The recent rise in inflation has left many businesses struggling. As customer spending decreases, companies have had to rethink their strategies to reduce operational expenses while continuing to support their growth goals. In this blog, we discuss one way that your organization can respond to the economic downturn without sacrificing long-term profits: SaaS cost reduction.
SaaS cost reduction is the process involved in reducing the amount that organizations spend on software. While the obvious approach is to reduce the number of tools being subscribed to, there are often also opportunities to cut back on the number of licenses you require and to gain leverage that will allow you to negotiate better prices. These savings can then be reinvested back into the business.
While there are a number of reasons your SaaS spend might be on the rise, the common causes contributing to it include:
With only 45% of SaaS vendors choosing to publicly list their pricing, it not only makes it difficult to compare costs and make informed purchasing decisions, but it also increases the chances of you being charged more than you could be. In fact, the lack of pricing transparency in the market has resulted in as many as 90% of buyers overpaying for their software by as much as 20-30%, according to research from Vertice.
According to Vertice's research, SaaS pricing inflation is rapidly outpacing the market average. The average spent on SaaS has risen by 14.4% per year since 2018, with only 5% caused by extra licenses or features. This means that many vendors are taking advantage of the lack of transparency by hiking prices.
Another reason why companies are spending more on their software is because of SaaS sprawl.
As organizations grow, so does the need for additional software. The problem, however, is that many of these tools are purchased unbeknownst to the finance, IT or procurement teams, leading to a whole host of problems, including wasted spend.
If you’re looking to reduce costs in a strategic way and ultimately future-proof your business, there are some key steps that we recommend.
Application rationalization is the instrumental first step that you can take to reduce SaaS costs and avoid cost inflation. This entails gaining visibility into all software being used across the organization, shining a light on any existing shadow IT, and then making informed decisions about whether to cancel, combine, or keep these subscriptions. Crucially, rationalization enables you to eliminate any tools that are limiting your prospective ROI and mitigate any future effects of software sprawl.
After gaining visibility into your company’s SaaS usage and optimizing the software stack, it's important to standardize future procurement. Each application should be carefully examined for compliance, contractual requirements, and potential ROI to make sure it is the best option for your business.
All tools past, present and prospective should also be documented and centrally governed within your organization. This can help mitigate uncontrolled spending and fragmentation between different departments — minimizing inefficiencies and ensuring that sprawl doesn’t ever take a hold of your IT.
If it isn’t already, software negotiation needs to be a part of any future SaaS procurement.
Why?
Because as we've mentioned, the price that software vendors list or quote you isn’t necessarily the price that you have to pay. Generally speaking, there are a range of contract terms beyond just the price that can be negotiated to secure the best deal for your organization. These include contract length, protection against price uplifts, and auto-renewal clauses.
In order to get the maximum benefit when negotiating a contract, it is recommended that you begin the process early — ideally at least 90 days before your renewal date. This avoids any issues with time limitations which can lead to quick and easy sales. We also recommend using competitor pricing benchmarks as a lever so that you can secure a competitive price point with your chosen vendor and minimize future costs.
Lack of pricing visibility, hidden contract clauses, and software sprawl are each contributing to soaring SaaS spend, and this increase in costs is simply unsustainable for many modern organizations.
We at Revolgy help customers make the best use of their cloud solutions, so we partner with companies like Vertice to help you tackle this same challenge when it comes to the rest of your SaaS technology.
With extensive SaaS negotiation experience and access to the pricing points for more than 13,000 SaaS vendors worldwide, Vertice provides the insights, and therefore the leverage, you need to secure the best possible deal on any software contract. They also provide the usage and analytics to help you right-size your SaaS investment for your business.
In fact, they not only take the burden of buying, managing and renewing SaaS off your hands, but Vertice also guarantees you savings on your current annual SaaS spend.
Find out more about how they work and their risk-free pricing model, or alternatively see for yourself how much you could save with our free cost savings analysis tool. Or drop us a line and talk to us.