What is SaaS Spend Management? The Definitive Guide

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The SaaS industry has grown rapidly in the last decade. In fact, since 2015, the SaaS industry has grown from $31.5 billion to an estimated $171.9 billion.

The primary reason for this growth is organizations' rapid adoption of SaaS applications to streamline business operations. SaaS apps are robust, flexible, and easier to purchase and maintain, making them an efficient option compared to legacy applications.

Amidst this rapid adoption, organizations overlooked one crucial aspect: application management. Unmanaged SaaS can bring in a variety of risks, including compliance, security, and increased SaaS spending.

This is why SaaS spend management is essential. It’ll ensure that the organization’s investment in SaaS apps generates significant ROI without budget overruns and increased costs.

So, what is SaaS spend management, and how can it optimize costs and streamline SaaS buying and management within the organization?

This definitive guide will help the finance and procurement teams devise a plan using a SaaS spend management platform to optimize SaaS costs.

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What is SaaS Spend Management?

SaaS spend management is an approach under the SaaS management umbrella that refers to the governance and optimization of spend related to SaaS applications.

It involves getting complete visibility into apps, usage, and spending, from the individual to the departmental level. It also includes identifying low-usage, unused, redundant, and duplicate applications and eliminating them to optimize costs and save on spend.

The goal is to align SaaS spend with your business objectives while maintaining cost-effectiveness, scalability, and sustainability.

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How much do companies spend on SaaS applications every year?

As of 2023, an average company spends $3500 per employee yearly on SaaS.

Here’s a breakdown of how companies from different backgrounds and domains spend on their SaaS stack:

Startups (1-100 Employees)

In 2023, startups spent an average of $250k to $1M on SaaS applications. This figure has seen a gradual rise, indicating that even the smallest companies are starting to rely on SaaS to get the maximum benefits.

Midsize Companies (100-1000 Employees)

Midsize companies spend an average of $1M to $15M yearly on SaaS subscriptions, a rapid rise. However, the scope of SaaS budgeting in these companies is exponentially higher than the abovementioned ones. This clearly indicates how, as companies grow, their reliance on SaaS software grows, too.

Enterprise companies (1000+ employees)

Not only is the spending the highest here, with almost $100 million, but these companies also saw a steep curve in their pattern as opposed to the previous ones, which had a more gradual trajectory.

The SaaS spend for these companies grew 30 times from 2018 to 2019, demonstrating the increasing popularity of SaaS software. This has prompted companies to pay more attention to SaaS expense management.

‍(All the data & images are sourced from CloudEagle's SaaS Spend report)

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Importance of effective SaaS spend management

With the amount of capital invested, companies clearly don’t have a problem with SaaS adoption. Would some meager cost savings really influence the enterprise-level companies that can afford to spend?

The flaw in this argument is that the savings aren't that meager. SaaS spending is predicted to reach $500 billion in 2023, and with a proper spend management strategy, businesses can save millions of dollars.

Many businesses have already invested in it and saved money on purchases. So, what exactly can you achieve using an effective spend management strategy,

1. Visibility on unused SaaS apps

A SaaS application might’ve served a purpose at the time of purchase, but it would’ve become redundant as the requirements changed, resulting in low SaaS usage.

However, these SaaS applications are only partially removed from the stack due to low accountability, increasing the resource load for no specific gain.

With a robust strategy, you can easily identify these unused licenses and redundancies, rationalize them, and save on spending.

You can use SaaS spend management software to get complete visibility into your SaaS applications, including their spend and usage insights. This centralized visibility will help you make the right optimization decisions.

2. Prevent Shadow IT

Shadow IT refers to employees acquiring SaaS applications without the knowledge of the IT department. These unsanctioned applications will increase your spend, cause security hassles, and lead to budget overruns.

Employees purchase unsanctioned SaaS software without realizing that the organization already has an alternative solution that solves the same problem more efficiently, thus resulting in the rise of duplicate apps.

An effective SaaS spend management software will send proactive alerts when an unsanctioned application is detected. This will help you prevent shadow IT in its early stages and help you optimize spending.

3. Efficient license management

At times, organizations purchase surplus SaaS licenses and do not use them, leading to poor ROI. Lack of internal collaboration and poor budgeting often lead to overbuying.

The procurement team must consult with the respective team to understand the requirements and then collaborate with the finance team to set up a budget before purchasing.

With an effective spend management strategy, you’ll have visibility over license usage and can make informed cost optimization decisions.

