The Ultimate Buyers Guide for SaaS Spend Management

11 min read Mansoor Ahmed

Introduction

Is software-as-a-service (SaaS) bleeding today’s companies dry?

That question might sound dramatic at first; after all, SaaS has been with us for decades, providing useful software in ways that can scale. But in recent years, the ubiquity and volume of SaaS have become a problem not only for IT departments but for the financial professionals tasked with reining in SaaS spending.

And that problem is more significant than you think. One of our clients, for example, once claimed that they were “too small” for a SaaS management tool because they only spent a little under $2,000 on SaaS software. When we onboarded and made the discovery, it turns out they were spending almost three times that amount. They were unaware, simply because they did not have an automated tool for keeping track.

This was not just a one-off problem by a single client. In fact, by some estimates, the average medium-sized company (100-250 employees) uses somewhere around 150 unique SaaS applications. This makes manual management of SaaS subscriptions an almost impossible task; the result is a fast-growing pile of shelfware, security leaks, and associated spending.

This is why SaaS management is a priority. SaaS Management includes tools that help a company purchase, implement, integrate, renew, or cancel SaaS solutions. Without them, managing subscriptions can be a nightmare.

This article gives an overview of the SaaS Management landscape, focusing on SaaS spend management and the tools available for financial professionals and department heads within the organization.

What is SaaS Management? And Why Should IT and Finance Care?

SaaS Management helps a company to purchase, implement, integrate, renew, or cancel SaaS solutions. This often includes managing the associated licenses or data. This broad category can be broken into two distinct sub-categories: SaaS Operations Management and SaaS Spend Management.

SaaS Operations Management (sometimes called “SaaSOps”) is focused on managing, governing, and securing SaaS products within an organization. For example, controlling access and security for SaaS applications (and discovering who has unauthorized access) falls under SaaS Operations Management—as would auditing SaaS applications for compliance (SOC 2 or HIPAA, for example). Examples of SaaS Operations Management tools include (as of this writing) BetterCloud, Sonar, Torii, Blissfully, Zluri, Productiv, and Zylo.

SaaS Spend Management focuses more on the financial aspects of purchasing, licensing, and renewing (or cancelling) SaaS subscriptions. These tools typically help with visibility and transparency into SaaS subscriptions and their utilization, allowing for a more comprehensive “single dashboard” look into all software spending in this category. For example, these tools can identify unused licenses of features or determine when a different pricing scheme would be appropriate, aggregate invoices, and facilitate payment-related functions.

Though the two categories are distinct, there is often overlap. Indeed, in previous articles, we have used the more general term “SaaS management” to mean specifically SaaS Spend Management. However, Gartner, G2, and other software review sites now consider them distinct subcategories.

Why SaaS Spend Management Tools Are Critical for Modern Organizations

There is a reason SaaS applications have become popular: They are easy to procure, require little (if anything) in terms of installation and distribution, and update themselves regularly. While these features make SaaS subscriptions very convenient, it is that same agility and convenience that can lead to problems.

The average medium-sized company (100-250 employees) uses 150 unique SaaS applications, by some estimates. A Fortune 500 company can use 2-4 times that amount (and even more, if we count non-unique purchases). With so many applications in play, the very features that make SaaS easy to work with become a nightmare when it comes time for financial professionals to track and manage all that IT spend.

SaaS Spend Management tools control SaaS spending and avoid some of the common recurring problems that the proliferation of SaaS applications create:

Unused Licenses or “Shelfware.”

Industry experts have projected that up to 30% of SaaS purchases are never used. Companies end up paying for unused licenses and underused software, which bloat the overall IT budget.

Redundant Tools

Large organizations with multiple locations or departments often end up purchasing redundant tools, either by overbuying license bundles for a single application or paying for numerous applications that do the same thing. For example, it is not uncommon nowadays to find an organization where some departments use Zoom for conferences. In contrast, others use Webex, yet the organization already pays for an Office 365 license that includes Teams.

Shadow IT

The ease and agility with which SaaS can be procured means that a buyer—a department head, say—can bypass the traditional checks and balances that are in place to ensure a product complies with organizational policies. Indeed, some 67% of teams introduce their collaboration tools into an organization without IT approval or knowledge. This leads to a proliferation of software titles, many of which are unmonitored. These then lead to security and compliance issues. 

Security and Compliance Issues

Third-party software is one of the top causes of data leaks and is often a neglected soft spot in a company’s cybersecurity measures. One study from EMC estimates that $1.7 trillion is spent each year due to data loss and downtime caused by Shadow IT-related security issues.

Difficult Cancellations

Unfortunately, many SaaS companies use “dark pattern” methods to make it difficult to cancel their service. This leads to even more shelfware and bloat.

Who Benefits from SaaS Management?

Whose role is it to research, vet, and purchase SaaS management solutions? And how can different departments within an organization benefit from such tools?

IT Security. Those tasked with cybersecurity at an organization will benefit from having greater visibility into SaaS applications and users. IT security professionals are on the front line when it comes to shadow IT and data leakage and thus benefit directly from tools designed to prevent these.

Finance. SaaS solutions (and cloud compute) are often the most significant part of the IT budget for modern organizations. Getting better visibility into and control of SaaS spend is a high priority for financial professionals.

IT Leadership. IT leaders often straddle both worlds: They are responsible for both their departmental budget and tasked with keeping software consistent and secure. IT leaders thus benefit both from SaaS operations management tools, and SaaS spend management tools.

