When it comes to creating budgets for SaaS, finance teams face some big challenges.
- Many businesses lack clear processes for buying, renewing, and using software across the company, meaning SaaS is costing more than finance leads realize.
- SaaS management processes are important for scaling startups, but for too long businesses have relied on dusty expense policies, spreadsheets, and email approvals.
Why is this a problem? Gartner projects software spending to grow almost 10 percent to just under $675 billion in 2022. That’s a lot of companies, buying a lot of software, with little insight into whether they’re getting real value for money.
Enter finance teams. They can take the lead on SaaS spend and effectiveness to improve margins.
How finance teams can create useful SaaS budgets
When SaaS budgets are not set, costs tend to increase month-over-month. But SaaS budgeting is unique. Finance teams need to approach it in a different way to other aspects of the business, like HR, marketing, sales, and legal. Here are five steps to create a proper SaaS budget.
1. Gather the facts
The first step is to do as much as possible to understand how, where, and why your teams use different software. For startups and scale-ups going through a growth spurt, this can be a chaotic and time-consuming process. Gather the facts about your current SaaS usage by:
- Asking functional leaders across areas such as IT, HR, sales, and marketing, to complete a simple report, listing their teams’ current software and apps
- Collaborating with those teams and IT to acquire and centralize administrator account login information and passwords. How many user ‘seats’ do you have and who logs in?
- Collating department-wide SaaS lists into a master report, categorized by department, operational purpose, functional owner, and any other key information
- Give staff an amnesty around Shadow IT. Encourage people to report the tools, software, and apps they purchased on company cards, or paid for personally before seeking an expense reimbursement.
While these initial steps may be slow, there are ways to collate and organize all your findings in a transparent and shareable way. (Look, for example, at Notion’s suggestions for internal company wikis and sound process documentation).
This will take time and it’s likely to lead to imperfect data. But it’s a starting point.
2. Analyze SaaS costs
Using your financial management software, cross-check the master list you created earlier against your accounts payable data and your expense reports. Your accountant, bookkeeper or an outsourced CFO can assist with this, if you don’t have a dedicated finance function yet.
Again, this process is likely to be manual and imperfect, but it will give you a somewhat clearer picture of how much you’re spending on software. For finance teams, this process may lead to some surprising numbers.
But take a breath. SaaS spend management goes beyond traditional expense management. Done well, it can help you ensure you’re allocating the right resources in the right places.
3. Identify valuable SaaS
Yes, you might be surprised by how much certain developers, teams, or executive colleagues are spending on certain software. But it’s important to resist a knee-jerk reaction until you actually delve deeper to understand:
- why the software is costing you so much
- why employees first subscribed to the software
- if and when they have upgraded plan tiers
- and if and how it helps the business build, sell, and grow.
For answers, finance teams need to talk to key departments, from IT through to sales, marketing, and HR. Through these conversations, you will not only get a better understanding of how and why your colleagues use certain software, but which software is integral to business operations.
For example, key teams may find a piece of software useful overall, but they may not be using specific features you’re paying for. Similarly, you might find you’re underspending on a key piece of software that is central to business operations.
4. Address obvious waste
At this stage, you should also be well-placed to separate your company’s A-list software from the C-list and Z-list vendors. Key questions at this stage include:
- How many dud software subscriptions do we pay for today?
- How many seats are we paying for that are going unused?
- What unnecessary features are we paying for in otherwise useful software?
When you have these answers, you can actually start taking some action — built on the foundation of your master SaaS list, your costs investigations, and your conversations with colleagues. Cancel anything you’ve identified as needless. If you discover you have subscriptions to two different SaaS that do the same thing, then ditch the less used one.
5. Create your SaaS budget
You can start to build your budget after you’ve completed the steps above. You can allocate spending by function, department head, or by business activities, such as:
- Project management and communication (think Monday, Slack, or Zoom)
- Customer Relationship Management (think HubSpot, Soho, or Salesforce)
- Cloud hosting (think Azure, Google Cloud, or Amazon Web Services).
Getting here — and then creating useful SaaS budgets — is a lot less burdensome with a SaaS management tool. Cledara, for example, helps you prevent duplicate software and unused seats right away. It shows you company-wide SaaS usage. And it lets you give teams individual budgets for each application, all within one place to discover, purchase and manage that software.
SaaS budgets simplify spend management for finance teams
Proper SaaS budgeting gives finance teams a stronger sense of the tension in the world of SaaS usage. Employees like developers need great SaaS. They also need to experiment with potentially even better tools than those they are already using. But the business needs to keep SaaS usage within reason, so costs don't blow out and Shadow IT doesn't go unchecked. Solid SaaS budgeting processes are a big step towards achieving this.
To find out more about managing SaaS spend, while maintaining a focus on growth, download our free eBook:
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