4. Budget Control

When you have complete visibility over your spending, your finance team can easily analyze usage and forecast the budget. This will streamline budget allocation and ensure your spending aligns with your business goals.

You can also prevent cost overruns by mastering SaaS budgeting and generating significant ROI from your SaaS applications.

So, now you know why a robust SaaS spend management process is needed, but what does it offer?

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Benefits of effective SaaS spend management

1. Optimizing SaaS costs

With complete visibility into your SaaS spending, you can identify free, duplicate, unused, and redundant apps in your portfolio. You can then analyze the usage and the ROI and rationalize your stack to save on spend.

2. Better SaaS budgeting

SaaS spend management enables the finance team to analyze usage against spending and make the right budgeting decisions. Based on the requirements and usage, they can allocate funds strategically, directing the budget towards high-impact tools that align with business objectives.

3. Renewal management

Auto-renewals can be annoying, especially when you want to move away from a particular vendor. With a SaaS spend management strategy, you can easily track renewals and configure workflows to send renewal reminders 90 days before the deadline.

This will give you enough time to analyze your usage, prepare a negotiation plan, and renew your contracts on time.

SaaS spend management best practices

1. Procure your SaaS tool wisely

Successful SaaS spend management begins at the procurement stage. It depends on the effort your team invests in purchasing the right applications. Here’s a quick procurement checklist; ensure that you have checked all the boxes before heading to purchase:

• What’s the requirement for the team? How many licenses do they need?
• What’s the allocated budget for the application?
• Do we have any apps with similar functionality existing in our SaaS stack?
• How much ROI will this application generate for our business?
• How long are you planning to use this application?
• What will be the total cost of ownership of this application?

These questions will enable your team to gauge the requirements and align the purchase with business objectives.

Don’t follow a reactive approach of optimizing the spend after it leads to increased costs, start managing it right from the start to keep the costs from escalating.

2. Ace your SaaS contract negotiations

Poor negotiations are one of the major reasons behind increased spending and cost overruns. Procurement teams often enter negotiations without a deep understanding of the requirements and budget, leading to sub-optimal negotiations.

This makes it easier for the vendor to persuade SaaS buyers to purchase applications at their list price and with poor contract terms and conditions. Do not overlook vendor negotiations.

Follow vendor negotiation best practices to negotiate effectively or seek expert assistance from SaaS buyers. CloudEagle has a team of negotiation experts who can work with your team, analyze the requirements and usage, take charge of negotiations on your behalf, and secure the right deals.

3. Manage your SaaS stack

Now that you have successfully negotiated and purchased the product, it needs to be managed carefully by stakeholders, who will be responsible for everything that happens with it.

This will create accountability, and a SaaS management platform will help simplify this process and avoid overlaps.

The IT teams typically handle this process of owning a specific tool. They monitor the SaaS portfolio, analyze real-time usage, and create an optimization plan.

They might not be the product's end users, but they will be responsible for all the following things:

• Granting app access to employees who need them.
• Keeping a tab on utilization and ensuring no empty licenses are draining resources.
• Ensuring unsanctioned applications don’t enter the system and preventing SaaS sprawl.
• Ensure that the contracts align with the requirements and that the expiration date is in check.
• Keeping track of product usage helps identify red flags that can lead to various compliance issues for the company.
• Ensuring that the company-specific data used in the product is kept secure and does not reach the wrong hands.
• Analyzing the cancellation terms as and when the product reaches its final stages of usage in a company.
• Maintaining a constant communication loop with the provider support team in case anything goes wrong.

4. Keep track of Return on Investment

ROI also refers to the positive impact created since the tool's adoption. Suppose you have purchased an automation tool to streamline email drip campaigns. Then, every lead acquired through those campaigns comes from the tool and its automation features.

However, there are many cases where ROI isn’t so obvious. For example, the return on investment might not be clear upfront in the case of an AI content creation tool.

But from a long-term perspective, you can effectively base it on the results generated as a by-product of the content. Hence, regardless of the tool, the ROI generated is essential to ensuring that the money invested in the tool isn’t going down the drain.

5. Conduct consistent SaaS Audits

Since we have spoken so much about ROI, it’s also important to judge the tools periodically to gauge their impact.

Hence, a periodic audit of their function and usage is necessary to gain the necessary insights and proceed accordingly.

A monthly or quarterly audit can prove very helpful in this regard. Moreover, a good SaaS spend management tool like CloudEagle can provide accurate analytics and insights to simplify this process.

