There’s no denying that SaaS spending has increased astronomically in recent years. So much so that it now accounts for around 12.7% of total spend, meaning that roughly $1 in every $8 is now being invested in software applications.
But it’s not set to slow down any time soon. According to Gartner, worldwide spending on cloud application services (SaaS) is expected to exceed $208 billion in 2023 — up 37% in just two years. A finding that is supported further by the fact that more than half of all organizations are planning to increase their IT budgets in the coming year.
Yet, despite this rise in IT budgets and SaaS spending, the economic slowdown cannot be ignored.
Nor can the rise of SaaS inflation.
So, while budgets may be growing, finance leaders are becoming increasingly challenged to ensure that the software being invested in is driving maximum efficiency and delivering exponential value to the organization.
Simply put, they must look at new ways to optimize their SaaS spend.
The biggest challenges surrounding SaaS spend optimization
When it comes to reducing software spend, finance leaders face two challenges: decentralized SaaS purchasing and obscured software pricing.
Analyzing both in detail reveals more challenges:
Decentralized SaaS purchasing
Unlike almost every other business overhead, the selection, management and renewal of SaaS is often decentralized, causing huge problems for finance and IT teams alike.
In fact, research suggests that as much as 66% of SaaS spend is managed by business units or individual employees. It’s also been found that in some organizations, as many as 32 billing owners may be tied to a single subscription, emphasizing just how fragmented the SaaS purchasing process really is.
So, why is it happening?
In some organizations, department heads are being given increased autonomy to purchase new software applications, particularly those under a certain value. In others, maverick spending is happening in a bid to bypass procurement protocols.
Either way, when software is purchased without the knowledge or approval of the finance team, it can lead to a whole host of problems, including:
According to data from Vertice, as many as 89% of software vendors include auto-renewal clauses in their contracts.The problem is, when software is purchased without the finance team’s knowledge, they won’t be able to keep on top of these renewals, which can have huge financial implications for the business in terms of renewing unwanted and often expensive software licenses.
● Duplicate or redundant SaaS applications
Close to a third of total SaaS spend is either underutilized or wasted. But while this should ideally be the starting point for any finance team looking to cut their SaaS spending, either by consolidating tools that have overlapping functionality or eliminating the applications that are no longer in use, without prior knowledge of these tools it’s just not possible.
● Unused licenses
The average company wastes around $135,000 on SaaS software annually, a portion of which comes from unused licenses or seats. So, while the tools themselves may be in use, you may be subscribed to — and therefore paying for — excess licenses.
● Overpriced software
With the majority of software vendors choosing to obscure their pricing — 55% to be precise — organizations are left with very little leverage to negotiate the best possible prices. In fact, our data shows that a typical business is overspending by about 20-30% on SaaS annually.
Obscured software pricing
It’s not just decentralized SaaS buying that’s causing problems for finance leaders, it’s also the lack of pricing transparency in the market.
As we’ve already mentioned, organizations are overpaying for their SaaS tools by as much as 20-30%. What we’ve not yet mentioned though is that this is happening to as many as 90% of businesses.
So, why is this? Ultimately, because vendors have all the leverage — the majority don’t publish list prices and there’s no simple way of knowing just how willing they are to provide a discount, which makes it extremely difficult for buyers to negotiate the best possible pricing and contract terms.
Here’s the thing though: these issues can be prevented with both visibility and insight.
When finance teams have oversight of their entire SaaS stack and spend, they can:
- More easily manage spend
- Stay ahead of SaaS renewals
- Identify opportunities to reduce costs
- Prevent maverick spending
But this is only possible with a centralized SaaS purchasing model.
To gain complete control of your SaaS spend, you ultimately need a comprehensive system of record that details every single piece of software being subscribed to by your business, including the cost of each tool, the number of licenses being paid for — and at what cost per license — the owner of the application and the terms of each contract.
Then you need to keep track of this information, a process that is best automated.
At Vertice, we do just that. We give you complete visibility of your entire SaaS stack from a single place, enabling you to track your subscriptions, renewals and spend.
But that’s not all we do.
We also give you the insight you need to gain leverage when negotiating the terms of your contract. Insights such as SaaS buying trends and pricing intelligence. In other words, we can tell you how much other companies are paying for the same subscription.
Better still, we can take the burden of managing, buying and renewing SaaS off your hands, saving you a substantial amount of time and money.
See for yourself how much we can save you at Vertice, with our free cost savings analysis.