Master SaaS spend optimization
and save big on software

Imagine pouring thousands of dollars into apps that your team barely uses. Absurd? It’s a reality for countless companies grappling with SaaS management. 

The truth is, while SaaS applications have improved our work, they’ve also opened a floodgate of unnecessary expenses. What if you could turn your SaaS spend from a drain on your budget into a well-oiled machine of efficiency and value? 

This guide isn’t just about cutting costs. It’s about empowering your organization to make smarter, more strategic decisions. By optimizing SaaS spend, you’re not just saving money—you’re paving the way for greater agility, innovation, and growth. Let’s dive in.

Benefits of SaaS spend optimization

SaaS has become a cornerstone of modern business success, but its widespread adoption brings new challenges, particularly in financial management. Before diving into specific strategies, it’s crucial to understand why optimizing SaaS spend is essential.

Enhanced cost visibility

With dozens—or even hundreds—of SaaS subscriptions, it can be challenging to track spending and assess whether those expenses are truly justified.

Eliminating Shadow IT

Unfortunately, in an average company IT departments hardly manage one-third of apps and overall software spending. This means employees regularly subscribe to SaaS platforms without IT’s knowledge or approval, leading to redundant or unauthorized expenditures.

Identifying unused or underused licenses

On average, companies utilize only about half of their SaaS licenses, leaving the rest untouched—a clear area where spending can be optimized.

Mitigating price increases

According to the SaaStr survey, 73% of SaaS companies were planning to raise prices in 2024, it’s vital to monitor these changes closely. If unnoticed, these price hikes can quietly inflate your budget.

Optimizing SaaS spend means tackling these challenges head-on, implementing strategies that ensure cost efficiency, and aligning expenditures with business objectives.

Conducting an audit to optimize your SaaS

The first step in optimizing SaaS spend is gaining complete visibility into your current SaaS usage and costs. This requires conducting a thorough audit of all SaaS applications across your company. Here’s how to do it:

Create a centralized SaaS inventory

Start by creating a centralized inventory of all SaaS subscriptions. This inventory should include both company-wide tools and those specific to departments or teams. Key details to capture include:

• Application Name
• Vendor
• Number of Licenses
• Monthly/Annual Cost
• Renewal Dates
• Assigned Users/Teams
• Contract Terms

You can use spreadsheets to track this information, yet it is much more efficient if you use SaaS management tools, like Spendbase, for this.  Make sure to regularly update the inventory to reflect any changes in usage or subscriptions.

Identify redundant and unused applications

Once your SaaS inventory is in place, analyze it to identify redundant or underused applications. Redundant tools are those that offer similar or overlapping functionalities, while underused applications are those with licenses that aren’t fully utilized.

Consider these steps:

• Survey Teams: Ask teams about their usage of each application to determine whether the tool is essential or if there’s a better alternative.
• Review Usage Data: Many SaaS platforms provide usage analytics. Use these insights to identify applications that are rarely or never used.
• Consolidate Tools: Where possible, consolidate multiple tools into a single application that offers similar features.

Assess application value

Not all SaaS tools are created equal. Evaluate the value of each application based on its impact on your business. Consider the following:

• Business Impact: How critical is the application to your daily operations? Does it directly contribute to revenue generation or cost savings?
• User Satisfaction: Are employees satisfied with the tool, or do they find it cumbersome and inefficient?
• Alternatives: Are there more cost-effective alternatives that offer similar functionality?

Based on this assessment, prioritize which applications to keep, downgrade, or eliminate.

Negotiating with SaaS vendors

Once you have a clear understanding of your SaaS inventory and its costs, the next logical step is negotiating better terms with your SaaS vendors. Here’s how to do it effectively:

Optimize your SaaS through purchasing power

If your company is a long-time customer or you hold multiple licenses with a vendor, use this to your advantage. Vendors value loyalty and volume—they’re often willing to offer discounts to retain valuable customers. Don’t be afraid to ask for a better deal.

Lock in savings with multi-year contracts

If you’re confident that a particular SaaS tool will be essential in the long run, consider negotiating a multi-year contract. Vendors typically offer discounts for longer commitments, allowing you to lock in lower rates and save over time.

Bundle products for bigger discounts

If a vendor offers multiple products that your company uses, explore bundling them into a single contract. Bundling often results in lower overall costs compared to purchasing each product separately. Plus, it simplifies vendor management.

Time your negotiations wisely

Timing is everything. Aim to negotiate contracts at the end of the vendor’s fiscal quarter or year. Vendors are often more motivated to offer discounts during these periods as they work to hit their sales targets.

Scrutinize contract terms

Before renewing or signing new contracts, review the terms with a fine-tooth comb. Watch out for automatic price increases or clauses that might not serve your interests. Negotiate for flexibility—ensure you can adjust the number of licenses as your needs change.

Implementing SaaS spend management tools

Managing SaaS spend manually is not only time-consuming but also prone to errors—especially in larger organizations. SaaS spend management software can automate much of this process, making it easier and more accurate. Here’s how these tools can help.

Centralized management

SaaS spend management platforms offer a centralized dashboard where you can see all your SaaS subscriptions, costs, and usage data in one place. This visibility makes it easier to quickly spot areas where you can optimize spending.

Automated license management

These tools automatically track license usage and send alerts when licenses are underutilized or approaching renewal. This way, you can take proactive steps to eliminate unnecessary costs before they add up.

