SaaS spend management: Get better ROI for your expenses

To bring control to this spend chaos, businesses are now implementing a comprehensive SaaS spend management system which has become a critical part of organisations today. They can track their SaaS investments, eliminate unused licences, improve supplier negotiations, enhance budgeting and obtain clarity between spending and gaining of their SaaS transactions. Let’s discover more through this blog.

What is SaaS spend management?

SaaS spend management refers to managing and optimising business spending related to SaaS applications. t involves several key strategies, including centralising visibility, optimising license usage, cost controlling, automating renewals and returns, improving supplier management and ensuring compliance. The goal of it is to create a strategic approach to business spending to drive better ROI, reduce financial risks and enhance business outcomes.

Spend management challenges in SaaS 

SaaS spends can spiral out of control when not managed effectively. This can lead to issues such as hidden costs, compliance risks, and budget overruns that threaten businesses’ financial stability. For finance teams, it’s extremely complicated to devise cost-effective strategies with a fragmented SaaS spending setup. Here are some of the key challenges businesses may face while managing their SaaS spend: 

Inconsistent contract management  

Inconsistent contract management means the absence of structured and centralised processes in handling procurement contracts. It occurs when different teams follow different procedures, tools and guidelines for managing contracts. Many businesses make the critical mistake of managing their contract lifecycle without a dedicated software tool. This delays the procurement approvals, including but not limited to budget allocation and purchase orders. Inconsistent contract management also leads to missed opportunities to renegotiate terms and secure bulk order discounts. These activities collectively hinder a streamlined SaaS spend management approach in several ways: 

Lack of licence utilisation visibility: Absence of license tracking results in direct budget waste from unused or underutilised licences 

Missed SLA refunds and penalties: Businesses are entitled to credits or refunds if disruptions occur in SLAs (service level agreements) from suppliers. With a lack of consistent tracking, they miss out on recovery costs and unwantedly accept sub-par supplier performance 

Contract disputes: Improper contract management causes undesired disputes which include the scope of pricing and termination clauses. Such scenarios bring unexpected legal costs which is again a financial burden and a disturbance to streamlining SaaS spend management  

Vendor Lock-In  

In procurement, SaaS vendor lock-in can occur due to perpetually long legacy contracts with a supplier, proprietary integrations, and data portability restrictions.  Such processes may cause overdependence on a single SaaS supplier, making it difficult to switch to other suppliers even when alternative and better options are available.  

Shadow IT  

Shadow IT refers to the purchase and usage of SaaS applications without the explicit approval of IT departments. According to Torri, nearly 69% of tech executive identified shadow IT as their top security concern. It creates security gaps like breaching GDPR compliance and expose of sensitive business data, such as user information from the procurement portal, invoice details of product purchases, and financial contract details. These breaches not only result in heavy penalties but also reputational damage to businesses. When left unchecked for a long time, shadow IT causes sudden snowballing of increased operational costs due to unchecked and automated renewal subscription costs associated with the usage of such SaaS applications. 

Lack of spend categorisation

When SaaS spends are not clearly segregated by functions, tools and departments, it hinders clear visibility for the procurement and finance teams to understand where the money is being spent. Such situations cause problems such as:  

• No identification of high-spend SaaS applications and therefore missed opportunities to analyse and optimise costs  
• Lack of justification for upgrades and renewals of useful SaaS applications 
• Cost burden due to undetected duplication of same functioning SaaS applications  
• No bargaining power due to supplier sprawl  
• Increased reactive procurement and hence increased possibility of financial risks instead of strategic procurement practices  
• Weak accountability 
• Lack of category-wise ROI tracking,, which results in weak decision-making on category-wise spend budgeting  

Disconnected procurement and operations 

The disconnect between procurement and operations is one of the most common challenges in business functioning and it leads to multiple negative financial impacts. The significant disadvantage in this realm is purchasing inefficiencies. This occurs because procurement and operations use different platforms that do not provide real-time insights into stock levels and consumption rates. Therefore, procurement decisions are then made based on incomplete and outdated data, which leads to drawbacks such as: 

• Stockouts: It leads to missed customer orders and emergency purchases at an escalated price  
• Excess inventory: This causes higher holding costs which leads to budget drains  
• Inadequate financial forecasting:  Financial forecasting becomes siloed due to outdated data, leading to inaccurate purchasing demand. This results in misallocated spending.  

Benefits of SaaS spend management 

After knowing the challenges associated with siloed SaaS spend management, know how a comprehensive SaaS spend management system in place can help businesses achieve operational, financial and strategic advantages. Below are some key benefits of it: 

Enhanced supplier relationships

SaaS spend management plays a critical role in enhancing supplier relationships in the procurement process by creating a transparent and centralised supplier ecosystem. With a complete view of all supplier activities including renewal timelines, contractual terms, communication history and performance reports, businesses can better recognise suppliers’ contribution to a successful procurement process. Additionally, such visibility also supports mutual accountability during compliance authoring, which helps both parties to bolster business and supplier relationships along with engaging in long-term and trusted partnerships.

