Accounting Software » How CFOs are slashing costs by tackling runaway software sprawl

How CFOs are slashing costs by tackling runaway software sprawl

A typical business is overspending by about 20-30% on SaaS every year. In today's economic environment, CFOs must look at ways to optimise their SaaS spend

Software as a service (SaaS) spending has fast become a significant expense for modern organisations, with it now accounting for around 12.7% of total spend. This means that roughly $1 in every $8 is now being invested in software. And this number is only set to grow.

According to Gartner, worldwide end-spending on cloud application services (SaaS) is forecast to exceed $208bn in 2023 — up 37% in just two years. A finding further supported by the fact that as many as 51% of organisations are planning to increase their IT budgets in the coming year.

But despite SaaS spending continuing on an upward trajectory, the economic slowdown cannot be ignored. Nor can the rise of SaaS inflation.

So, while budgets may be growing, finance leaders are becoming increasingly challenged to ensure that these budgets — along with existing applications — are driving maximum efficiency and creating significant value for the business.

In other words, these leaders must look at ways to optimise their SaaS spend, which is often easier said than done though.

The challenges preventing SaaS spend optimisation

When it comes to finding ways to reduce SaaS spend, finance leaders face a twofold problem: a decentralised SaaS purchasing model and a lack of vendor pricing transparency.

Analysing both in detail reveals more challenges.

Decentralised SaaS purchasing

Unlike almost every other business overhead, the selection, management and renewal of SaaS is often decentralised, causing huge problems for finance and IT teams alike.

In fact, research suggests that as much as 66% of SaaS spend is managed by business units or individual employees. It is also been found that in some organisations, as many as 32 billing owners may be tied to a single subscription, emphasising just how fragmented the SaaS purchasing process really is.

So, why is it happening?

In some organisations, department heads are being given increased autonomy to purchase new software applications, particularly those under a certain value. In others, maverick spending is happening in a bid to  bypass procurement protocols.

Either way, when software is purchased without the knowledge or approval of the finance team, it can lead to a whole host of problems, including:

  • Auto-renewals

According to our data, as many as 89% of software vendors include auto-renewal clauses in their contracts.

The problem is, when software is purchased unbeknownst to the finance team, they will not be able to keep on top of these renewals, which can have huge cost implications for the business in terms of renewing unwanted and often costly software licences.

  • Duplicate or redundant SaaS

Almost a third of total SaaS spend is underutilised or wasted.

But while this should be the starting point for any finance team looking to cut SaaS expenditure, either by consolidating tools that have overlapping functionality or eliminating those no longer in use, without knowledge of these applications it is just not possible.

  • Unused licences

The average company wastes around $135,000 on SaaS tools annually, a portion of which comes from unused SaaS licences. So, while the software applications themselves may be in use, you may be paying for more licences than you actually need.

  •  Overpriced SaaS

With the majority of software vendors choosing to obscure their pricing — 55% to be precise — organisations are left with little leverage to negotiate the best possible prices. In fact, our data shows that a typical business is overspending by about 20-30% on SaaS every year.

Lack of vendor pricing transparency

It is not just decentralised SaaS buying that is causing headaches for finance leaders, it is also the lack of software pricing transparency in the market.

As we have already mentioned, organisations are overpaying for their software by as much as 20-30%. What we have not yet mentioned is that this is happening to as many as 90% of businesses.

The reason it is happening? Because vendors have all the leverage — the majority do not publish their prices and there is no easy way of knowing their willingness to discount, which makes it extremely difficult for buyers to negotiate the best possible pricing and contract terms.

Here is the thing though: these issues can be prevented with both visibility and insight.

When finance teams have oversight of their entire SaaS stack and spend, they can:

  • More easily manage spend
  • Stay ahead of SaaS renewals
  • Identify cost reduction opportunities
  • Eliminate maverick spending

But this is only possible with a centralised SaaS purchasing model.

To gain complete control of your SaaS spend, you ultimately need a comprehensive system of record that details every single piece of software being subscribed to by your business, including the cost of each tool, the number of licences being paid for — and at what cost per licence — the owner of the application and the terms of each contract.

Then you need to keep track of this information, a process that is best automated.

At Vertice, we do just that. We give you complete visibility of your entire SaaS stack from a single place, enabling you to track your subscriptions, renewals and spend.

But that is not all we do.

We also give you the insight you need to gain leverage when negotiating the terms of your contract. Insights such as SaaS buying trends and pricing intelligence. In other words, we can tell you how much other companies are paying for the same subscription.

Better still, we can take the burden of managing, buying and renewing SaaS off your hands, saving you a substantial amount of time and money.

See for yourself how much we can save you at Vertice, with our free cost savings analysis.

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