SaaS Cost Optimization Strategies

With software now accounting for 12.5% of an organization's total spend, it’s clear that companies have become increasingly reliant on these SaaS solutions to drive both productivity and innovation.

But as SaaS adoption grows, so does the complexity of managing these subscriptions and their associated costs.

In this guide, we’ve explored effective strategies for SaaS cost optimization, helping organizations maximize their ROI without compromising on the tools that are necessary for success.

Understanding SaaS cost optimization

SaaS cost optimization is a strategic approach focused on managing and reducing expenses related to software applications. As organizations increasingly depend on these cloud-based solutions, controlling the ever-rising costs has become a critical priority for finance, procurement, and IT leaders alike.

To gain this control, however, organizations first need to obtain visibility into all of the software applications in use across the organization – including instances of shadow IT.  Only then can they begin to identify unused or underutilized licenses, eliminate redundant tools, gain the intel needed to negotiate better contract terms, and implement governance policies to prevent unauthorized purchases.

Effective SaaS spend optimization ultimately requires a comprehensive approach that combines technology, processes, and cultural changes. Organizations must implement systems to track usage and spending across their entire tech stack, enabling data-driven decisions about which applications to keep, consolidate, or eliminate. This visibility is crucial not only for maximizing ROI, but also for ensuring that software expenditures align with business objectives.

The bottom line is, SaaS cost management is an ongoing process, not a one-time effort.

As SaaS usage continues to grow, organizations must continuously monitor their software ecosystem, reassess needs, and optimize spending.

Key benefits of implementing SaaS cost optimization strategies

Implementing SaaS cost optimization strategies offers significant advantages for organizations aiming to maximize their software investments. These include:

• ‍Cost savings – One primary benefit is substantial cost savings. By identifying and eliminating unused or underutilized licenses, organizations can significantly reduce their SaaS spend, leading to average savings of 26%, often substantially more.

• Improved visibility and control – Cost optimization strategies provide greater transparency into SaaS usage across the organization, allowing procurement and finance teams to make data-driven decisions about their software investments. This enhanced visibility also contributes to improved security and compliance by reducing shadow IT and unauthorized app usage, minimizing security risks, and ensuring adherence to industry regulations and internal policies.

• Increased operational efficiency – SaaS cost optimization strategies also lead to increased operational efficiency. Streamlining the SaaS portfolio eliminates redundant tools and consolidates functionality, resulting in improved workflows and productivity gains for employees. This optimization allows for better budget allocation, enabling organizations to invest in high-value tools that drive business objectives rather than wasting resources on underutilized or unnecessary applications. In addition to this, organizations gain negotiation leverage when armed with usage data. Alongside vendor benchmarking data, this information increases the chances of securing far more favorable terms and pricing.

Ultimately, by implementing robust SaaS cost optimization strategies, organizations not only reduce unnecessary expenses but also create a more efficient, secure, and value-driven software stack. This proactive approach to spend optimization ensures that every dollar invested in software contributes directly to organizational success and growth.

Conducting a comprehensive SaaS audit

A comprehensive SaaS audit is a critical first step in optimizing your organization's software spend. This process involves meticulously examining your entire software portfolio to gain a complete picture of the tools being subscribed to across your organization. Only once you’ve done this audit can you identify the opportunities for cost savings.

• Create an inventory of your SaaS

First off, you will need to create a centralized view of all software applications that are being subscribed to across your business. This includes both IT-approved and shadow IT applications, which may require the use of discovery tools to uncover hidden apps.

• Analyze usage data

The next step is to analyze utilization data for each application. Gathering detailed usage statistics is crucial for determining which tools are being actively used and those that aren’t, informing decisions about license optimization at the point of renewal.

• Review contracts

Reviewing licensing and contracts is another essential component of any SaaS audit. This involves examining all contracts and licensing agreements to understand the current terms, costs, and renewal dates.

During this review, it's also important to identify redundancies by looking for overlapping functionalities among different applications, as well as any duplicate tools being used across multiple departments, as this can contribute to a substantial amount of wasted spend.

Our data shows that tool duplication is most common among CAD & PLM, Development, Sales, Security and Marketing software applications.

• Rightsize contracts

By carefully managing software licenses, organizations can reduce unnecessary costs and maximize SaaS investments. This involves regularly assessing usage, reallocating unused or underutilized licenses, and removing access for departed employees. Rightsizing subscriptions aligns licenses with actual needs, analyzing usage patterns to adjust license levels, negotiate flexible terms, and consolidate subscriptions where possible.

