According to Gartner, an estimated 30% of the $102 billion spent on SaaS in 2020 is not even being utilized! One company researched this so-called “SaaS sprawl” and found that businesses have, on average, 600 SaaS subscriptions — much more than most of them actually end up using.
Managing how much money you’re spending on SaaS forms part of what’s referred to as Technology Value Optimization (TVO). This process aims to avoid waste, mitigate security threats, and cut costs. So what exactly is Spend optimization, why does it matter, and how can you use it for the benefit of your SaaS business?
Spend optimization is when businesses focus on reducing the number of SaaS apps and services they use. They do this to ensure the products they pay to use are the best fit for their organizations and encourage canceling any product subscriptions that are over-licensed or under-utilized to save money. The TVO helps with SaaS cost optimization, offering businesses an opportunity to cut unnecessary expenses while retaining the value their most relevant SaaS products bring them.
There are 4 key reasons why it’s worth focusing your attention on SaaS optimization and figuring out exactly what you’re spending on your SaaS usage.
By eliminating duplicate software, you can help your employees use the most appropriate tools when it’s relevant to them. All companies should identify the SaaS products that best suit their business needs. Monitoring adoption and encouraging collaboration on software across various teams are key in this process. Obviously, removing duplicate software improves efficiency and reduces costs.
To be truly successful at spend optimization, you need to understand the importance of each piece of software you subscribe to. To do this, view reports and track spending and usage data regularly for the apps and services you subscribe to. This feedback can help you prioritize the benefits of the tools you use to buy and renew software subscriptions.
With complete visibility into your SaaS licenses and spending, it should also become easier to track when employees are using apps they shouldn’t be using. You’ll be able to add and remove software users as required, significantly reducing security risks and unwanted user access, as well as reducing costs.
Ultimately, SaaS spend optimization is about reducing costs. With the right processes in place, you’ll be managing and controlling your software spend, identifying waste from unused software, and dealing with unused or underutilized SaaS apps. If done correctly, the optimization of accounts and licenses can lead to a significant reduction in your overall SaaS spending costs.
The first step in optimizing your SaaS spending is taking stock and creating an inventory of your expenditure. Visibility is key.
The inventory should include the number of user licenses, contracts, and all expenses incurred. It’s important to know what your business is using and why.
This first step will help you make informed decisions on optimizations in the future.
To achieve spend optimization, you need to keep a close eye on your SaaS usage. If you have a large business with many different types of software and subscriptions, your SaaS needs and spending may change frequently. We recommend conducting an audit every few months to ensure you’re using all your SaaS applications effectively and that you still require them.
Set priorities to keep your focus clear when starting your spend optimization process.
The easiest way to do that is to prioritize applications by:
➡️ The total investment or spend
➡️ The renewal date
➡️ The number of users
➡️ The business function or value
Focusing on the most expensive SaaS applications will make for the quickest cost reduction.
Always review apps before their renewal date to ensure you are not locked into costly or unnecessary subscriptions. The more users an app has, the more likely it is that employees aren’t using it or are not using it to its total capacity. Check in with users to see if there is an actual need for them to have a license.
Lastly, some apps are integral to a business’ functioning, while others are less essential. By following these steps, you will understand that each app’s business value compared to its total cost is the key to spend optimization.
When aiming to optimize your SaaS spending, decide your ideal utilization rate. Perhaps your business is using 70% of your SaaS licenses. We recommend setting a goal for SaaS utilization — while 90% seems like a very high percentage, it is achievable for many businesses.
The gap between your current and goal usage is where you should focus your energy when analyzing your SaaS spend. Work with your newly identified, priority products first, as they’re the most costly or the most valuable.
The ultimate goal should be to improve your utilization percentage to 90%. This will lead to significant cost savings, ultimately benefiting your business and allowing you to make better use of your funds.
Explore the complete list of SaaS spend optimization steps and learn how your business can benefit from it on PayPro Global’s blog.
ActiveCampaign is a marketing and sales automation platform that helps growing businesses meaningfully connect and engage with their customers. Its SaaS platform enables businesses to create optimized customer experiences by automating many behind the scenes processes and communicating with their customers across channels with personalized messages.
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