6 ways to combat rising SaaS and cloud spend

Our Q2 edition of SaaS and Cloud Spend Unwrapped showed that rising software costs are continuing to eat away at the bottom line. So what can companies do to mitigate this worrying trend? 

We outline 6 key actions you can implement to get ahead of the game and maximize the value of your tech stack.

SaaS contracts: How to spend smarter 

Prices are still increasing, meaning that you’ll need to absorb a bigger cost than 12 months ago. But you can mitigate this as much as possible by having a lean, consolidated tech stack and contracts that are right-sized and fitted to your needs.

Understand what you're spending

SaaS buying decisions are increasingly decentralized across departments, which leads to the purchase of unnecessary licenses and duplicate software tools. 

Without central oversight, it’s easy to get stuck with auto-renewing contracts or unknowingly agree to price-uplift clauses, which allow vendors to adjust their fees without consultation. 

A centralized system will help you to monitor any adjustments to your contract pricing or terms, otherwise you risk losing track of rising costs and overspending on your vital SaaS contracts.

Right-size, not bitesize

Over-provisioning is one of the top culprits for runaway SaaS spending. It’s common for companies to introduce new tools that simply aren’t used, or to outgrow a usage tier and get stung with higher rates. 

To combat this, use contract renewals as an opportunity to negotiate the best possible deal. We  recommend preparing 6-8 months in advance of the renewal date by familiarizing yourself with the contract terms and arming yourself with as much usage data as possible. 

Right-sizing isn’t just about ‘seats’ – look at product features that your teams don’t use. Eliminating these when re-negotiating may drop the overall price, meaning you’re not paying for something you don’t use.

Remember that saving on SaaS doesn’t just mean  aggressively cutting features and seats. If you’re too restrictive, you lock yourself into a contract whereby teams cannot effectively undertake their working requirements, and that ultimately restricts business growth.

Look at your pricing model

Most vendors (54%) charge per user, which is easier to manage. Many others use a consumption/usage metric to calculate costs. Whilst strict usage control could save costs, many contracts will include pre-agreed minimum limits and charges, regardless of usage. Plus, if you need to scale in the contract period, you’ll be paying a lot more.

Use price benchmarking data

One of the most effective negotiation strategies is knowing what the ‘pricing benchmarks’ are for a particular service and what a typical discount looks like. If you can seek out several different price points or quoted figures from a vendor’s competitors, they will be more likely to provide a counter-offer to ensure your business.

Quoted prices can vary wildly — we have seen examples of disparity so extreme that two separate companies were respectively paying $50,000 and $13,000 for nearly identical software subscriptions.

Pricing benchmarks are notoriously difficult to get hold of, which is why companies increasingly work with a SaaS purchasing expert who has extensive data points and existing relationships with vendors.

Cloud discounts your company might be missing

Whilst YoY spend for cloud services is increasing, there seems to be more of a focus on integrating various discount methods - including Savings Plans and Reserved Instances. 

However there are still significant savings opportunities being missed by customers.

Upgrade your instances

Many companies stick with the same instances over a long period of time, which can  incur higher costs. Cloud service providers generally prefer customers to use the latest instances and  tend to offer competitive prices to encourage customers to switch to more modern versions. 

At the same time as upgrading your instances, we recommend attaching discount commitments  in the form of Savings Plans and Reserved Instances. This will give you a double cost-optimization benefit - cheaper instances and discounted rates.

Invest in cloud financial management tools

A common headache for companies is the complexity of managing cloud costs. It’s not surprising, then, that in Q2 2024 we saw a 50% jump in investment in cloud financial management tools when compared to Q1. 

As cloud cost optimization becomes a more important strategic priority, businesses should think carefully about which cloud tool is going to put them in the strongest possible position to take action. 

Some platforms might offer  insights into resource usage and spending, but fail to display the information in a clear and accessible way for non-technical leaders. Look for a tool that will enable both finance and tech employees to spot and implement optimization improvements. 

Once you have this insight, you can work with engineering to establish how any optimizations can be implemented - without risking your cloud performance. 

Dive into the full data 

Our quarterly report lifts the lid on the latest SaaS and cloud spending trends, data insights and spending patterns. As a CFO, it equips you with the most up to date information to make the best decisions about your company’s technology. 

‍Absorb the data today and get ahead of the game.