Improved compliance 

Implementing SaaS spend management software supports compliance by assisting transparent mechanisms like centralised supplier information management which ensures an adherence to compliance regulations. It centralises supplier data like legal entity details which are important to ensure that suppliers involved meet regulatory compliance like  Compliance Act 2006 regulations. This practice elevates risk management. 

Better ROI 

A robust spend management software allows businesses to conduct real-time licence utilisation audits. With this, they can compare their license counts with active users. Businesses can then identify underused licenses, flag non-performing licenses and dislocate them. Through this method, they can get instant savings and ROI outcomes, reduction in cost per user metric and improve license planning for renewals. 

Additionally, another way where businesses can elevate their ROI is by optimising supplier contracts through performance reviews. This is done using spend analytics obtained through spend management software. Businesses can align spend and supplier performance KPIs, such as satisfaction scores and business impact. With this they get objective data to measure supplier's performance against business spending, enabling strategic decisions. These decisions could be supplier switching, downgrades and renewals. In this way, business ROI can see positive results in the following ways: 

• Business can increase value by maximising partnerships with top-performing vendors  
• Steer clear from vendor lock-ins 

Growth opportunities 

As mentioned earlier, spend management software provides real-time visibility into software usage, contract terms and conditions and costs associated with SaaS spending within a centralised setup. It helps procurement teams to make proactive decisions with businesses’ expansion and growth. This includes renegotiating contracts with suppliers and obtaining bulk discounts which help them to grow. 

Adaptability 

Adaptability is critical in a dynamic business world and so businesses need to adapt to changing procurement needs quickly to stay ahead of their competitors. Real-time dashboards and usage insights of  procurement SaaS tools are crucial in this realm. This important data is provided by a comprehensive SaaS spend management software. With this, procurement and finance teams can quickly respond to situations like the need for budget shifting towards high-impact SaaS tools due to market demand or volatility. 

How to optimise SaaS spend management 

With several benefits that a powerful SaaS spend management provides, today businesses must integrate SaaS spend management software. It will help them to effectively manage and optimise their spending and gain long-term business benefits. To obtain these, consider the following practices:  

Remain proactive 

Remaining proactive in procurement operations equips businesses with powerful spend analytics like the ROI with each supplier. This enables them to quickly decide whether to approve or decline the contract renewals. Moreover, they never miss out on important contract renewals with the help of reminders provided by software like  help of reminders provided by software like OneAdvanced spend management. As per Zylo, renewals account for 85% of total SaaS spending, with an average of 247 renewals yearly. The data-backed decision on whether to continue or decline contract renewals ensures that the business spending is not based on a whim or incomplete information. 

Build strategic sourcing  

A crucial practice to optimise business SaaS spends is  strategic sourcing, which includes operations such as selecting preferred suppliers based on their performance, having competitive bidding before selecting the supplier, demand forecasting, and bolstering sustainable practices for businesses. It also supports building stronger relationships with suppliers through smooth onboarding and transparent supplier engagement. This way, businesses take a step in enhancing their operations ahead and even ensure that chosen suppliers are aligned with their goals.  

Implement supplier management software 

To optimise SaaS spending, today a comprehensive supplier management software  is a pre-requisite for businesses. It facilitates enhanced SaaS spend management and bolsters business with the following:  

• Real-time data on contract health to proactively mitigate supplier risks like non-compliance to regulatory standards 
• Supplier performance assessment for full visibility of supplier performance to improve service quality and ensure that the money is spent on the right supplier   

There are many more benefits of implementing supplier management software which elevates spend management. . Explore OneAdvanced supplier management software to delve deeper. 

Best tool for SaaS Spend Management  

Managing SaaS spending requires robust software that offers complete spend visibility and strategic insights. At OneAdvanced, we offer our customers with these capabilities through our OneAdvanced spend management software. It equips your procurement and finance teams with the following features:  

• Complete visibility into SaaS subscriptions, renewals and contract information 
• Links spend outcomes with strategic values which strengthens supplier relationships. 
• Ensures regulatory compliance alignment of suppliers with built-in governance like GDPR  
• Automates contract lifecycle which provides renewal alerts  
• Identifies unused SaaS subscriptions and optimise spends  

There are other benefits which OneAdvanced spend management software provides to businesses. Whether you are a growing startup or an enterprise, OneAdvanced supports all. Explore OneAdvanced Spend Management software and see how a robust software oversight will bring better financial performance to your business.