6. Be mindful of contract terms and clauses

SaaS vendors can add complex terms and conditions that are unknown to SaaS buyers. So it’s essential to have that line of communication with them and get that sorted out early on.

The earlier this happens in the buying process, the smoother the vendor relationship.

Auto-renewal clauses can frustrate you in later stages, so ensure that you negotiate with vendors and remove the clauses from your contract to avoid hidden expenses.

Likewise, there are more important SaaS agreement clauses that you must pay attention to while negotiating to optimize your spending.

7. Get a SaaS spend management software

The above steps seem straightforward, but they require a lot of effort and a large workforce. Companies often have their hands stretched and find themselves in difficult positions when managing spending using traditional methods.

This is where a SaaS spend management tool can help optimize spending and SaaS procurement. However, it is recommended that a comprehensive solution be chosen instead of a best-in-class solution.

Simply put, instead of purchasing an application just to manage your spend, you can purchase a SaaS management platform with a SaaS spend optimization feature that will help you accomplish all the tasks mentioned above and more with straightforward automation.

This tool can integrate with your internal systems, including your financial systems, and provide a bird’s eye view of your entire SaaS portfolio and relevant spending data.

With every tool under one roof, managing and analyzing their contribution to the company's growth becomes much easier.

SaaS spend management tools, like CloudEagle, help you manage many aspects of this process:

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• Complete visibility on all apps, vendors, contracts, etc.
• Provide accurate spend and usage insights
• 43 types of spend reports
• Identify low-usage apps to optimize spend & reduce SaaS costs.
• Detect unused subscriptions.
• Identify duplicate apps and eliminate them
• Prevent shadow IT and save on spend
• Automate procurement and renewals
• Use price benchmarking data to enhance vendor negotiations.

Why you should use a SaaS spend management software?

SaaS spend management software will provide centralized visibility over your SaaS applications, usage, spending, and vendors. With better and more nuanced analytics, each cost optimization approach can be conducted smoothly, streamlined, and centrally.

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SaaS management and procurement platforms like CloudEagle will prevent you from overspending on SaaS by bringing all the different applications, their spend, and vendors under a single cloak, providing best-in-class SaaS management.

With its advanced features, CloudEagle helps you accomplish much more with your SaaS tools and eventually drive better results.

• Centralized visibility: Get a bird’s eye view of your SaaS stack.
• Cost optimization: Detect underutilized licenses, hidden apps, and duplicate apps, eliminate them, and prevent expense wastage.
• Renewal workflows: Stay ahead of SaaS renewals with workflows that send reminders 90 days before the renewal date.
• Procurement workflows: Automated workflows to streamline your procurement process. Get real-time updates on request approvals and expedite the process.
• Contract management: Centralize your SaaS contracts and vendors for easy management.
• Vendor research: Conduct detailed research on vendors within the platform. Compare prices, read reviews, and connect with your peers to make the right decision.
• License reclamation: Configure workflows to deprovision users from licenses for low usage, harvest the licenses, and assign them to the next user to optimize your spend.
• Integrations: 300+ integrations, including desktop agents and browser extensions.
• Financial reports: Get access to 43 types of custom reports. You can quickly and efficiently track your organization's progress, from departmental spending to employee spending and usage.
• An extended procurement team: Assisted buying team to help you ace vendor negotiations.
• Provisioning and deprovisioning: Workflows are available to automatically grant and revoke access to applications during onboarding and offboarding.

To learn more about effectively managing your organization's SaaS spend, listen to Nicole Jordan - Dahdal, CFO and Head of HR at Clover. With deep financial expertise, Nicole advises aspiring finance leaders on optimizing software spend, emphasizing the balance between cost reductions and strategic decisions for sustained growth.

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Conclusion

To control costs and optimize their SaaS stack, SaaS spend management is essential for finance and procurement teams.

In this article, you learned about spend management, its benefits, and the best practices to follow while creating a SaaS spend management strategy.

Though this management process seems like a stretch, it can be simplified by leveraging SaaS spend management tools like CloudEagle. The amount of resources that can be saved is substantial enough for you to reconsider your SaaS spending and start thinking more proactively about your solutions.

“It's amazing to see how CloudEagle's team saved us thousands of dollars within just a couple of months of engagement. With their insights about internal usage and persistence with vendors, it feels like they are our own team that’s working hard to save us money.”

Michael Lipinski, ICEYE

Book a demo with us and discover how CloudEagle simplifies SaaS expense management and saves you big bucks!

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