After payroll, software is typically a company’s second-biggest expense. Finding ways to reduce software costs, therefore, sits high on every finance team’s agenda.
What’s more, the costs associated with software purchasing are trending upward: on average, companies spend 17.9% more on subscriptions than they did a year ago. Unsurprisingly, as costs rise, so does waste. In fact, data from Cledara shows that companies can waste up to 48% of their software spend, forgotten, or duplicate subscriptions.
These numbers might send a shiver down your spine, but for savvy finance teams it’s actually an opportunity. Optimizing your software spend is a simple strategy to reduce your costs. Here’s how to get started.
What is SaaS?
Software as a Service (SaaS) refers to software tools and platforms you can access on or offline—from your HR tool to your accounting system. In the past, you had to purchase and install physical software onto your computer. Today, using SaaS tools, you can easily access software remotely by paying a monthly or annual subscription.
This major shift makes cloud-based software the most affordable model out there. By adopting cloud-based solutions, your company doesn’t need to pay upfront costs for servers or on-premise data centers. The SaaS pay-as-you-go model prevents you from using money on features you won’t use—which is why we recommend going with a cloud-first strategy.
SaaS management is the practice of managing all software applications used by your company—ensuring that subscriptions are good value for money and that login details are well-organized.
14 Ways to Reduce Software Spend
The proliferation of SaaS tools has led to widely adopted best practices to manage SaaS sprawl—a phenomenon where a company has so many subscriptions that employees lose track of them.
Here’s a detailed rundown of the ways you can take control of your software spend.
1. Audit your tech stack
Start with a thorough examination of all your company’s software subscriptions. This means cataloging all SaaS tools within your organization, along with their licenses, pricing, and usage information.
Having a full inventory of your tech stack makes it easier to spot where you can cut tools by eliminating redundancies, feature overlaps, or inefficiencies. A good way to do this is by checking which tools directly align with your company’s long-term objectives. If software solutions aren’t directly creating value or ROI, it’s dead weight that you’re better off without.
You can conduct your inventory audit manually by making a note of subscriptions in a spreadsheet (here’s a handy template). However, if you’re taking this approach, you’ll need to make regular updates to account for new tools, employee turnover, renewals, and usage patterns.
Alternatively, you can conduct your software inventory audit with a tool that automatically consolidates your software subscriptions. Cledara, for example, centralizes your applications and lets you view usage and renewal dates from a unified dashboard.
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2. Track down shadow IT
A software inventory is a solid starting point for reducing costs. But it won’t give you the full picture of software subscription usage within your organization. For that, you’ll also need to uncover shadow IT.
Shadow IT is the use of unapproved software applications within your company. It’s easy for employees to sign up for new subscriptions without asking the IT or security team about them first, so shadow IT can develop into an expensive problem.
Frustratingly, identifying hidden costs from shadow IT can be labor-intensive. If you’re doing this task manually, you may need to trawl through expense reports and chase your colleagues for invoices. Even after all this work, shadow SaaS can still slip through the cracks.
The simplest option to streamline this task is to use a SaaS management tool. These can uncover, monitor, and track instances of shadow IT in real time.
For example, Jiminny’s finance team used Cledara to capture an extra 15% of subscriptions the business was paying for but wasn’t aware of.
3. Use a dashboard to manage software subscriptions
We’ve already mentioned SaaS management platforms, so let’s take a closer look at what these involve.
Many unnecessary software subscription costs stem from the same root problem: a lack of visibility around which software your team uses. Purpose-built SaaS management tools like Cledara can solve this problem, helping you discover, track, and manage software expenses through a centralized dashboard.
By centralizing your software applications, it’s easier to spot and eliminate redundancies like double subscriptions, software solutions that serve the same purpose, and underused applications. Using a SaaS management system is a faster, smarter, and easier way to optimize software costs.
Centralization also facilitates financial transparency. With all your applications in one place, CFOs have visibility into where, how, and why money is being spent, and can make informed decisions based on what the numbers show.
