McKinsey & Company reports that the SaaS market is currently worth $3 trillion with estimates of growing to $10 trillion by 2030. The growth in this sector is driven by B2B companies—the ones you’re likely a customer of—which make up 90% of all SaaS investment.
Part of what makes SaaS (software as a service) companies so lucrative is their recurring billing structure. Gone are the days of one-time purchases, now SaaS companies have monthly recurring revenue models.
This is good news for SaaS companies, but bad news for their customers. If you’re not effectively managing your SaaS spend, you’re paying for it every month.
However, if you master SaaS spend management, you get all the benefits of SaaS products while minimizing costs. Our guide tells you how.
Definition of SaaS spend management
SaaS spend management is the methodology of how businesses monitor and optimize their spending on SaaS products and subscriptions.
The term covers multiple aspects of what drives SaaS spending levels including:
- Understanding what SaaS products you’re using
- The cost of the SaaS products
- What teams or individuals are using the SaaS products
- How the SaaS product is being used
- Whether there’s a sufficient return on investment for all SaaS subscriptions
This practice is similar to vendor management: you have to be critical not just about whether the SaaS subscription serves a purpose, but whether it serves the purpose better than the alternatives.
Overall, the goal is to reduce spending to purely necessary and effective SaaS products that serve your business objectives.
The challenges of managing SaaS spend
SaaS spending is something many businesses struggle with, but not by any fault of their own. Managing SaaS spending is difficult because of these challenges.
Duplicate subscriptions
Redundant SaaS subscriptions often arise from a lack of communication and collaboration between teams. If two teams need the same SaaS product but neither are aware of the needs of the other, both would start a subscription.
This is often a case of what’s referred to as “shadow IT.”
Shadow IT happens when employees start a SaaS subscription without approval from a member of an IT team or finance department.
It’s not uncommon for unapproved expenses to slip through the cracks. But with SaaS subscriptions, slipping through the cracks has an increased effect since it’s a recurring cost.
Unused licenses
An unused SaaS license happens for a variety of reasons. Maybe the original request came from an employee who’s no longer at the company or over time the team realized the product didn’t suit their needs but never canceled.
No matter what the reason, unused licenses are an unnecessary drain of cash. If you want to find savings on your income statement, the lowest-hanging fruit is unused licenses.
Forgotten recurring billing
SaaS companies often offer free trials but require a credit card on file so they can start the subscription as soon as the trial ends. As a result, the onus is shifted onto the consumer to cancel a subscription before it even begins.
But this also happens with the SaaS tools that people are already subscribed to. For example, maybe the sales team needed a SaaS platform to assist with outreach as they were scaling up their operations. If after that period nobody is using the platform, that recurring charge is still coming through regardless.
Lack of visibility
Depending on the size of your business, you could be processing hundreds or thousands of transactions in a month. Trying to understand your spending by combing through such a long list of transactions isn’t manageable.
The best way to counteract this is to have some additional way of tracking subscriptions, like a custom report or categorization. Otherwise, you’re lacking spend visibility into your SaaS subscriptions and missing out on potential savings.
The benefits of SaaS spend management
By overcoming the challenges of SaaS spend management, you’ll see returns across different aspects of the business. In particular, you’ll reap the rewards of these benefits.
Cost savings
Each SaaS subscription you identify as being unnecessary is extra money in the bank. From there, you can start to get critical about what SaaS products being used are providing sufficient value to remain subscribed.
Improved software utilization
SaaS spend management means getting critical about whether the software is getting enough use to warrant being paid for regularly.
There’s two possible outcomes: either the subscription is canceled or, when faced with cancellation, the team commits to making more use of their software.
Either way, you’re happy. You’ll increase the return on your subscription expenses by either increasing the value or reducing the costs.
Better alignment with business goals
The framework through which you should evaluate a SaaS subscription is whether it services a business goal.
Business goals take on all kinds of shapes; they can be as big or small in scope as you see fit. But understand that sometimes whether a SaaS subscription serves a business goal, it might not be enough.