A strong SaaS cost management strategy identifies when to downgrade unused premium features and optimize license timing, balancing savings with the risk of long-term contracts. A specialized spend optimization platform, such as Vertice, can automate license management, provide usage insights, and assist in negotiating better vendor terms and pricing, helping you to mitigate the impact of rising SaaS costs.

• Assess security and compliance for each tool

Evaluate each tool for potential security risks and ensure it meets your organization's compliance requirements. This step is vital for maintaining a secure and compliant software environment while optimizing costs.

Remember that a SaaS audit is not a one-time event. To maintain optimal SaaS spend optimization, it's important to conduct regular audits and continuously monitor your software ecosystem. This ongoing process ensures that your organization stays agile and cost-effective in its use of SaaS applications, allowing you to eliminate unused or redundant applications, right-size licenses based on actual usage, consolidate vendors to negotiate better rates, and improve overall software ROI.

Negotiating more lucrative SaaS contracts

Effective contract negotiation is a crucial aspect of SaaS spend optimization. By strategically approaching vendor discussions, organizations can secure more favorable terms and pricing, ultimately reducing their overall software costs.

Key strategies for negotiating SaaS contracts include opting for usage-based pricing models that align with actual usage patterns, negotiating flexible terms that allow for easy scaling, leveraging total spend to negotiate volume-based discounts, and considering multi-year agreements for critical applications in exchange for more favorable pricing.

Our data shows that vendors increase their discounts by an average of 5% for each additional year a buyer commits to.

Some proven best practices for negotiating better deals include:

• ‍Strategically time negotiations – Timing plays a significant role in contract negotiations. Many SaaS vendors are more willing to offer discounts and concessions at certain times, such as the end of quarter or fiscal year, when sales teams are pushing to meet targets, during periods of high competition in the market, or when introducing new products or features.
• ‍Start negotiations early – While it’s beneficial to initiate discussions at certain times, it’s also important that you’re giving yourself enough time for negotiations – especially when renewing software. Our own data indicates that companies that start negotiations more than 90 days ahead of their renewal save an average of 49%, compared to just 19% when starting between 30 and 90 days.  ‍
• Obtain leverage – While insights into your organization’s current SaaS usage are crucial for successful negotiations, it’s not the only intel that can help optimize SaaS spend. Knowing exactly what other similar companies are paying for the same subscriptions can provide you with invaluable leverage, helping to secure far more favorable deals across your tech stack. The best SaaS Spend Management companies won’t just provide you with this benchmarking data, though; they’ll also utilize it on your behalf to secure you the very best price and terms on any contract.

Companies that rely on list prices alone end up overpaying by an average of 26%. See how much you could be saving by talking to our team.

• ‍Partner with a procurement expert – Third-party procurement providers, such as Vertice, not only have exclusive access to the pricing data for thousands of global software vendors, but they also have a wealth of knowledge and negotiation experience, enabling them to secure the best possible deals for their customers. By handing over negotiations to an intermediary – whether that be your entire software portfolio or your tail spend – you not only benefit from huge cost savings, but you also free up time to focus on the more strategic procurement initiatives that will help you drive value across the organization. What’s more, the right providers will leverage advanced technology to help streamline your processes, while identifying cost-saving opportunities across your SaaS stack. Learn more about how Vertice’s SaaS Management Platform can help you optimize your spend.

See how Vertice helped one company save as much as $155,000 on a single software subscription

Maximizing ROI through continuous SaaS optimization

As we've explored throughout this guide, SaaS cost optimization is an ongoing process that requires vigilance, strategy, and adaptability.

By implementing comprehensive audits, effective license management, strategic contract negotiations, and leveraging SaaS management, organizations can significantly reduce their software spend while improving efficiency and security.

The key to long-term success lies in creating a culture of continuous optimization, where SaaS usage and costs are regularly reviewed and adjusted to align with evolving business needs.

SaaS cost optimization isn't just about cutting costs, though – it's about maximizing the value and ROI of your software investments. By following the strategies outlined in this guide, organizations can create a lean, efficient, and agile SaaS ecosystem that drives value and supports business growth.

Why not see for yourself how a SaaS spend optimization platform can drive substantial savings across your organization by taking a self-guided tour of Vertice. Alternatively, have a read of how we reduced one company’s annual software spend by 30%.

For more information on how to future-proof your business with SaaS cost reduction and understand the true cost of SaaS wastage, check out these helpful articles. You can also find top tips on how to control rising SaaS and procurement costs to further optimize your software spend.