Centralization gives you a single place to manage subscriptions, cancellations, and renewals. Think of your dashboard as a single source of truth to reduce software spend.
4. Identify who owns software subscriptions
To account for all your software subscription costs, you need to know who is responsible for signing off the budget for each tool. Enlist the help of team leaders to manually identify subscription owners by checking corporate card statements or sharing spreadsheets where they track their department’s spend.
Unfortunately, with a reported 82% of SaaS spend owned outside of IT, this can be like herding cats. SaaS management tools solve this problem by giving you a comprehensive real-time view of who owns every subscription—enabling IT cost optimization.
5. Cancel unused and duplicate subscriptions
A combination of shadow IT, rapid growth, and a lack of oversight means it’s common for companies to have two or more of the same subscriptions. Remember, over a quarter of SaaS spend is wasted.
Unused subscriptions are another silent budget drain. Subscriptions may lay unused for various reasons. A forgotten free trial has rolled on, employees have moved on, or teams have found a shiny new toy. When subscriptions are rarely used, it’s important to cancel them prior to renewals to avoid being locked into another payment cycle.
Of course, software cost optimization and canceling subscriptions aren’t one-time processes. To catch unnecessary applications, your team will need to implement a continuous monitoring system. If you’ve established a dashboard, make sure to carefully note and report on shifting usage patterns so you can catch them before solutions start taking more than they give. Here, low usage levels are your most important indicators of whether a software is worth its salt or not.
Consider holding regular bi-monthly or monthly meetings with your procurement team to report on and go over cost-saving opportunities.
You can also keep a close eye on usage levels with Cledara Engage. After your team installs this Chrome extension, you’ll be able to view both approved and unapproved software they access. Then, you can use this information to determine which applications are worth keeping and which you should cut.
6. Regularly review licenses and seats
Make time to periodically review the number of licenses and seats on your software subscriptions. If you’re paying for a tool you still need but have fewer employees using it than you’re paying for, you can adjust seats to lower costs.
Unused seats can quickly add up, particularly in high-turnover teams like Sales. For example, when a LinkedIn premium license alone costs ~$80 per seat, it pays to be vigilant about this.
After the team at Impala Studios implemented a SaaS management platform, they realized they were overspending by $10,000 on duplicate software and extra seats they didn’t use.
7. Cap cards with a maximum spend
Virtual cards empower you to be proactive and take control of your spend. If you have the option to do this easily, put every new software subscription on a different virtual card.
With Cledara, for example, every software subscription is automatically assigned a unique virtual card. You can load each card with the exact amount you need to pay for each tool, making it easy to cap spending.
This way, you get peace of mind knowing there’s no need to worry about compromised cards. What’s more, you can cancel subscriptions with a single click. It’s a game-changer for controlling software subscription costs.
You get peace of mind knowing there’s no need to worry about compromised cards. What’s more, you can cancel subscriptions with a single click. It’s a game-changer for controlling software subscriptions costs.
8. Consolidate tools and platforms
93% of CXOs say they’d like to consolidate SaaS vendors to reduce subscriptions and control SaaS expenditure.
Along with removing redundant software, you should identify versatile technology that combines the functionality of multiple tools in a single platform. This strategic move cuts costs, simplifies SaaS management, and improves security.
What3words Financial Controller Charlie Maynard successfully undertook this process with Cledara. “We’ve reduced our software spend by over 10% because we have caught a lot of subscriptions that did the same thing, and we don’t need anymore.”
9. Implement lightweight approvals
If you have no visibility over your SaaS purchasing, you may have to wait until budget reporting season to spot unexpected or unauthorized purchases.
To proactively nip this in the bud, implement a lightweight approval flow into the software purchasing process. This makes it easy for employees to request new tools and get them approved by Finance and IT.
This isn’t about Finance deciding which tools teams need. Instead, it’s a simple way to maintain control and oversight of your spend, while still empowering budget owners to choose the software they want to use.
10. Use benchmarking
Periodically benchmarking software costs against industry standards helps identify potential cost savings and is an easy and effective way to uncover excess spending. If you discover you’re paying above the market rate, it’s time to drop your software supplier an email.
