SaaS Budget Planning 101 for FinOps Pros

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SaaS budget planning is the key to managing finances related to SaaS applications. It starts with identifying all applications that are used to allocate funds effectively.

To create and maintain an effective SaaS budget, your finance team first needs to identify all the SaaS applications in use. This will help them allocate funds based on actual needs.

This article will discuss SaaS budgeting, from steps and best practices to pitfalls. If you want to improve your business’s SaaS budget planning, read this article to the end.

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TL;DR

• Gain visibility into all SaaS tools, including shadow IT, to prevent overspending and improve budgeting accuracy.
• Identify underutilized and redundant apps to optimize licenses and consolidate tools, freeing up funds for strategic priorities.
• Track renewal dates and hidden fees to avoid surprise renewals and negotiate better vendor terms using price benchmarks.
• Collaborate with stakeholders to allocate budgets based on past spending and hold teams accountable for their SaaS expenses.
• Use real-time reports, alerts, and automation to monitor renewals, prevent budget overruns, and maximize ROI continuously.

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What Is SaaS Budget Planning?

SaaS budget planning involves managing the financial resources dedicated to SaaS applications within your business. It’s like managing the finance part, but only for SaaS applications.

SaaS budget planning can assess the costs associated with acquiring and maintaining SaaS tools while ensuring alignment of expenses based on your business’s goals. Before starting budget planning, your finance team must determine which SaaS applications your business uses.

This way, they can understand your business’s requirements from the SaaS tools. Once they have this idea, they can allocate the appropriate funds to cover these costs. Remember that SaaS budget planning requires continuous monitoring of financial records to prevent overspending or under-utilization.

On top of that, FinOps, or Financial Operations, plays a crucial role in driving accountability for SaaS expenses. It can create transparency and continuous reporting on financial performance to manage SaaS costs.

Moreover, FinOps’s regular tracking ensures that departments stay within their SaaS budgets and make informed decisions. Thus, your teams can manage their own SaaS expenses but are held responsible for staying within budgetary constraints.

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The 6-Step SaaS Budget Planning Process

1. Discovery and Inventory

The first step in SaaS budget planning is to discover and inventory all the SaaS applications across your organization, including managed and unmanaged apps.

Managed apps are acquired by your IT or procurement team, whereas unmanaged apps are often purchased independently by different individuals. By knowing these hidden or shadow IT applications, you can truly understand your SaaS landscape.

This process is crucial because without a complete inventory, you risk budgeting inaccurately. You may end up overspending on redundant tools or missing opportunities to consolidate. However, when you identify all the SaaS apps, you can gain transparency regarding your software expenses.

With CloudEagle.ai, you can achieve full visibility of your SaaS portfolio in just 30 minutes. You can monitor spending at the department level for each application and access in-depth insights beyond mere logins, such as tracked Zoom meetings and opportunities generated in Salesforce.

2. Usage Analysis

Once you know the complete inventory of your SaaS applications, the next step is usage analysis. You need to assess how your team uses each tool, focusing on app usage metrics to understand the usage pattern. This means you must consider various factors like logged-ins, usage features, active licenses, etc.

Analyzing these metrics will help you identify redundancies—tools that overlap in functionality—or underutilized apps. This is key to optimizing your SaaS budget.

If certain tools are not being used to their full potential, or if two apps are serving the same purpose, you can either consolidate them or cancel subscriptions. This approach will ultimately free up funds for more strategic investments.

3. Vendor and Contract Review

A thorough vendor and contract review is essential for effectively managing your SaaS budget. During this step, you’ll evaluate the fine print of your SaaS contracts.

This means looking closely at key details like renewal dates, pricing terms, and any hidden fees that may impact your overall budget. Many contracts automatically renew, so tracking these dates ensures you’re not caught off guard by sudden renewals. This way, you will have the time to decide if the tool is still worth the investment.

It's also important to assess the terms of each contract. Are there any clauses that could lead to price hikes or fees for exceeding usage limits? Identifying these early allows you to adjust your budget accordingly.

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Additionally, don’t forget to compare the contracts against the market benchmarks. This strategy ensures you’re not paying above the industry standard and can confidently negotiate for better terms if needed. As a result, you can eliminate unnecessary costs and avoid financial surprises.

4. Budget Allocation

This involves assigning specific budgets to different departments based on historical spending data.

