Read more about SaaS optimization: How to Stop Being a Target of Vendor Upsizing

SaaS Cost Optimization for Modern IT Budgeting

7 min read Mansoor Ahmed

SaaS makes it easy to source new software, but what has it done to your IT budget? More than 70% of organizations are investing in SaaS and public cloud offerings, and we’re starting to see some eye-opening stats. In fact, the overwhelming majority of all business apps used by companies are SaaS products. Three-quarters of business leaders claim increased agility and faster time to market as primary reasons for choosing SaaS solutions. Still, those capabilities come with a cost: Global spending on software as a service is predicted to reach $138 billion by 2022.

Spending on SaaS is no longer optional for growth. It offers you opportunities to reduce costs, maximize productivity, and increase revenue. Unfortunately, you are also inundated with more products than ever. How do you handle cost optimization without becoming overwhelmed by constant renewals and pervasive shadow IT?

As SaaS continues to make up most of your total business application spending, it becomes increasingly important to get a handle on the expenses. Traditional budgeting methods do not always account for the new ways we purchase software, so we have to modernize the strategies we use to reduce costs and maximize value. The following steps can help refine your approach to SaaS cost optimization.

How to Optimize SaaS Costs

Step 1: Determine True Costs With Holistic App Discovery

Before a company can control and optimize SaaS costs, it needs to have visibility into its spending. One monthly charge for a software subscription might not look especially significant, but recurring costs compound quickly. Occasionally, it is difficult for business leaders to discover which products they are paying for because some automatically renew without sending an alert or a receipt. Holistic discovery is the first step on the road to SaaS cost optimization––it is impossible to control costs without identifying them first.

During the discovery process, it may become apparent that various departments are using different software for the same purpose. For example, if sales use Zoom, finance uses GoToMeeting, and marketing uses Webex, the company pays for three video conferencing services instead of one. If the organization is already paying for Teams, it might even be possible to use that for video calls and cut out all three of the other SaaS expenses. 

Traditional expense management solutions do not always account for these types of situations, which is why SaaS management tools have become necessary. Powerful app discovery tools can automatically pull information from Azure AD, GSuite, IAM, and imported spreadsheets, then allow manual tagging to ensure nothing slips through the cracks. Annotated visualization tools that include category, product description, and other information make it easier to move on to the next step of IT budget management.

Step 2: Analyze SaaS Consumption

The cost of a company’s software is only one part of the equation; company leadership also has to understand better how employees use the software. Gartner has reported that half of the companies let 25% or more of paid software subscriptions go unused. Sometimes called shelfware, these unused licenses take up space on the IT budget without returning a value.

Business leaders are becoming more aware that shelfware is a problem, but many still find it difficult to identify which purchases are wasteful. Some companies deploy surveys to determine which employees use which SaaS assets. This is one way to get feedback about which products are most valuable, but it depends on employee participation and is susceptible to human error.

The more modern approach to measuring SaaS consumption leverages technology to track spend and utilization. Identity and Access Management (IAM) tools, along with usage data directly from the SaaS apps, yield more accurate results. Gathering data automatically also makes it possible to get current information without redeploying surveys that take employees’ time regularly. 

Because traditional budgeting methods do not offer such features, it is helpful for business leaders to learn about the two primary ways to measure SaaS consumption:

  1. Measure SaaS consumption with IAM data. Data from G Suite and Azure AD makes it possible to see who has logged into a given application. This information helps business leaders identify opportunities to cancel unused subscriptions or reduce the number of licenses they pay for. This is typically offered with free SaaS management tools or free tiers (such as those offered by Quolum).
  2. Measure SaaS consumption with app integrations. This provides businesses with rundowns of actual feature usage. This type of fine-grained analysis is necessary to optimize SaaS costs truly. A paid account with an enterprise SaaS management solution, such as Quolum’s solution, is required to unlock powerful capabilities like native integrations.

Step 3: Assess the True Value of SaaS Products

Comparing SaaS costs to consumption makes it easier to determine a product’s value. If an application goes completely unused, it is a waste of money at any price. Another solution that may cost significantly more but increases productivity is much more valuable. A simple list or spreadsheet is unlikely to express reporting data sufficiently. Decision-making tools such as data visualization dashboards allow leaders to compare spend quickly and utilization in terms of individual users, various departments, and the entire organization.

Step 4: Cancel Unnecessary Subscriptions

Oftentimes, this is easier said than done. An unfortunate reality of the SaaS industry is that many companies intentionally make it difficult to cancel SaaS subscriptions. SaaS companies continue to collect their payments when their software is underutilized or even when it is not used at all. They are not likely to reach out and see why the software is going unused because they do not want to encourage cancellation.

Fortunately, SaaS consumption measurement exposes unused apps. At this point, you can quickly survey team members to confirm that they do not need certain subscriptions (and find out why). Once you are certain that there is no reason to continue paying for the unused software, you have an easy opportunity to reduce SaaS spending by cancelling the subscriptions.

Even once business leaders decide to cancel a subscription that is not worth the cost, it might not be easy to do so. Many SaaS companies intentionally create unpleasant user experiences when it comes to cancelling their subscriptions. The process is often slow or inconvenient, and it may include high-pressure sales tactics as they make one last push to encourage renewal. Since you are armed with information that makes you certain about your decision to cancel a given subscription, you are less likely to be persuaded to renew when you shouldn’t.

Step 5: Downsize SaaS Plans When Possible

It is not always simple to rightsize SaaS subscriptions, and not every underutilized service can be cancelled outright. The best SaaS management tool or process should make it easier to downgrade subscription levels or eliminate seats. This is especially relevant when a solution is used only by certain departments or roles. That is, when one or two people manage your marketing automation software, there is no need to buy seats for the rest of the department.

After discovering which SaaS licenses go unused, it is also useful to identify which features are redundant or expendable. For example, if your company no longer does business across language barriers, there is no need to add a real-time translation feature to your video conferencing software subscription. Visual utilization reporting clarifies how many licenses are essential and which features are worth paying for. From there, it becomes possible to reduce costs by opting for a lower user limit or a smaller plan without dispensable features.

Ongoing: Watch for Rising Costs with Sneaky Renewals

Automatic renewals help prevent service interruptions, but they can also lead to surprise expenses. The best SaaS management tool will provide insights into upcoming renewals, offering an opportunity to negotiate better rates or cancel software that is not being used. Spending rules should also be in place to identify subscriptions going up in cost, as some SaaS providers might not be especially upfront about price increases. For example, set spending controls that track renewals and require human approval before your SaaS expense card will pay an increased cost for renewal. 

The Simplest Answer: SaaS Cost Optimization Tools

Gartner estimates that 50% of organizations using multiple SaaS products will consolidate their usage measurement and management with a SaaS management platform by 2026. The rising importance of SaaS management tools is no surprise to leaders at organizations that spend, on average, one full workday offboarding a single employee from their subscription software. Here at Quolum, we decided to reduce the need for manual analysis and management of IT products.

We designed Quolum’s SaaS management solution and dedicated SaaS card to empower business leaders who want to optimize spending. For more information, contact us, and we will give you the specifics on how Quolum can empower SaaS cost optimization.

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About Quolum

Quolum is a full-stack SaaS Spend Management product. Its data-driven renewals, spend controls, license monitoring, contract oversight, and a buying concierge helps companies save millions of dollars in spending.
Quolum is ideal for companies that have hundreds of SaaS tools. Finance, Procurement, IT Teams, and departmental spend owners use Quolum to help manage SaaS sprawl and remove shelf-ware.
Talk to us to get a demo of the product. You can start seeing savings in just a few weeks. No spreadsheets are required.