Cost allocation and reporting

Many SaaS spend management tools include features for cost allocation and reporting, enabling you to attribute SaaS expenses to specific departments or projects. This capability is crucial for budget planning and ensuring accountability in SaaS spending.

Contract management

These platforms also store and manage SaaS contracts, alerting you to upcoming renewals and reminding you to review terms before auto-renewals kick in. This helps you avoid unexpected cost increases and ensures you’re always on top of your agreements.

Rightsizing SaaS licenses

Over-provisioning SaaS licenses is a common issue that can quickly lead to unnecessary costs. Rightsizing your SaaS licenses means aligning the number of licenses with actual usage. Here’s how to do it:

Analyze spend and usage patterns

The average company wastes $18 million annually on unused licenses—a figure that’s grown by 7% year over year. Use data from your SaaS audit and management tools to analyze how licenses are being used. Identify any licenses that are inactive or underused, and consider reducing or reallocating them.

Implement user-based licensing

Some SaaS vendors offer user-based licensing models, allowing you to pay only for active users. If this option is available, consider switching to reduce costs associated with inactive licenses.

Conduct regular license reviews

Establish a regular schedule for reviewing SaaS licenses—quarterly or biannually. SaaS vendor spending management ensures your license allocation remains aligned with your organization’s needs and that any changes in staff or workflows are accounted for.

Encouraging responsible SaaS usage

Optimizing SaaS spending is crucial, but it’s equally important to foster a culture of responsible SaaS usage within your company. Here’s how to encourage mindful usage:

Educate employees on costs

Make sure employees understand the costs associated with SaaS tools and how unnecessary spending impacts the company’s budget. When employees are aware of the financial implications, they’re more likely to use SaaS tools responsibly.

SaaS spend management and approval process

Create a clear approval process for new SaaS purchases that involve IT, finance, and relevant department heads. This ensures that any new tools are both necessary and cost-effective before they’re added to your tech stack.

Monitor for shadow IT

Shadow IT—when employees subscribe to SaaS tools without IT’s knowledge or approval—can lead to redundant spending and security risks, especially when applications are purchased outside of standard procurement protocols. Use monitoring tools to detect unauthorized software subscriptions and bring them into the formal approval process.

Promote consolidation of tools

Encourage teams to consolidate SaaS tools whenever possible. For example, if multiple teams are using different tools for similar purposes, explore whether a single tool can meet the needs of all teams. This approach reduces redundancy and helps lower costs.

Planning for future SaaS needs

As your organization grows and evolves, so will your SaaS requirements. Planning ahead is key to maintaining optimized spend. Here’s how to stay ahead of the curve:

Forecast SaaS usage

Collaborate with department heads to forecast future SaaS needs based on upcoming projects, anticipated growth, and changes in workflows. This proactive approach helps you plan your SaaS budget more accurately and avoid unexpected expenses.

Stay informed about market trends

Keep an eye on trends in the SaaS market, including new products, pricing shifts, and vendor consolidations. Understanding these trends positions you to make informed decisions about which tools to invest in and when to negotiate new contracts.

Build flexibility into your contracts

Negotiate contracts that allow for flexibility as your needs change—whether scaling up or down. This ensures you’re not stuck paying for more licenses than you need, or scrambling to add licenses at a higher cost during peak periods.

Measure SaaS spend optimization success

To ensure your SaaS spend optimization efforts are paying off, it’s crucial to measure success. Here are the key metrics to track.

Cost savings

Calculate the total cost savings achieved through your optimization efforts—whether it’s by reducing redundant tools, rightsizing licenses, or negotiating better contract terms. This figure is your bottom-line indicator of success.

License utilization

Monitor the percentage of active licenses versus total licenses. Higher utilization rates mean your licenses are being used efficiently, ensuring you’re getting the most value from your investments.

ROI on SaaS investments

Assess the ROI of each SaaS tool by comparing its cost to the benefits it delivers, such as increased productivity, revenue growth, or cost savings. This helps you determine which tools are truly worth the investment.

Employee satisfaction

Gauge employee satisfaction with the SaaS tools in use. High satisfaction levels indicate that the tools are meeting their needs and contributing to their productivity—key factors in justifying continued investment.

Optimize your SaaS with best practices

Optimizing SaaS spend isn’t a one-time task—it’s an ongoing process that demands continuous monitoring, analysis, and adjustment. By implementing the strategies in this guide, you can maximize the value of your SaaS investments while minimizing unnecessary expenses:

Regularly audit your SaaS subscriptions

Conduct regular audits to identify underutilized or redundant services. This allows you to make informed decisions about consolidating or eliminating unnecessary software, which directly reduces overall costs.

Establish clear policies for SaaS procurement and management

Create and enforce policies that ensure all software acquisitions are justified and align with your company’s needs. This helps prevent wasteful spending and keeps your SaaS portfolio aligned with your business goals.

Negotiate effectively with SaaS vendors

Engage in meaningful discussions with your SaaS vendors about pricing tiers, volume discounts, and long-term commitments. Effective negotiation can lead to significant savings.

Invest in SaaS management tools

Consider investing in SaaS management platforms or cost optimization tools to gain greater visibility into your software spend. These tools can help you track usage, manage licenses, and identify areas for cost savings.

Train your team to maximize SaaS value

Ensure your team is well-trained in using SaaS applications and fully understands their features. Maximizing the value of each tool starts with knowledgeable users.

In essence, a proactive approach to SaaS spend optimization not only enhances your financial management but also supports strategic decision-making and operational efficiency.