Software-as-a-service, or SaaS, is a cloud-based delivery model that allows users to access software applications through subscriptions rather than purchasing and installing them. The service providers host the software on their servers and make it available to subscribed customers through web browsers, mobile apps, and APIs. Compared to traditional software delivery models, SaaS offers many benefits to users, including lower upfront costs, scalability, flexibility, and accessibility. By using a SaaS model, users can avoid investing in expensive infrastructure and instead pay a subscription fee to access software as an on-demand service.
The SaaS industry has experienced impressive growth over the past five years. According to a recent report, 99% of companies use at least one SaaS solution to run their business, with 38% of companies stating that all their operational processes rely on SaaS platforms. The SaaS industry has been growing by 18% annually.
Importance of SaaS
Until the last decade of the past century, businesses relied on packaged software that was installed on their in-house systems. The following are some of the key factors that have contributed to the replacement of standalone in-house software by SaaS solutions:
- Many organizations have moved from traditional on-premises software to cloud-based SaaS solutions due to the scalability, flexibility, and cost-effectiveness offered by SaaS.
- Major cloud providers like AWS, Microsoft Azure, and Google Cloud have made significant investments in expanding their services, resulting in a more robust cloud infrastructure.
- SaaS providers are leveraging AI to provide advanced functionality such as predictive analytics, natural language processing (NLP), and machine learning (ML).
- SaaS providers are expanding beyond operating systems and platforms and empowering third-party developers to build and deploy their own applications on top of the SaaS infrastructure. This opens up new possibilities for innovation, customization, and cross-platform integration.
- SaaS providers are increasingly providing integrations with other applications and services, making it easier for users to connect and share data across different systems and platforms.
- Data security has become a top priority for SaaS providers, with a focus on providing leading-edge security features such as encryption, authentication, and access controls.
Rising SaaS Costs in 2023
While reports have shown that moving to a SaaS-based system can bring about a 16.1% reduction in IT maintenance costs, companies continue to worry about and be bogged down by rising SaaS subscription costs. As the economy faces another challenging year and businesses are cutting back, there have been concerns about runaway SaaS costs in 2023 and beyond. This is compounded by the fact that the SaaS inflation rate is 3.5 times higher than market inflation rates in the USA. Finances Online reports that in the United States, large SaaS enterprises hiked prices by an average of 7.9%, small companies by 6.3%, and mid-sized firms by 6.2% in 2022.
A recent survey revealed that 57% of IT teams are under pressure to reduce their SaaS spending, and this trend is expected to continue.
Some reasons for rising SaaS costs to companies include the following:
- Improper SaaS management can lead to wastage and overspending, causing unnecessary expenses.
- Mismanagement of licenses is a common reason for SaaS spending wastage.
- Failure to manage licenses of software used by former employees can lead to further budget wastage.
- Ad-hoc purchases of SaaS products can result in unmonitored spending and a loss of control over the budget.
- Lack of awareness and planning can lead to repetitive, last-minute purchases of similar SaaS products.
- Manual management of SaaS spending can lead to errors and oversights, making it difficult to track licenses and causing unnecessary expenses.
The importance of SaaS spend management
Effective SaaS spend management can minimize unnecessary expenses and maximize RoI on Saas Applications. SaaS spending includes the following:
- The procurement spend: The selection and acquisition of any SaaS subscription entail ensuring that the tool aligns with the needs, operational procedures, and budget of the business. Extensive analysis of the existing workflow and the placement of the SaaS subscription in the workflow must be performed in order to minimize the risk of buying a service that is superfluous or, worse, unnecessary to the organization. Pre-analysis can help businesses identify cost-effective and suitable SaaS tools to boost their productivity and profitability.
- Usage spends: The proof of the pudding, as they say, is in eating it. Effective SaaS spend management requires that the usage and performance of the SaaS application are continuously monitored and optimized to meet the needs of the business. Periodic assessment of its use, features, and RoI is essential to optimize its SaaS portfolio.
- Maintenance spend: Period reviews are essential to decide if a SaaS application justifies its presence in terms of RoI. Optimization of the SaaS tool requires consolidation of overlapping tools, allocating resources according to the needs of the business, and renegotiating/updating subscription contracts to eliminate unused features. Such optimization helps the organization make informed decisions on renewing, upgrading, downgrading or terminating subscriptions.
