SaaS spending is often wasted in several ways, leading to significant financial losses for organizations. One of the main culprits is unused licenses, where companies purchase subscriptions for software that goes unused or underutilized by employees. This can occur due to a lack of awareness or training on how to effectively use the software, resulting in a waste of resources.
Another form of wasted spending is through shadow IT, where employees bypass the procurement process and independently purchase software or subscriptions without the knowledge or approval of the IT or procurement teams. This decentralized purchasing can lead to redundant applications and duplicate contracts, resulting in unnecessary costs.
The impact of wasted spending on organizations varies depending on their size. For small and medium-sized businesses, the financial impact can be particularly significant, as they often have limited budgets and resources. Wasted SaaS spending can consume a significant portion of their budget, affecting other essential business functions.
Even in larger organizations, wasted spending on SaaS can stack up to staggering amounts annually. The average company wastes a substantial portion of their software spending due to unused licenses and inefficient purchasing processes. This wasteful spending can hinder their ability to make informed decisions and optimize their cost-saving efforts.
The growth in SaaS spending has been driven by factors such as the rise in remote work and the benefits of SaaS products, including scalability and ease of implementation. However, without a proper management strategy in place, organizations are prone to maverick spending and underutilized licenses. To combat this wasteful spending, organizations need to implement effective contract and license management processes, continually assess the relevance and value of their software subscriptions, and ensure proper communication and alignment between IT, procurement, and business teams.
How Much Is Wasted Every Year on SaaS
Every year, organizations waste a significant amount of money on SaaS spend that does not drive value for their businesses. These unused and underutilized licenses often go unnoticed as shadow IT, leading to costly inefficiencies. The extent of this wasteful spending is staggering. For companies with 1 to 500 employees, the average unnecessary SaaS spend amounts to a whopping $1.5 million annually. As the organization grows and expands its workforce, the amount wasted on SaaS spend increases exponentially. In the case of companies with 501 to 2,500 employees, the average yearly wastage reaches a staggering $7.6 million.
This wastage is not surprising, considering the steady growth of software spending alongside the organization’s scale. It is the second-largest expense for businesses, surpassed only by headcount. However, unlike headcount, which directly contributes to productivity and revenue generation, this wasted SaaS spend drains resources and puts unnecessary strain on budgets.
To address this issue, organizations need to take a proactive approach to manage their SaaS spend effectively. A comprehensive management strategy should include optimizing costs, reducing wasteful spending, and eliminating redundant or underused applications. The procurement team and IT department should collaborate to ensure informed decision-making, efficient purchasing processes, and timely renewal management.
By actively managing their SaaS subscriptions and licenses, organizations can significantly reduce wasteful spending and redirect those resources towards more critical business objectives. With proper saas management and cost optimization, businesses can ensure that every dollar spent on software subscriptions contributes to productivity, efficiency, and overall success.
Why Managing SaaS Spend Is Important
Managing SaaS spend is crucial for businesses of all sizes as it directly impacts their financial resources and overall efficiency. One of the significant challenges in managing SaaS spend is the problem of unused licenses, which results in wasted resources and money.
Studies have shown that the average organization only utilizes 56% of their SaaS licenses, leaving a significant portion of their software investment unused. This means that nearly half of the money spent on purchasing these licenses goes to waste.
This is where effective SaaS spend management becomes important. By optimizing software utilization, businesses can avoid wasteful spending and maximize their return on investment. It allows them to identify redundancies in their software stack, eliminating unnecessary subscriptions and reducing costs.
Furthermore, efficient SaaS spend management helps businesses make informed decisions about their software needs and usage. It enables them to assess the value and effectiveness of each software application, ensuring that they align with business objectives and contribute to overall productivity. By actively monitoring and managing SaaS spend, businesses can identify areas where cost savings can be achieved, thereby optimizing their software investments.
In conclusion, managing SaaS spend is not just about controlling expenses but also about making strategic and informed choices to minimize wasteful spending, identify redundancies, and maximize the value of software investments. By optimizing SaaS spend, businesses can allocate their resources efficiently, leading to improved productivity and profitability.
