Streamlining SaaS Procurement in 2024: Insights from a Procurement Leader

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The economic condition of 2024 presents a unique challenge for procurement teams. Tighter budgets demand a more strategic approach to maximizing return on investment (ROI) across all spending.

To successfully navigate this environment, Terry LaRock, Head of Procurement at Tipalti, a leading financial software company, shares his insights on how procurement teams can navigate the challenging economic climate of 2024 and secure the best possible deals on SaaS applications.

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The Evolving Procurement Landscape and the Rise of Cost Consciousness

As Terry observes, "The environment has changed." Companies are scrutinizing their spending more than ever, demanding answers to critical questions like "What are we spending money on?" and "What is the return on value of that spend?" 

This shift necessitates a more strategic approach to procurement, particularly when dealing with SaaS vendors.

Gone are the days of lengthy, multi-year contracts that locked companies into potentially outdated solutions. As Terry advises, "We're asking for just a one-year annual agreement...we're concerned about the economic conditions." 

This shorter-term commitment allows for greater flexibility and agility in an uncertain economic climate.

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Beyond Cost-Cutting: Optimizing Value

However, Terry emphasizes that procurement goes beyond simply cutting costs. It's about optimizing value. "We're still budget conscious," he says, "but we're also looking at 'are we really using well what we're spending our money on?'" 

This focus on value optimization requires a deep understanding of how resources are used, including upfront costs and the total cost of ownership (TCO) associated with a SaaS application.

Terry acknowledges that budget constraints are a major concern. However, he emphasizes that procurement must go beyond finding the cheapest option. Here's how he breaks it down:

1. Focus on Total Cost of Ownership (TCO)

Cost-cutting often only considers the upfront purchase price. Terry highlights the importance of understanding the total cost of ownership (TCO) associated with a SaaS application. 

This includes factors like ongoing subscription fees, maintenance costs, and training requirements. By understanding the TCO, procurement can make informed decisions about which SaaS solutions offer the best value.

2. Optimizing Usage and Functionality

Just because a company has purchased a SaaS application doesn't mean they're getting the full value out of it. 

Terry suggests that procurement professionals should work with internal stakeholders to optimize software usage. This could involve identifying underutilized features, ensuring users are trained properly, or exploring alternative solutions that better meet departmental needs.

3. Aligning with Business Objectives

Procurement decisions shouldn't happen in a vacuum. Terry emphasizes the importance of aligning procurement decisions with broader business objectives. 

This involves understanding how specific SaaS applications contribute to departmental goals and overall company strategy. By ensuring alignment, procurement can contribute to positive business outcomes beyond just cost savings.

4. Demonstrating ROI

To move beyond cost-cutting truly, procurement must become a strategic partner within the organization. 

Terry suggests that procurement professionals should focus on demonstrating the return on investment (ROI) of their decisions. 

This could involve quantifying the cost savings achieved through negotiations or the increased productivity derived from a well-utilized SaaS application.

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Data-Driven Insights: The Power of SaaS Discovery Tools and Collaboration

For a procurement team to truly understand the ROI that each application generates, they should have a clear understanding on the actual software usage. 

Here's where SaaS discovery tools become crucial. "We work closely with our FP&A people (Finance Planning and Analysis) to understand what we spent," Terry says. 

But simply knowing what was spent isn't enough. These tools provide insights into actual software usage.

For example, Terry highlights the importance of understanding "how many actual employees are going to touch that application" and "who's using it, how they're using it, how often they're on." 

This data empowers you to negotiate based on real usage patterns, not inflated projections from vendors. You can identify underutilized applications or negotiate for lower costs based on actual user numbers.

Building Bridges: Partnering for Success

Successful procurement goes beyond securing the lowest price. It's about fostering strong partnerships – both with vendors and internal stakeholders. "We need to partner with two groups," Terry highlights: "the vendor suppliers and our internal business partners."

Terry suggests educating internal business partners on the value of responsible software usage. 

