What Is SaaS Licensing: A Beginner’s Guide to SaaS License Management

With fast-paced digital transformation where companies seek higher scalability, the concept of SaaS is booming like never before. According to Gartner, companies worldwide had spent $116 billion on SaaS services in 2020. Companies are more focusing on the ‘pay as you use’ models to grow their business seamlessly.

But, this cutting-edge concept comes with the responsibility of managing multiple SaaS licensing iteratively. As a company uses dozens of SaaS subscriptions, sometimes it becomes time-consuming to manage them efficiently.

There are several challenges like Shadow IT, unused licenses, and duplicate applications that companies need to tackle to avoid monetary losses. SaaS license management plays a crucial role in managing multiple SaaS subscriptions as it saves substantial time, resources, and capital for companies.

Here are some basics of SaaS licensing and how it can benefit your business in various ways!

SaaS Licensing: Know the Basics

SaaS licensing is an improved and advanced version of perpetual licensing, in which you don’t have to pay for the software upfront. Unlike the traditional perpetual agreement, which requires a one-time total payment, SaaS licensing is a recurring usage model that you can continue as long and as much as you need the software.

When you subscribe to SaaS, you get timely updates, access to the latest release, upgraded features, and robust support. On the contrary, users have comparatively limited access to all these vital features in perpetual licensing. The most significant advantage of SaaS license is affordability and accessibility to all.

SaaS licensing has multiple models that companies can choose based on their preferences. In addition, SaaS licensing comes in monthly and annual subscriptions. You can choose an annual subscription if you’re looking to build excellent relationships with your vendors and earn significant RoI in the long run.

You can also opt for free trials before taking annual subscriptions. Trial periods can range from 7 to 30 days, and you’ll have access to all features, helping you to choose the plan you want.

On the other hand, if you’re taking a monthly subscription, ensure that you ask for a contract. Having a SaaS contract secures your business from undue liabilities, and having a contract doesn’t mean you can’t cancel the subscription. So, it’s a win-win situation for your business.

SaaS licensing brings in several benefits to companies and lets them manage their subscriptions and track usage easily.

The Key Benefits of SaaS Licensing

Following are the benefits of SaaS licensing:

1. Pay-As-You-Go

Pay-as-you-go is the main USP of having SaaS licensing compared to perpetual subscriptions. Subscribers only need to pay for what they use over a certain period. It is convenient and affordable for both small and big companies to keep their software costs under control.

2. Greater Scalability

Companies need scalability to meet fluctuating demands and operational needs. The SaaS licensing model solves this purpose, as it allows effortless upgrading or downgrading of the subscriptions without the subscriber reaching out to the provider.

Another significant benefit is that SaaS software is usually easier to integrate with third-party services compared to the traditional subscriptions.

3. Lower Operational Cost

SaaS provides higher cost savings as it is based on a shared or a multi-tenant environment. In addition, there is no software maintenance cost associated with these SaaS licenses. Companies or individuals can also split their plans, which helps them save more capital over time.

4. Get the Latest Updates

SaaS providers keep upgrading their services and software to boost efficiency and offer a better customer experience. When companies release these incremental updates, they are free of charge, and users only have to pay their subscription fees. Further, the paid upgrades also cost less than the software costing incurred with the traditional model. Typically, SaaS licensing is cost-effective, passing over the benefits of the economies of scale to the subscribers.

5. Easy-to-Use Remotely

Most traditional perpetual subscriptions are inefficient when using them on multiple devices or at different locations. On the contrary, SaaS is easier to access through remote areas on other devices. Moreover, compared to conventional software, modern SaaS software is much easier to use with a minimum learning curve.

SaaS License Challenges That Every User Should Know

Along with the benefits, SaaS licensing also has some inherent pitfalls that users need to know before getting into them. Some of the key challenges of SaaS licensing include the following:

1. Managing Multiple Vendors

As the company grows, it requires multiple subscriptions from different vendors. As a result, SaaS license management becomes more time-consuming and complex.

2. Tracking Actual Usage vs. Cost

While using the pay-as-you-use SaaS model, it becomes difficult to track the actual software usage compared to the price charged by the vendor. Tracking SaaS usage is relatively easier in a small company, but when a company leverages dozens of SaaS licenses, then the audit becomes more complex.

3. Over Provisioning

Most of the SaaS software allows the administrator to add more users than mentioned in the contract. But, this practice may lead to over-provisioning the application, causing challenges in achieving license compliance.

4. Fine Prints

Fine prints refers to minute details of a SaaS contract mentioned in the footnotes that people often ignore. However, these details are vital to know before subscribing to a plan. So, ensure you read them thoroughly before signing monthly/yearly subscriptions.

