Is it time for you to optimize SaaS costs for your company?
Companies of all sizes are bringing on SaaS managers to help manage their tech stacks. That’s because cloud-based tools are exploding in use, with a tool for every need. Today, the average mid market business uses 137 different apps, and enterprise businesses usually manage 288 apps.
With so many tools, the cost of subscription contracts can get out of hand fast. On average, midmarket companies spend $2.5M annually on SaaS tools.
Here are our 7 steps to help you optimize SaaS costs, rightsize your licenses and get the most out of your SaaS contracts.
1. Take inventory of your current SaaS tools
Begin optimizing SaaS costs by conducting an inventory check. This initial tallying will be manual and if you’re a larger organization, it could take some time. Start by identifying your known applications. These would be your security tools, CRM, developer tools, and communication apps. If you need guidance, try following our SaaS Utilization Audit Checklist.
Next, survey your employees to understand what apps they’ve purchased for their teams. For example, your sales team might use a sales productivity tool to track the effectiveness of their emails. Don’t be surprised if you find duplicate apps for things like project management (for example: one team using Asana while the other is trying out ClickUp).
2. Dive into your software usage to avoid shelfware
Sometimes we purchase new software with the best intentions and then… never use it. Each year, when you review your tech stack to prepare for upcoming contract renewals, keep your eye out for shelfware.Shelfware is made up of SaaS subscriptions that no one is using. They are wasting your money and taking budget away from more important needs. Click To Tweet
Shelfware can also be called “orphaned subscriptions.” When an employee leaves the business, the apps they were responsible for need to be reassigned to someone else. This doesn’t always happen, leaving the apps orphaned. Shockingly, orphaned subscriptions went up by almost 100% in 2019.
If possible, track the usage of your SaaS tools all year long. SaaS management tools make this super easy by monitoring changes in usage metrics like logins, feature use, or employee sentiment. Start with these three metrics:
- Licenses: Typically, license pricing is per user per month. Determine the number of licenses you’re paying for in each app.
- User logins: how many users are logging in? How many users aren’t logging in? Are there unassigned licenses waiting to be used?
- Features: SaaS subscriptions usually group their features into their pricing tiers. Review which features you’ve paid for and whether your users are actually using them, or even need them. If you find that those features aren’t necessary, you can downgrade your license tier in your contract.
3. Rightsize your contracts
Rightsizing your contract usually happens during your annual renewal. Be prepared in advance with your full inventory and usage tracking. If your company is only using half of the licenses you paid for, you’ll need to downsize with that vendor.
Be aware of any bulk discounting in your contract though, you may lose those rates if you reduce spend. If no one is getting much value from a particular tool, or there’s a more popular duplicate tool, cancel the contract entirely.
4. Consolidate duplicate tools
While you’re taking inventory of your SaaS tools, you might find that each team is using their own solution to solve the same problem.
For example, each developer team may favor different application monitoring software. Instead of paying two vendors, consolidate all developers on the same platform. Not only will this reduce the number of contracts you’re managing, but you’ll be able to get better pricing from a vendor if you’re tooling up your entire organization.
5. Reduce shadow IT
Most businesses have to deal with shadow IT, which is software that was purchased without the knowledge of your IT team. These pose both a financial problem and a security risk. For each contract an employee agrees to (whether it’s for a free trial or a one off license), your company is now bound to the terms and conditions in that contract.
Reduce these risks by identifying shadow IT, understanding the contract terms, and implementing a new procurement governance process. One option is to set up a SaaS expense card so that employees still have freedom to buy what they want without waiting on approvals, without procurement losing track.
6. Look for scalable pricing
Inquire into scalable pricing options for apps that could fluctuate in usage over the coming years. It’s possible to lock in better pricing now if you’re willing to commit to more licenses and a longer contract.
Conversely, find out what your vendors’ policies are regarding downgrades. Most contracts don’t allow downgrades until your renewal date. Try to secure per license discounts in your contract, regardless of your user count, to avoid unit rate increases because of your downgrade.
7. Negotiate tier and usage-based pricing
When it comes to pricing, always negotiate. Even though vendors publish their pricing on their websites, it’s rare for them to refuse to give at least some discounting. You might not get the exact price you want, but it’s still worth negotiating.
Pricing tiers always have limitations built in. Some limitations, like user count, are like hitting a wall. You can’t grow your user count until you buy more licenses. Other limitations, like API calls, have no wall, and you can blow past your allotted quantity without knowing – leaving you with a huge surprise bill. Be clear on these details before signing a contract.
Ask about promotional deals when you renew your contract. The best time for negotiating is at your vendor’s fiscal year end. Their sales people are scrambling to get in every last dollar before their next earning report, and are more flexible on discounts during this time.
Optimize your SaaS spend with the right tool
SaaS management solutions help IT teams manage dozens, or hundreds, of tools and their contracts. Even if negotiations get tough, good vendor partners are willing to work with you and get you the most value out of their solution. You get to optimize SaaS costs, they get to keep a customer.
Don’t hesitate to ask them for more favorable terms to match your needs and optimize the value of the relationship. If you need guidance and you’re a premium Quolum customer, ask us how we can help with your contract negotiations or bring your SaaS spending under control.