Analyzing past usage and expenses is extremely important. It can help you make informed decisions about how much budget each department needs for their SaaS applications in the upcoming period.

Cross-functional collaboration is essential in this phase. Contacting various stakeholders—such as finance, IT, and departmental leaders—ensures that everyone’s insights are considered in the budgeting process.

This method can create a more accurate budget and boost department accountability. When teams understand their budgetary limits and their rationale, they are more likely to use resources wisely and strategically.

5. Forecasting and Reporting

You must use forecasting tools to predict future SaaS needs based on historical usage patterns. When you analyze the trends and potential shifts in demand, you’ll know how your SaaS requirements might change in the coming months or years. This will ensure your budget remains aligned with organizational goals.

Detailed reporting plays an equally important role. Generating regular reports helps you track spending trends and evaluate the effectiveness of your SaaS investments over time.

These reports provide insights into which applications drive costs and how usage correlates with business outcomes. These metrics will help you make informed decisions about scaling up or down on specific tools.

Let’s take Aira as an example. Due to its extensive app stack, Aira's finance team found it challenging to track SaaS spending by the department, resulting in time-consuming manual efforts to access contracts and spending details for each application.

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Then CloudEagle.ai integrated with Aira's SSO and finance systems. Thus, they could easily retrieve spending details through detailed reports. This helped the finance team to attribute spending to specific departments and easily identify those with high expenditures.

6. Monitoring and Optimization

The final step in your SaaS budget planning process is monitoring and optimization. To maintain effective control over your SaaS expenses, it’s crucial to set up alerts for key milestones such as contract renewals and spending thresholds.

These alerts can help you stay informed about upcoming renewals. You can prepare for negotiations or reassess the value of each application. Similarly, spending alerts ensure that you’re aware when departments approach their budget limits.

In addition to setting up alerts, regularly auditing your SaaS expenses is vital for continuous improvement. Conducting periodic reviews of your SaaS usage and costs allows you to identify trends and inefficiencies.

This ongoing process of evaluation and adjustment helps you to optimize your SaaS portfolio. It will also ensure that you are getting the most value out of your investments.

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Best Practices for SaaS Budget Planning

1. Centralize SaaS Management for Better Control

One of the best practices for effective SaaS budget planning is to centralize SaaS management within your organization. Having a centralized dashboard for all SaaS applications gives you greater visibility into your software ecosystem.

This centralization helps you track spending and monitor usage consistently across departments. Hence, you can reduce the chances of shadow IT and unnecessary subscriptions.

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With centralized management, you can streamline procurement and ensure that all SaaS tools align with your overall business objectives. You will follow security and compliance while ensuring teams adhere to budgetary constraints.

2. Use Automated Tools to Track Renewals and Avoid Surprises

Manually managing renewal dates can lead to missed deadlines or unexpected auto-renewals, unnecessary costs, or unfavorable contract terms. Automated tools provide notifications and reminders for upcoming renewals, ensuring you’re always prepared to negotiate.

These tools also help you avoid surprises by offering real-time insights into spending trends and usage. This allows you to monitor your budget more effectively and catch potential overages before they become problematic.

Moreover, automation ensures that you stay on top of your SaaS commitments, allowing you to optimize spending. You can keep your financial operations running smoothly.

3. Negotiate Volume Discounts with Vendors

As your organization grows and your SaaS needs increase, you’ll likely be purchasing multiple licenses or subscriptions for various teams. This gives you leverage to negotiate better pricing based on the volume of users or the length of your contract.

Vendors can offer discounts when they see a long-term or large-scale commitment, which ensures customer retention. This will reduce your overall SaaS costs while still meeting your teams' needs.

You will have better purchasing power, which will ensure you’re getting the best possible deal for your investment. Effective vendor negotiations help you control costs and align your SaaS budget with your long-term financial goals.

4. Foster a Culture of Accountability with Department-Level Reporting

Ensure each department of your business has access to detailed reports on their SaaS usage and spending. This will help them take ownership of their expenses. These resorts should outline the key metrics.

When departments have clear visibility into their SaaS expenditures, they are more likely to make informed decisions. There will be fewer unnecessary costs, and the departments can stay within their budget.

This is a high transparency level, which will help your team become more responsible. You’ll see a more strategic approach to SaaS investments across the organization.