Consider doing a quadrant analysis for your different business goals. This is the practice of mapping out your business goals as being high or low impact and high or low effort.
If a business goal is low effort and low impact, then a SaaS subscription that helps achieve it isn’t as valuable as one that serves a high effort, high impact business goal.
How to effectively manage SaaS spend
Once you’ve decided you want to improve your SaaS spend management, implement these three practices to get the process started.
Regular audits
An audit of SaaS spending should be done in two parts:
- Look for any SaaS platforms that aren’t being used anymore. These are the easiest subscriptions to cut and don’t require much critical thinking.
- Evaluate whether the remaining SaaS platforms are being used enough to warrant the cost. This is a lengthier process as it requires touching base with different employees and teams to understand how they’re using the platform and to what frequency.
Set up a cadence on which you’re committed to doing audits. You can always increase or decrease the frequency on which you complete an audit based on whether it’s effective enough.
Centralized tracking
While regular audits are valuable, they will be time-consuming if you don’t have all SaaS subscriptions centralized.
This is where there’s value in getting an expense management platform like BILL Spend & Expense. You get access to custom categorization that’s completed automatically based on your transaction data.
Making the switch takes you from spending unnecessary hours going through transaction histories and expense reports trying to catch a subscription that fell through the cracks.
Alternatively, consider using one specific credit card for all SaaS subscriptions. Your work gets cut down to reviewing the transaction of just one credit card, plus you’ll have access to monthly spending data to show whether you’re spending more or less on subscriptions month-over-month.
Budget allocation
Studies have shown that constraints make people more creative. The process of trying to get the most out of little pushes people to expand their imagination and open themselves up to new solutions.
A budget works much in the same way. Set a limit on how much somebody can spend and they’ll come up with new ways to extract the most amount of value from that money.
By including SaaS subscriptions in your budgets, you’ll push teams to get critical about what’s providing sufficient value to warrant taking up a portion of their allowable spending.
If somebody wants to bring on a new SaaS tool, they’ll have to think about what they’d be willing to drop to bring on the new expense.
Tools for managing SaaS spend
Managing SaaS spending doesn’t need to be a manual task. There are tools you could consider adopting or you may already be using that can be used to help with the process.
Accounting and bookkeeping
Your accounting is a valuable resource beyond compliance and tax preparedness. With a little bit of customization, you increase your visibility into your SaaS spending.
Consider creating vendor accounts or subcategories that you can bucket subscriptions into. While this will take time to set up and you’ll add a new process into the finance team’s workflows, having them incorporated into your accounting lets you audit your subscriptions while doing your regular accounting tasks.
Procurement and virtual cards
Procurement cards (or P-cards) and virtual cards are similar to credit cards, but come with more customization.
Both card options have controls that let you set limits on:
- Expense amount
- Expense category
- Vendors
- Duration of usability
By setting up controls for amounts, you’ll guarantee that your billed amount isn’t unexpectedly above what was agreed to. For example, if a SaaS company updates its pricing, the new charge won’t slip through without your approval.
Another option is to generate a temporary card that expires after a certain period of time. This means you can open up a new card that’s set to expire at the same time as the final billing cycle on a subscription, preventing an auto renewal from going through.
BILL offers both P-cards and virtual cards that businesses can leverage to take control of spending without having to worry about going over budget or getting hit with unexpected recurring subscriptions.
Expense management platforms
The best solution for managing spending is a platform designed with that goal in mind.
Expense management platforms give you improved visibility into where your money is going. With customizable reporting, you get to choose which information is at the forefront so you always have access to a bird’s eye view or granular breakdown of the most important data.
Set up a report that tracks subscription costs and you’ll know exactly how much is being spent on recurring costs at a glance. No more wasted time, no more wasted money.
Effectively manage all kinds of spending
While SaaS products and their recurring subscriptions are a focus point for businesses trying to become more efficient with their money, that shouldn’t mean turning a blind eye to all other cost-saving opportunities.
Using a platform like BILL Spend & Expense helps businesses like Noom manage their spending and maximize the return on every dollar.
Manage your spending and expenses with BILL by signing up to our trial today!
