spend management

How much is your company wasting on unused SaaS tools?

January 28, 2020

Without careful spend management, staying in control of these cloud tools—financially and operationally—can be a major challenge.

Global company spending on public cloud services and infrastructure is predicted to more than double from US$229 billion in 2019 to nearly US$500 billion in 2023, according to the Worldwide Semiannual Public Cloud Services Spending Guide by IDC.

This growth will be driven by the surge in adoption of public cloud services, with an increasing number of enterprises in the telecoms, retail, and professional services industries moving from traditional application software to software-as-a-service (SaaS).

But with all that money being spent by businesses on the cloud, there are bound to be inefficiencies that lead to cloud and SaaS overspending. The average mid-sized company subscribes to 32 SaaS vendors, each running their own separate bills. Without careful spend management, staying in control of these cloud tools⁠—financially and operationally⁠—can be a major challenge.

Cloud overspending more common than you think

True enough, according to the results of a 2019 survey by Cloudability, 58 percent of respondents said they overspend on cloud resources; of those, 69 percent said they overspent by up to 25 percent more than their budget.

Sure, spending more money than necessary is bad enough for any business, but the consequences of poor cloud spend management go beyond blown budgets. Cloudability also found that cloud overspending leads to the following negative impacts:

  • Stifles cloud adoption - 53 percent of respondents said the absence of a process for managing how cloud resources are used and budgeted for can grind cloud adoption to a halt.
  • Cripples innovation - 25 percent said poor cloud spend management placed their ability to innovate with cloud resources at risk.
  • Lowers quality of service - 38 percent saw poor cloud usage straining their service levels.
  • Vendor sprawl - Poor cloud vendor management leads to over and under-provisioning of cloud resources—a problem experienced by 40 percent of respondents.

With all that being said, how can companies ensure they aren't overspending on SaaS and other cloud resources?

6 ways to fix your SaaS overspending

Do your homework

The first thing you can do to rein in your SaaS spending is to do your due diligence when procuring new cloud services.

If you’re already eyeing a few vendors, take the time to understand each provider’s pricing model. In particular, you want to be on the lookout for hidden charges and fees for things like API calls and other transactions. Compare these charges between vendors to get the full picture of what you’re signing up for.

When it comes to the SaaS platforms you’re already using, identify the services that contribute the most to your monthly business expenses. It’s a good idea to bring in your team and management to rationalize your spending on certain services and to identify opportunities for optimization. What does a package really offer, and is it worth it to subscribe to the more “premium” offer?

Understand your SaaS needs

When it comes down to it, effective cloud spend management often boils down to proper monitoring. This, in turn, starts with an audit of the cloud services you’re consuming and spending on.

Start by listing down all the different SaaS resources in your records, such as cloud instances, and load balancing, as well as SQL and NoSQL services. Again, you’ll want to rationalize each service by looking at its benefit-cost ratio—basically, if its benefits justify the monthly expenditure.

This should be a simple affair if you can identify services with predictable usage and demand patterns, at which point it’s just a matter of taking these costs and shopping around from one vendor to the other.

Create a records system of your subscriptions

Larger organizations tend to suffer from the problem of having orphaned and duplicate SaaS subscriptions. According to a Blissfully report, 71 percent of companies have at least one subscription with no billing owner. Meanwhile, organizations with more than 1000 employees tend to have 12.5 duplicate subscriptions.

Poor visibility of these products tends to be the culprit behind duplicate and orphaned subscriptions. While tools like Blissfully and Trello can help you stay organized, creating your own records system is just as effective (and it’s free). Try to organize your subscriptions and include the following details for each tool:

  • Stakeholders
  • Current monthly spend
  • Contract renewal dates and expected spend upon renewal
  • Vendor rep contact information
  • Overview of function and usage

This may seem too simple, but being consistent and systematic about organizing your SaaS usage goes a long way towards preventing product overlap and tracking expenses

Shut down auto-renewal

Another problem stemming from poor visibility is subscription renewals happening without your knowledge. As you create the records system of your SaaS subscriptions, be sure to spend time going each product’s contract renewal date, making a point to turn off auto-renewal by emailing your sales representative or account manager.

It’s also a good idea to give yourself a notice period of 90 days before the contract expires; this should give you time to evaluate the service and consider an alternative product, if necessary.

Shoot for multi-year contracts

Products that get high levels of use or serve as the backbone of critical infrastructures, such as Amazon Web Services (AWS), are going to be used year after year. You should consider a long-term partnership with these providers to leverage economies of scale.

Alternatively, if multi-year agreements are not an option for your company, you can also negotiate caps on contract renewals to ensure rates will increase within a range you can prepare and budget for.

Organize your payment methods

Many enterprise decision-makers pay for SaaS using their personal credit cards. The danger here is that using a personal card for a SaaS subscription and other business transactions for that matter can make reporting murky down the line, defeating any efforts of improving product visibility within your organization. In addition, you may be overpaying on something you could've canceled earlier.

One way to consolidate any and all payments for SaaS subscriptions is by using an automated corporate card like Spenmo, which can be distributed to your staff in the form of personal company cards. You can even allocate specific funds according to different teams and spending policies to improve control and visibility over your corporate spending.

Bringing it all together

While effective SaaS spend management can seem like an exercise in pushing the boulder up the hill, the benefits of improved cloud utilization, high quality of service, and—to top it all off—dollars saved each year, are well worth it. And as the world moves increasingly towards the cloud, organizations that embrace best practices can better set themselves up for success.

For your SaaS and cloud resources transactions, use Spenmo. Spenmo is a spend management platform with smart corporate cards designed to help businesses gain control and visibility over their spending. Book a demo today to learn more.

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