5. Continuously Review and Optimize SaaS Spend Based on Performance

Make sure you continuously review and optimize your SaaS spend based on performance. Whether you measure usage, ROI, or the app itself, you can identify which apps deliver the greatest impact and which are falling short.

This ongoing review process helps you spot inefficiencies, such as unused or underutilized subscriptions. These insights will help you make data-driven decisions about renewing, downgrading, or replacing certain apps.

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How CloudEagle Can Simplify SaaS Budget Planning for FinOps Teams

1. Comprehensive SaaS Discovery

CloudEagle.ai is a SaaS management and procurement platform with excellent application discovery features.

The platform supports over 500 integrations, helping you oversee every application within your SaaS ecosystem. It consolidates and manages applications, spending, contracts, licenses, and vendors in one centralized location.

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Additionally, CloudEagle.ai simplifies categorization and resource allocation. Its application categorization makes it easy to differentiate between marketing and product tools. Therefore, you can track usage by department and optimize costs.

Furthermore, CloudEagle.ai replaces the need for spreadsheets, serving as a comprehensive solution for all your SaaS management needs. It also identifies both authorized and unauthorized applications, helping you proactively mitigate shadow IT from the outset.

2. Automated Renewals

With CloudEagle.ai's automated renewal workflows, you can avoid last-minute surprises from contract renewals by initiating renewal processes up to 90 days ahead of time. This renewal management feature ensures timely approvals from all relevant stakeholders.

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You can also create dedicated Slack channels for clear communication among stakeholders. They can easily use those Slack channels to submit requests, approve workflows, and add comments.

Additionally, you can track renewal opt-out dates 30, 60, or 90 days in advance, allowing you to evaluate whether to continue or opt-out. CloudEagle.ai’s app directory helps you quickly identify alternative options if you're considering switching vendors.

3. Accurate Price Benchmarking

No need to worry about the uncertainty of benchmarking data with CloudEagle.ai, which offers access to price benchmarking information sourced from over 1 billion transactions. This lets you compare prices with your peers, ensuring you secure fair pricing during procurement and renewals.

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CloudEagle.ai's comprehensive database, enhanced by AI and machine learning, features more than 150,000 vendors. With such a vast selection, you'll always have options.

Based on your company size, license count, contract terms, and average cost per license, you can determine whether your pricing is above or below benchmark levels. Use this actionable data to negotiate effectively with vendors, ensuring you never pay more than necessary.

4. Real-Time Monitoring

CloudEagle.ai features real-time monitoring capabilities that allow you to set up alerts for budget overruns. This platform will ensure that you are immediately notified when your spending approaches predefined thresholds, helping you maintain tight control over your SaaS expenses.

CloudEagle.ai lets you customize the budget limits. So, you can tailor alerts based on your business’s financial capabilities. Whether it's a specific department or the overall SaaS budget, you will always receive information about the expenses.

5. License Management

With CloudEagle.ai’s direct integrations and Excel uploads, you gain access to in-depth feature-level usage for each license. From a single dashboard, you can efficiently manage license types, monitor assigned and active users, track login frequency and activity, and view the spending associated with each license.

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Thanks to feature-level usage insights, this platform identifies underutilized licenses and recommends user-level downgrades for more efficient cost management. This means you can rest easy knowing unused licenses won't negatively impact your business.

You can also create license harvesting workflows triggered by usage thresholds, deprovisioning users from licenses and reassigning them to the next user.

7. Detailed Reporting

CloudEagle's reporting features provide valuable insights into application usage across different departments. They detail not only how much each department spends on applications but also how much is allocated to specific vendors.

These in-depth reports can help you effectively reorganize your SaaS budget and enhance visibility into spending at a granular level.

With this information, you can make informed decisions on resource allocation, identify areas for cost savings, and optimize your overall SaaS investment strategy.

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Key Challenges in SaaS Budgeting

1. Lack of Visibility into Software Usage and Costs

One of the biggest challenges in SaaS budgeting is the lack of visibility into software usage and associated costs. You cannot allocate a budget effectively without clearly understanding which tools are being used and how often they’re accessed.

This lack of transparency makes it nearly impossible to track spending accurately or ensure that resources are used efficiently. As a result, you may face SaaS sprawl and missed opportunities for optimization.