Ways to optimize SaaS spend
To create a successful SaaS spend management strategy, organizations need to take steps to understand their SaaS inventory, optimize their usage, and predict their future spending by extrapolating existing usage patterns and anticipating future needs. The following steps can help establish an effective SaaS spend management strategy:
- Maintaining an inventory of all SaaS applications in use across the company is essential to prevent duplication and unwanted purchases. Relying on manual spreadsheets or self-reporting may result in inaccurate and outdated inventories.
- Once the inventory is created, it must be pruned to eliminate all subscriptions that are unused, unnecessary, or redundant. This includes removing underused licenses, consolidating duplicate subscriptions, and trimming overlapping functionality to reduce redundant applications.
- Organizations can use data gathered from their SaaS system of record to forecast their future SaaS spend. This can be automated through a SaaS management platform, which continuously analyzes usage data and trends, providing insights to optimize spend.
SaaS spend management tools are software solutions designed to help organizations optimize their spending on SaaS applications. These tools provide real-time visibility into all SaaS purchases, usage data, and expenses. By automating workflows and providing data-driven insights, SaaS spend management tools can help organizations identify underutilized or unnecessary software, consolidate redundant subscriptions, and negotiate better deals with vendors. Some popular SaaS spend management tools include Zylo, Cleanshelf, Blissfully, Intello, and Genuity. These tools typically offer features like automated discovery, license optimization, spend tracking, and vendor management.
Nanonets offers state-of-the-art AI-based data extraction and automation solutions that can streamline SaaS spend management processes and improve data collection and analysis. Integrating Nanonets into your SaaS spend management strategy provides several benefits, including automated expense recognition and classification through AI-powered data extraction. This advanced technology helps eliminate manual data entry, reducing errors and saving time for your team. Nanonets' solution can be seamlessly integrated with existing financial and procurement systems, ensuring efficient data flow and coordination between platforms. Utilizing AI-driven analytics, Nanonets can help identify trends, predict future SaaS spending patterns, and uncover cost-saving opportunities to enable data-driven decision-making and optimize software investments. Nanonets' solution also provides comprehensive reporting and visualization tools that offer improved visibility of SaaS expenses and usage patterns, helping identify inefficiencies, monitor compliance, and align SaaS investments with the strategic objectives of the business.
Benefits of SaaS Spend Management
One of the most significant benefits of SaaS spend management is improved cost control and budget management. As the number of SaaS subscriptions within an organization increases, so does the complexity of managing their associated costs. SaaS spend management tools and strategies enable businesses to establish a clear overview of their SaaS expenses, helping them allocate budgets more effectively and identify areas for potential cost savings.
Another critical benefit of SaaS spend management is enhanced visibility into SaaS usage and spending. Without proper management, it can be difficult for organizations to keep track of the SaaS tools being used and the expenses incurred. SaaS spend management provides a comprehensive understanding of how SaaS tools are being utilized, which allows decision-makers to make data-driven choices and optimize their software investments based on actual usage patterns and needs. This level of visibility ensures that organizations only pay for the software they need and use, which can lead to significant cost savings over time.
Lastly, SaaS spend management enables better decision-making through data-driven insights. By systematically analyzing SaaS usage data and costs, organizations can uncover trends and insights that inform their software procurement, optimization, and renewal strategies. For example, analyzing usage data can help organizations identify tools that are no longer being used and can be discontinued, leading to cost savings. This data-driven approach to SaaS spend management helps businesses identify opportunities for improvement and make more informed decisions about their software investments, ultimately leading to more effective and efficient operations.
Conclusion
Effective SaaS spend management involves a comprehensive approach that includes conducting a thorough audit of SaaS usage, identifying and prioritizing critical applications, removing unused or redundant applications, consolidating licenses, and negotiating favorable contract terms with vendors. Additionally, optimizing SaaS usage through employee training, automated workflows, and subscription sharing can further reduce costs and improve efficiency. It is also important to choose the right SaaS applications by prioritizing business-critical applications, selecting flexible pricing plans, considering open-source alternatives, and avoiding unnecessary features. By implementing these strategies, organizations can achieve significant cost savings and improve their overall SaaS management practices.
