventory of all SaaS your company pays for. 

Before we implemented a SaaS spend management tool, my inventory spreadsheet included columns like:

 
• Supplier name
 
• Supplier contact information
 
• SaaS tool
 
• End-user departments
 
• License type
 
• Pricing model
 
• SaaS costs (one-time and recurring)
 
• SaaS usage
 
• Effective date
 
• Renewal date
 
• Cancellation terms
 
• Integrations 
 
• Service-level agreement link

Keep in mind that if your organization's buying functions are decentralized, inventories will need to be kept by each team that buys and uses SaaS tools. To avoid different inventory formats that further complicate SaaS spend management, create a standard inventory form for teams to track their SaaS. Include this form with your SaaS policies. 

Another tip: Include updating inventory as part of the SaaS supplier onboarding process. If you're not using a SaaS spend management tool that does all of this for you, adding a new process into an existing one is a great way to help people remember to do it.  

Quarterly SaaS reviews

The past couple of years have shown us just how quickly and profoundly SaaS needs can change. And I'm not just talking about the volume of licenses but also the types of solutions needed. Because technology and technology needs morph so rapidly, it's important to do a periodic review of your SaaS inventory and spend. 

One of the biggest SaaS mistakes I made as a technology procurement leader was spending more time updating my SaaS inventory spreadsheet than I did actually reviewing it. Eventually, I learned to set aside time quarterly to do a high-level review of our SaaS stack to look for areas of improvement and identify areas of waste. 

SaaS spend management software

I told you, there's an app for that. SaaS spend management software helps companies monitor and control their SaaS spending. A spreadsheet is a good start and can work as a temporary solution, but a SaaS spend management tool helps you take spend oversight to the next level. 

If you're currently managing hundreds of SaaS subscriptions on a spreadsheet, perhaps the most compelling benefit of SaaS spend management tools is that they eliminate the need for that type of manual tracking, entirely. There will no longer be a need for a manual spreadsheet or setting reminders on your Microsoft Outlook calendar to do SaaS reviews.

This type of application empowers procurement with seamless automation, but it also puts real-time spend oversight and control back into the hands of those who need it most, like finance and IT leaders. 

Related: SaaS spend optimization for finance departments

Bridging the gap between SaaS and spend management

This may be the understatement of the century, but SaaS took traditional spend management and turned it upside down. If not due to the sheer size of the SaaS ecosystem, undoubtedly due to the various pricing models and different types of licenses and agreements. 

Most of the time, when you purchase a new SaaS tool, you hope for such efficiency improvements that there will be either direct or indirect cost savings. Right? And there might be substantial savings. But the reality is, if you have a large stack and don't have an effective SaaS spend management process in place, your organization's IT spending is probably much less optimized than you realize. 

Implementing a solid SaaS spend management solution or a SaaS management platform that includes spending can quickly turn that overspending around and get your organization back on track to maximize its SaaS investments’ potential.