2. Managing Overlapping Tools and Shadow IT

Another major challenge in SaaS budgeting is dealing with overlapping tools and shadow IT. Different teams or departments independently acquiring similar software without central oversight often leads to redundancy.

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Multiple tools may serve the same purpose, resulting in unnecessary expenses that strain your SaaS budget. For example, two teams might pay for separate project management platforms offering nearly identical features.

But with Shadow IT discovery tools, you can overcome this challenge. This will help you eliminate redundancies and regain control over your SaaS investments.

3. Fluctuating Vendor Pricing and Variable Subscription Models

Dealing with fluctuating vendor pricing and variable subscription models can be a real pain. Many SaaS providers offer flexible pricing based on the number of users, usage levels, or additional features, often leading to unpredictable costs.

While this flexibility can be beneficial when scaling up or down, you cannot plan your expenses accordingly. This is primarily because costs can quickly increase with added users or expanded services.

In addition, vendors may periodically adjust their pricing, introducing sudden hikes that can disrupt your budget without clear visibility into how these pricing changes will impact your overall spending.

4. Forecasting Spend Across Different Teams and Departments

Each department of your business often has unique software needs, and usage can fluctuate throughout the year. Without clear communication and a comprehensive system for tracking these needs, you cannot predict how much each team will require in future budget cycles.

Furthermore, different departments may have varying levels of understanding when it comes to managing their SaaS usage. This lack of alignment can result in budget imbalances where some departments overshoot their budgets while others underspend.

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Common Pitfalls to Avoid in SaaS Budget Planning

1. Neglecting Hidden Renewal Clauses

Never make the mistake of neglecting hidden renewal clauses in software contracts. Many SaaS vendors include automatic renewal clauses that can catch you off guard, leading to unexpected charges.

These clauses often extend the contract term without requiring explicit consent from you. Therefore, it’s easier to overlook renewal deadlines or terms that may not align with your current needs.

Failing to pay attention to these clauses can result in prolonged commitments to tools that may no longer provide value or fit your organizational goals. This is why you must thoroughly review all vendor contracts before signing and regularly revisit them during renewal.

You must track renewal dates and contract terms to stay informed and negotiate more favorable terms. This way, you can protect your budget from unwanted expenses.

2. Ignoring Unused or Duplicate Apps

When your business grows, so does the overall employee size. The number of teams will increase, and your teams will likely use different apps independently. This often leads to multiple departments paying for similar software that serves the same purpose.

This will create extreme redundancies in your business. Moreover, you may spend inaccurately, which will inflate your SaaS budget.

To prevent this issue, regularly conduct audits of your SaaS portfolio to identify underutilized applications or applications that are not being used. Engage with different teams to understand their needs and determine whether existing tools can be consolidated or optimized.

3. Failing to Benchmark Prices Before Renewals

Failing to benchmark prices before renewals is a critical pitfall to avoid in SaaS budget planning. As your contracts expire, you must compare your current pricing against market rates. Without this comparison, you may end up renewing contracts at inflated prices without realizing better options are available.

This is why it’s extremely important to research your software's pricing benchmarks and industry standards. Engage with peers in your industry to gather insights or utilize online resources that provide pricing information for similar SaaS applications.

This way, you can renegotiate better terms with your existing vendors or even consider switching to a more cost-effective solution. You can save money and prioritize your interest during the renewal process.

4. Lack of Proactive Monitoring and Reporting

Don’t rely solely on periodic reviews. This can result in missed opportunities for optimization and unanticipated overspending. Without continuous oversight of your SaaS usage and expenses, you may not catch inefficiencies or rising costs until it’s too late.

We recommend that you create a routine to monitor your SaaS costs and usage metrics. Various automated tools provide real-time insights into your spending patterns and application performance.

Regular reporting also keeps stakeholders informed and accountable. They will better understand their financial responsibilities within your organization. But make sure you stay vigilant to manage your budget better.

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Conclusion: SaaS Budget Planning as a Continuous Process

SaaS budget planning is not a one-time process. As your organization evolves, so do your SaaS needs and spending patterns. Therefore, it requires constant adaptation based on These needs.

You must always ensure that your SaaS investments align with your business goals. And with the help of platforms like CloudEagle.ai, you don’t need to worry about poor SaaS budgeting.

Do you want to boost your business’s financial performance? Schedule a demo with the experts at CloudEagle.ai, and they will walk you through its excellent features.

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