Today you would be hard pressed to find a major company not using software-as-a-service (SaaS) products. From Zoom for video conferencing, to Microsoft Office’s suite of Office products, to Zendesk for support, to Salesforce and Hubspot for sales and marketing, to Slack for communication, etc. it is clear that SaaS is now embedded in companies small and large. According to BetterCloud, companies estimate 70% of the business apps they use today are SaaS-based.
In fact, many experts agree that in 2021 organizations worldwide were using an average number of 110 SaaS applications across the organization.
Back when contracts were smaller, instances weren’t distributed across the organization at large, and SaaS itself fell into a “technical” bucket, it seemed to be safe in the purview of the CIO and their team. Today though, SaaS is big business - and a big budget line item.
As such, CFOs are no longer SaaS outsiders, bewildered by a web of terminology and technology. They’re working hand in hand with the CIO to make technology investment decisions. They’re planning, reconciling and paying the bills while partnering with internal stakeholders and the vendors to see what is needed, and what might not be. Knowing that their business resources are finite, they’re looking into what is working, and what isn’t, with SaaS purchases.
The savvy CFO is asking, “Do we need what we’re buying?”
SaaS companies usually sell their services to a company through a recurring subscription model, based on the number of users. As such, oversubscription happens. And with oversubscription comes overpayment.
Many companies are overspending on SaaS applications due to platform redundancies, the pernicious auto-renews that are often overlooked, or by simply not negotiating the best terms (or at all).
How can we optimize?
Luckily, there are some great SaaS management companies out there that CFOs can leverage to get visibility into their SaaS spends. Essentially, these tools help to provide insights and visibility into what was previously chaotic and obscured.
SaaS management has been defined as, “the business practice of discovering, optimizing, and governing an organization’s software-as-a-service (SaaS) applications to control spend, reduce risk, and improve the employee experience.
This includes gaining visibility into an organization’s entire SaaS portfolio and establishing a single system of record, optimizing SaaS licenses and subscriptions, rationalizing your portfolio, managing renewals, and ensuring compliance and governance of SaaS applications.”
It stands to reason that as the CFO tries to understand spend, they also are trying to understand what they are spending - where - and for what. Here’s where usage comes in.
Isn’t there a better way to pay?
Companies that have looked into their SaaS spends often find inefficiencies, overpayments, or underutilization. It is enough to make one ask: isn’t there a better way to pay?
There is. There is emerging consensus that usage, or consumption-based billing, is better than standard subscription billing - for companies on both sides of the transaction.
With usage based pricing approach, CFO’s:
• Contract for SaaS service on pay as you go model instead of upfront model
• Simplify procurement and contract amendment process to change the number of users (increase or decrease)
• Get visibility into actual usage and identify opportunities to optimize their costs…
• Bring internal accountability within the teams (buy what is needed and used)
Assess Value, and Ask for Better Terms
There are a number of specific actions you can take today to reconcile your SaaS contracts and improve your spend, all while reducing costs and increasing usage.
1. Assess your cloud/SaaS services and assign each a value. You’ll want to do this in concert with your IT leader, legal, and any stakeholders using the software itself.
2. Ask your vendors for service usage reports and metrics around usage adoption - who is using what, when, and how?
3. Revisit the contracts where usage is low and move into a pay-as-you-go model or a commitment + overage model. Importantly, for your most used services, explore an enterprise agreement approach, versus per user model.
4. If multiple services from same vendor are used, request a Virtual token model, which can be used for any consumption across the services.
5. Consolidate individual contracts by different groups in the company. Pooled model. (Groupon).
6. And, finally, leverage ramp-based usage adoption contracts. e.g. year one 1-100, year two 101-200, year three 201-300, etc.
Murali Saravu is the founder and CTO of Monetize360, a technology company that makes deploying even complex billing and pricing scenarios simple, affordable and fast. Monetize360 was inspired by Murali’s 20+ years spent architecting robust billing platforms at enterprise organizations as wide ranging as Cable &Wireless, Cisco, and Intuit. In addition to leading the technical team at Monetize360, Murali educates the market on the value of turnkey automation solutions.
Murali Saravu, founder and CTO, Monetize360