Benchmarking doesn’t just come in handy for current tools, either. Are you speaking with a potential vendor? Using your newly found benchmarking knowledge to negotiate a better rate.
Benchmarking tools are a simple way to ensure your expenses are in line with similar companies in your sector.
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If you discover you’re paying above the market rate, it’s time to drop your software supplier an email…
For example, a tool like Cledara has benchmarks available in the spend optimization module. With this feature, you can see how much you’re spending on a tool when compared to other companies using the same vendor.
How does it work? Cledara Benchmark shows you the 25th and 75th percentile of spend for applications. It tells you where you are compared to others, and how much you should be spending based on the size of your team, ultimately giving you the insights you need to negotiate better terms with your vendor.
11. Formalize procurement strategies and negotiate with vendors
Software vendors are loath to lose business, so the option to negotiate your SaaS agreement is usually on the table. Explore volume discounts, key features, long-term contracts, and customized packages tailored to your specific needs.
Using benchmark data to support your case when you come into negotiations increases the likelihood you’ll be able to cut a deal.
Some other key methods for negotiating better deals and selecting cost-effective software solutions include:
- Use a detailed requirement analysis: Your software needs to align with your company’s objectives to be useful. Provide your vendor with a detailed list of features and what you’re going to use the software for. This sets the terms for avoiding any necessary functions that can hike up the cost.
- Compare multiple vendors: You should have a clear understanding of industry benchmarks, vendor competitor prices, and the functions multiple solutions provide. This empowers you to negotiate for fair pricing and find the best possible deal for your tram.
- Maintain a long-term relationship with your vendors: Conversations with your chosen vendor don’t stop the moment you sign the contract or when you log in to your new tool. Considering you might be using the software solution on a long-term basis, continue to set expectations for your vendor, establish shared goals, and schedule check-ins. This will not only ensure your SaaS tools continue to deliver value—it might also help you secure discounts and more favorable deals in the future.
12. Track renewals
Automatic renewals are a budget killer. It pays to regularly review software renewals or use a Saas subscription automation to set up reminders.
By keeping tabs on contract renewals, you can proactively contact vendors to renegotiate, upgrade, downgrade, or cancel your subscription as appropriate before you’re charged.
13. Implement SaaS onboarding and offboarding
Employees coming and going is a less-considered but hefty SaaS cost. Throughout their employment, each of your team members will likely sign up for multiple SaaS tools. Although a number of these will be authorized, some may be unaccounted-for shadow IT.
Once an employee has left, it’s even more difficult to track down and cancel these tools. Create a process to regularly review and terminate accounts for former employees or use a platform with built-in onboarding and offboarding.
Once an employee has left, it’s even more difficult to track down and cancel these tools. Create a process to regularly review and terminate accounts for former employees, or use a platform with built-in onboarding and offboarding.
14. Encourage a more responsible SaaS culture
Often, employees aren’t fully aware of the software at their disposal. This leads to unnecessary purchases or underused tools your company could be making more use of. By increasing visibility of the software subscriptions available in your organization, you can create immediate wins—both in terms of savings and productivity.
Company-wide visibility and accountability over who owns a subscription ultimately creates a more responsible culture around software usage, helping reduce your costs.
Take Control of Your SaaS Costs
SaaS tools empower every team in your company to do better work.
Aggressively cutting your software subscriptions to reduce costs would be counterproductive. But ignoring creeping subscription spend will also damage your business. Especially when there are practical measures you can take today to reduce SaaS waste and costs
One of the easiest ways to reduce costs is by using a software management platform like Cledara.
With a centralized dashboard of your entire tech stack, Cledara shows you usage levels, helps you find double subscriptions, and spots affordable application alternatives. It flags changes in pricing and incoming renewals, and highlights opportunities for consolidation, giving you all the insights needed to cut down on bloated software spend.
Follow the steps outlined in this blog post, and you’ll quickly trim excess costs while gaining long-term visibility and control over your company’s future SaaS spending.
