Companies are “forensically scrutinizing” their monthly SaaS expenditure to preserve maximum cash. However, in an age of distributed workforces, we also see spend on certain SaaS products rise rapidly.
With cash flows tightening, organizations are placing a much higher priority on saving money across the board and, in particular, on SaaS apps.
Up to 30% of companies’ annual SaaS spend is wasted, the report finds. For an 800-person U.S. company, this translates to more than $4M lost in a year.
Businesses can no longer neglect SaaS management––it has become strategically important for their growth and bottom line. Coronavirus has only accelerated the need to identify and cut excess spending.
After all, how many times have you discovered someone in your organization using software, and you were unaware? While SaaS has many advantages over on-premise software, it can be hard to find and manage. And you can only cut costs from what you can see.
Although you’re saving money on computing resources in the cloud, your software subscriptions still represent a considerable investment. Subscriptions for most major cloud apps are based on Named User licenses, meaning that you’re paying for every user who needs access.
In some cases, you might even be paying double or triple for single users. Salesforce, for instance, requires a Named User license per user per Org. If a single user needs access to three different Salesforce Orgs, that user will require three different Named User licenses.
Back when people actually bought software or developed it themselves, it could be depreciated as a capital expense. Not SaaS, which remains an unending, EBITDA-eating operating expense.
That becomes a bigger issue in slowdowns— tough to cut—or when you try to sell your business. Ever try to migrate from one SaaS solution to a rival? It’s excruciating—deliberately so—because you house none of the data. Expect to spend big on a consultant to make it happen. It also has a tendency to grow.
What starts as a reasonable cost for a small company can be a big deal a decade down the line. Even “free” productivity software like Google’s suite of products can pull you on to an escalator of costs thanks to storage milestones that require you to spend more—or risk stalling your operations.
How Does Uncontrolled Spend on SaaS Software Spread?
In traditional workplaces, the IT department has full ownership of new software that’s introduced. This centralized approach means that adopting a new tool can go through the long process of validation, approval, introduction, and most likely will be long, tedious, and not-at-all transparent.
Now in more modern companies, people are embracing SaaS subscriptions. This is because more and more employees are using an extensive range of software for work. It can be a communication tool, text editor, video editor, or software
Types of Excess SaaS Spend
Excess spend falls into several different categories, and it’s worth being aware of the different types.
- Extra Licenses (Shelfware): Often, contracts stipulate several licenses. But when they do not, additional users can add up, and make ideal cost-cutting targets.
- Inactive Users (Including Former Employees): Some people never use the software purchased. And if IT does not manage the app, some employees could need to be de-provisioned. This even happens sometimes when an employee has departed months or years ago.
- Duplicate Apps Or Multiple Instances: Some employees or departments decide to get their apps, despite the existence of corporate subscriptions for similar apps. Likewise, sometimes employees start separate accounts for an app that’s already been purchased.
- Unoptimized Licenses And Off-The-Shelf Pricing: Some licenses cost more than others, offering access to more advanced features. But what if not everyone accesses these premium features? Those people should use less expensive licenses. Without visibility into actual application usage, these cases can be hard to find
Controlling SaaS Spend
SaaS management platforms are increasingly becoming essential to manage, govern, and secure SaaS applications. Measuring product adoption by users is critical for SaaS and Cloud companies, as this is the most telling indicator of the value customers are getting from products and services.
SaaS management platforms enable this, allowing HR departments and business managers to get a better understanding of the usage of SaaS applications. This can include anything from company-wide usage to employee-specific data on applications such as Outlook, Skype, or Teams, whether the employee is in the office or remote.
Once you have that audit in place, a great place to look at is how do you identify or eliminate the above types of excess SaaS spend? For example, a company might find they have subscriptions that they’re still paying for employees that left the company.
Now you have these dormant subscriptions still being paid for every month or even annual basis that have no usage. The SaaS audit can help you identify those by identifying ways to have subscriptions, but if you ask around the company and nobody claims it, that is an excellent way to cut excess spend.
New Pressure to Cut SaaS Costs
The wasted spend on “forgotten” or “no-ones” subscriptions can be eliminated with more real-time monitoring of business spend, one of the critical features of Augmentt.
This will make it much easier for you to forecast your company’s spendings and make strategic decisions on how to spend your company’s money on SaaS.
Still, for most companies, SaaS is simply a part of life now—for good and bad. The trick is to avoid complacency and inertia—the core of the SaaS business model. Make it someone’s job to keep an eye on SaaS spending company-wide. Ask them to watch long-term trends—not just spikes—in costs. Don’t budget for the present; a model for growing usage over a long period of time. And remember, sometimes the best “door lock solution” for your company is just a lock on the door.
Want to learn more, please check out our SaaS Cost Reduction eBook.