What is the ROI of SaaS Management Tools?

While many tools offer a free trial or free tier, having access to the full features of the tools often costs. Is that cost justified?

While each organization is unique (and thus should do its analysis to see what is justified), some studies show that SaaS management tools more than pay for themselves over time, especially for larger organizations.

For example, a 2016 report by Gartner claims that organizations can reduce their spending on software by as much as 30% simply by implementing best practices around “software optimization.” At the time, they mentioned recycling software licenses and using SAM tools to discover savings—techniques that are now superseded by modern SaaS management.

In a later study, Gartner found that most companies are paying for licenses when it comes to SaaS software, where up to 25% never get used. Likewise, a recent Forbes article claims that only about 62% of all enterprise SaaS licenses are used in the average 30-day period. In other words, the average company is overspending on their SaaS software by anywhere from a quarter to one-third of their budget.

Reining in those expenses means that a significant portion of IT budgets can be saved.

Hard ROI

Specifically, SaaS management can reduce the number of:

  • Duplicate purchases of the same software title 
  • Redundant purchases of multiple applications with the same functions
  • Unused licenses (that are being paid for or renewed)

Since these numbers are directly tied to a dollar amount, reducing them will reduce overall IT spend measurably.

Soft ROI

In addition to the immediate “hard” savings, SaaS management tools also help IT departments and finance departments maintain better control, leading to savings. These include:

  • Better visibility. Better visibility means better control. Better control means more opportunities for savings, or if need be, cancellation.
  • Risk mitigation. Few security issues and better compliance mean fewer fees and possible lawsuits.
  • Easier budgeting. Most companies end up over-spending their IT budgets. When there is better visibility into usage, it is easier to “right-size” software licenses and set reasonable budgets (and stay within those budgets).

Standard Features of Modern SaaS Management

Modern SaaS management looks very different from traditional Software Asset Management (SAM) or other IT asset management tools. That said, most SaaS management tools today have several features in common; buyers should be aware of these features and ask about them when assessing and comparing the various tools on the market.

Asset Management and License Tracking

One of the main components of any SaaS management tool is an asset and license tracking. This is key because most companies buy seats or licenses for an application in bulk, based on their projections of the capacity needed. For example, if Company X uses a sales tool, they might work backward from sales growth goals to predicting the number of people required on the sales team; that headcount will inform how many licenses are purchased for the sales tool that quarter. SaaS management tools should make it immediate and clear how many licenses are being purchased for each application or asset.

Asset management also helps prevent duplicate purchases–for example, two different departments purchasing two different bundles for the same app or two separate apps with the same functionality. Indeed, many large companies buy SaaS applications with an enterprise license that allow for unlimited seats, showing when the case cuts down on duplicate purchases!

Approval Workflow

Purchases and renewals need appropriate authorization, but too often, that authorization can become a bottleneck. A good SaaS management tool routes approvals and authorizations through the organization as appropriate.

Spend Tracking

SaaS spend management is nothing without the ability to track spending. This can be done at the level of subscriptions, licenses/seats, or features (many tools allow all three). The best tools track this data so that historical trends can be identified and troubling patterns can be detected. For example, a sudden increase in paid seats for a given application without increasing team members can be a red flag.

Accounting Tool Integration

Today’s organizations use one of several online tools for accounting: Quickbooks, Xero, Netsuite, Sage, and so on. The best SaaS management tools integrate with these accounting tools to remain a single record and source of truth regarding the company’s books. (The best tools also allow spreadsheet import for those organizations not yet ready or able to take that leap.)

SSO Login

SSO (Single Sign-On) allows applications to accept user logins without creating a new account within the application itself. Instead, the login is handled by a third-party IAM provider (for example, Google’s G-suite or a Microsoft work account). The benefit of SSO is that the IAM provider can aid in the discovery of all the applications that users within an organization are actively using. Thus, SSO helps improve transparency and discovery, which can help finance departments correlate application usage with spend.

User Provisioning and Account Management

One of the most common causes of unused licenses or seats (not to mention security risks)  comes when employees leave an organization. SaaS management, when done well, makes the process of onboarding and offboarding employees simple. This is often done through the use of integration with IAM providers and various HR tools.

IT Security, Compliance, Governance

Even with appropriate processes in place, there will be times when onboarding or offboarding are not done correctly. This can easily lead to data leakage and other security and compliance issues. For example, an inactive user could be hacked and then used to access company apps and data.

Shadow IT and third-party applications are just as much of an issue. SaaS applications are often connected to corporate data, and that data usually contains a fair amount of customer information. But an application might also be connected to other applications, some of which were purchased by IT… and others were not. Where might data be “leaking” out of the organization? Where might login credentials, credit card information, or health information be stored (and where shouldn’t it be stored)?

Having a window into an organization’s total application usage can help spot both unused accounts and unauthorized applications, both helping with security and compliance.

Payments 

Tracking usage and approval workflows are one thing; having the ability to purchase or renew SaaS solutions easily from a single source is yet another added level of convenience. Having renewals triggered by approvals, for example, helps keep control even as it makes payments more manageable. 

SaaS Management Vendors (as of 2021)

SaaS Operations Management Solutions

SaaS Spend Management Solutions

Is There a Viewpoint We Did Not Cover Here?

SaaS management tools have only come to maturity in the past few years, and the industry is still changing and adapting. And so, it is natural to have questions that we have not yet addressed in this article. If so, let us know, and we’ll do our best to add to the article.

Feature image: Accountants preparing a business report.

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