5. Access Revoke

Skipping a SaaS subscription renewal can immediately revoke access to the current services and cause chaos, especially when the teams are working on something crucial. On the other hand, it also happens quite often that individuals mistake early renewal, which causes subscriptions to overlap.

Compared to software asset management (SAM), managing these cloud-based software licenses sometimes becomes more challenging and time-consuming.

Why SaaS License Management Is Crucial for Your Business?

An average company might need to maintain and use a few hundred SaaS applications. This makes SaaS license management a crucial business need.

If SaaS licenses are not appropriately managed, administrators can face multiple complexities, including:

1. Risk of Shadow IT

Shadow IT means purchasing and using the resources without approval from the department. It is a common practice when organizations don’t have a strict vendor approval process.

For example, if an employee finds more helpful software and buys that tool without approval from the IT department, it may create issues in the future. Without any strict guidelines, the company pays more money as more employees will buy tools they find helpful for their work.

2. Security & Compliance Issues

Using unsecured SaaS software may land the company into new cyber threats and security vulnerabilities. When the IT department purchases a SaaS tool without checking whether it’s secure or not, it might put the entire company in a risky situation.

This type of purchase also leads to several compliance issues the company may face during the yearly audit. So, companies must pay closer attention to security and compliance issues.

3. Monetary Loss

The majority of SaaS tools come with an initial discount, or the vendors also offer bulk discounts for first-time users. So, over time, companies lose that discount and need to pay the full price, which increases the operational cost.

4. Unused License

When a company has several redundant subscriptions, they pay for additional SaaS licenses that they never use. For example, you purchased a SaaS license long ago but forgot to cancel it because you don’t use it frequently. So, unused licenses can leave a significant financial dent on the company’s balance sheet.

5. Duplicate Applications

On an average, a company may have multiple employees having the permission to purchase SaaS tools. In this scenario, there is a strong possibility that individuals buy the same software, which leads to duplicate applications in the organization.

In this situation, the employees must know about the issue as soon as possible and cancel the redundant or duplicate app subscriptions to avoid causing additional financial loss.

SaaS Management Platform: Key to Maximize SaaS ROI

Companies often use manual methods like creating Excel sheets for SaaS license management to overcome the above challenges. But this manual method is prone to errors, and there is no automation in the entire SaaS license management process.

Contrary to the manual process, a robust SaaS management platform helps companies to enhance SaaS license optimization, improving their SaaS RoI. When companies integrate a SaaS management platform, they can have several benefits, including:

1. Robust Spend Optimization

When you don’t use a SaaS tool for a certain period, the SaaS license management tool will send you alerts. On the other hand, you also get an alert when software is overutilized. This feature of the SaaS management platform comes in handy for SaaS license optimization.

2. Identifying Unwanted Scenarios

With a SaaS management platform, it becomes easy for administrators to identify and take appropriate actions in scenarios like low usage and unused or duplicate apps. The SaaS license management software detects and sends alerts for these scenarios and helps administrators to take remedial actions.

3. Centralized Dashboard

SaaS management platform streamlines multiple operations and centralizes the overall management process. With an intuitive dashboard, the administrator can quickly check requests for SaaS tool buying approvals, find vendor details, and check the general expenditure history.

4. Procurement Transparency

Apart from SaaS license optimization, companies can maintain higher procurement transparency and keep a better track of software purchased or renewed. It is a helpful feature, primarily when a company uses multiple tools and has several management individuals.

FAQ on SaaS Licensing

1. How does SaaS licensing work?

In SaaS licensing, users pay for the product based on the subscription plan and payment duration. Once the subscription is over, users need to renew their subscription to continue using it.

2. What are the different types of SaaS licensing models?

There are several types of SaaS licensing models, including flat-rate pricing, tiered pricing model, pay per use pricing, per active user pricing, and per feature pricing.

3. What are the essential things I need to look for in a SaaS licensing contract?

While buying a subscription, check for the data being collected, how the data is used, pricing terms, license termination policy, and service level agreement.

4. Is SaaS license management necessary?

SaaS license management becomes necessary when you use multiple licenses as it helps you save time and money.

Final Thoughts

CloudEagle helps businesses with robust SaaS License Management through advanced tools like Smart SaaS Vendor Negotiation and SaaS Spend Optimization. Using CloudEagle’s AI-based SaaS License Management technology, you can save substantial capital by better SaaS license optimization and save time in managing the multiple subscriptions. Whether you need a better SaaS vendor negotiation capability or need to optimize the usage of SaaS tools, CloudEagle has you covered!

Want to experience CloudEagle SaaS management platform? Request a Free Trial.

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