This includes understanding the total cost of ownership (TCO) associated with a SaaS application and ensuring it aligns with departmental objectives. 

"We ask the questions 'Is this SaaS application fulfilling what you need, and what is the benefit back to Tipalti?'" 

Procurement can build trust and collaboration by demonstrating the impact of specific SaaS applications on departmental objectives.

"What we spent in the past with the given supplier vendors might not be what you're going to spend in the future," Terry says. He wants organizations to focus on continuous improvement, rather than being idle:

Regular Usage Monitoring: Terry suggests that procurement teams shouldn't settle for a good deal and forget it. Regularly monitoring usage patterns and market conditions through SaaS discovery tools allows for proactive cost-saving opportunities. 

You can identify underutilized features, negotiate based on actual usage changes, or explore alternative solutions as needs evolve.

Re-evaluation and Renegotiation: Contract terms shouldn't be set in stone. Terry advocates for revisiting existing SaaS subscriptions approaching renewal dates.

Armed with usage data and market insights, you can renegotiate terms for better pricing, eliminate unused features, or adjust based on changes in the user base.

Focus on Long-Term Value Creation: Negotiating a lower initial price is great, but Terry likely emphasizes the importance of long-term value creation. 

This could involve negotiating flexible contracts with clear renewal terms, ensuring the SaaS application aligns with evolving business needs, or fostering strong vendor relationships for ongoing support and potential future upgrades.

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Vendor Relationships: Negotiation as a Conversation and Understanding Their Needs

On the vendor side, Terry emphasizes the importance of viewing negotiation as a conversation, not a battle. "They [vendors] are not bad cops," he says. 

"They're trying to make money for their company, we're trying to save money for a company, but we want to utilize the goods and services from our supplier vendors."

Understanding vendor needs can also be beneficial. By acknowledging their desire for recurring revenue, you can explore win-win scenarios, such as negotiating one-year agreements with clear renewal terms and the possibility of tiered pricing structures for future growth.

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Terry's Pro Tips: Things to remember during SaaS Negotiations

Beware of Auto-Renewals: 

“Be careful with the SaaS application agreement. You really want to be careful about the auto-renewal terms. Give yourself enough time that the auto-renewal clauses can basically be canceled out." 

Terry emphasizes negotiating an opt-out clause to avoid unwanted costs.

Tiered Pricing for Scalability: 

"Have an opportunity to add users...with a fixed price," Terry suggests. This ensures predictability in your budget as your team grows. Negotiate tiered pricing structures allowing you to add users at a predetermined cost.

Legal Considerations: 

"Be sure you understand any IP or data privacy issues," advises Terry. Partner with legal counsel to ensure your company's intellectual property and data are protected within the terms of the SaaS agreement.

Focus on the Future: 

"What we spent in the past with the given supplier vendors might not be what you're going to spend in the future," Terry observes. Regular reviews and renegotiations ensure your SaaS subscriptions continue to deliver value throughout their lifecycle. 

By monitoring usage patterns and market conditions, you can proactively identify opportunities to optimize costs or renegotiate terms that better reflect current needs.

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Conclusion: It’s Your Time To Negotiate Like a Pro

In today's cost-conscious culture, effective negotiation skills are more critical than ever for procurement professionals. 

By adopting Terry's valuable insights, you can transform yourself from a passive buyer into a strategic negotiator who secures the best possible deals for your company. 

Here's a quick recap of Terry's advise:

• Invest in Learning: Equip yourself with negotiation training and stay updated on market trends.
• Become a Partner: Build trust and collaboration with both vendors and internal departments.
• Measure for Value: Focus on total cost of ownership, ROI, and business impact.
• Negotiate Smartly: Beware of auto-renewals, leverage data, and negotiate user expansion clauses.

Remember, successful negotiation is not about securing a one-sided deal but about achieving a win-win outcome. By understanding the needs of all parties involved and leveraging data-driven insights, you can secure solutions that optimize value for your company. 

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