How Did This Happen?
There are several factors that have contributed to the wastage of SaaS spend in organizations. One of the main reasons is decentralized purchasing, where different teams or departments within a company have the autonomy to make their own software purchasing decisions. This decentralized approach often leads to a lack of coordination and visibility across the organization, resulting in duplicate and redundant software purchases. Without a centralized procurement team to oversee software spending, it becomes challenging to track and manage the utilization of subscriptions effectively.
Furthermore, the lack of visibility into software usage and license management compounds the problem. Many companies lack the proper tools and processes to monitor and analyze how their employees are using various software applications. This lack of visibility makes it difficult to identify underutilized or unused licenses, leading to wasteful spending on licenses that are not adding value to the organization.
Another contributing factor is the reliance on auto-renewals. Without proper evaluation and assessment of software subscriptions, many organizations automatically renew their licenses without considering whether they are still necessary or if they can find more cost-effective alternatives. This lack of proactive management and review of software contracts leads to a continuation of unnecessary spending on software that might no longer align with the organization’s needs or business objectives.
In order to address these issues and prevent wasteful SaaS spend, organizations need to implement centralized procurement processes, improve visibility into software usage, and proactively review and evaluate software subscriptions to ensure they align with business goals. By adopting a more strategic and data-driven approach to software management, organizations can reduce duplicate and redundant software, eliminate unnecessary subscriptions, and optimize their SaaS spend.
How to Identify and Eliminate Waste
To identify and eliminate waste in SaaS spend, organizations can follow a systematic approach. The first step is to take inventory of all the SaaS tools currently being used by the company. This includes conducting a comprehensive audit of software subscriptions and licenses.
Once the inventory is complete, each tool should be evaluated to determine if it is duplicate, obsolete, or underutilized. Factors such as necessity, security, and usage licenses should be considered during the evaluation process. This involves analyzing the value that each tool brings to the organization in terms of meeting business objectives and supporting the workflow.
During the evaluation, it is important to involve key stakeholders from different departments to ensure a comprehensive understanding of the tools being used and their significance to specific business functions. This collaborative approach helps in making informed decisions about retaining or eliminating specific tools.
After the evaluation process, it is time to take action. Unnecessary tools that are identified as waste should be eliminated. This could involve canceling subscriptions, consolidating similar tools, or finding more cost-effective alternatives.
By following this process, organizations can effectively identify and eliminate waste in their SaaS spend. This not only helps in optimizing costs but also ensures that the software tools being used align with the organization’s goals and objectives.
Use a Key Subscriptions SaaS Management Platform
A Key subscriptions SaaS management platform is an invaluable tool for organizations looking to gain control over their software spend and optimize their SaaS usage. By using a SaaS management platform (SMP), companies can establish a comprehensive view of their entire SaaS portfolio, uncovering potential savings opportunities and making informed decisions.
One of the main benefits of using an SMP is its ability to provide valuable insights into an organization’s SaaS usage. By analyzing data on active users, license utilization, and renewal dates, the platform can identify underutilized applications, redundant subscriptions, and even rogue or maverick spending. These insights empower the procurement team to take action and eliminate wasteful spending.
Furthermore, an SMP allows companies to understand application usage across different departments and teams. This enables better decision-making when it comes to renewals and optimizing the tech stack. By identifying which applications are essential and which can be consolidated or replaced, organizations can significantly reduce their software spend while still meeting their business objectives.
Another crucial feature of a SaaS management platform is its ability to automate license management. It tracks license entitlements and actual usage, ensuring that companies are not overpaying for unused licenses or facing compliance risks. This automation streamlines the procurement process and reduces the likelihood of inefficiencies and costly mistakes.
In conclusion, using a key subscriptions SaaS management platform is essential for any organization looking to optimize their SaaS spend. It not only provides insights into the entire SaaS portfolio but also uncovers savings opportunities, provides valuable usage insights, and automates license management. By leveraging the power of an SMP, companies can make informed decisions and significantly reduce wasteful spending.
