The Software as a Service (SaaS) model has taken over, and it’s not hard to see why. It doesn’t require large upfront capital investments in hardware and scales easily as your business grows. SaaS solutions are also very quick to purchase and deploy. This is arguably their greatest strength, but also their biggest downside. Why?

Without long approval processes or the need for IT intervention, businesses can quickly accumulate redundant or overlapping SaaS applications, leading to unnecessary costs (SaaS Sprawl). This is why SaaS spend management has become essential for modern businesses.

Follow along as we explore:

• What SaaS spend management is and why it matters for your business

• The most common causes of high SaaS costs

• Five practical steps to reduce SaaS costs and a bonus tip

What is SaaS spend management and why it’s important

SaaS spend management is a branch of the wider SaaS management discipline focused specifically on SaaS costs. How much is the business spending on SaaS apps, and are there ways to reduce it?

The average SaaS expenditure per employee was projected to reach $9,600 by the end of 2023. Interestingly, the report further revealed that more than 50% of SaaS licenses remain inactive for over 90 days. That’s a significant opportunity to save money.

However, some businesses miss this potential because they only track the overall SaaS costs. SaaS spend management enables you to get more granular, determining departmental and individual costs. Based on this information and SaaS usage data, you can cut unnecessary costs and put the money into better use.

Common causes of high SaaS cost

Here are the main culprits when it comes to unnecessary SaaS spending.

1. Underutilized or unused licenses

As highlighted earlier, SaaS tools often experience high usage during the early adoption stage but remain inactive for long periods thereafter. Businesses may also purchase more licenses than needed, either as a precaution or due to a lack of insight into actual usage. All these result in SaaS overpayment.

2. Missed offboardings due to shadow IT

Shadow IT occurs when employees or teams independently sign up for SaaS applications without IT approval. This can result in a lack of oversight and missed offboarding when employees exit the company, leaving active subscriptions that continue to rack up charges without being used.

3. Redundant SaaS apps

Without centralized oversight, different teams or departments may subscribe to multiple SaaS tools that serve the same purpose. This leads to redundant tools with overlapping functionality, resulting in paying for multiple services when a single solution would suffice.

4. Unnegotiated contracts

Many businesses either forget or don’t realize they can negotiate SaaS contracts at purchase or renewal. As a result, they miss opportunities for better pricing, bulk discounts, or custom terms that could save money.

5. Hidden costs during procurement

SaaS tools often come with hidden costs that aren't always visible upfront. The SSO tax is a prime example of hidden costs that can significantly increase your SaaS spend. In one of our posts, we illustrate how the cost of using Okta can rise from an estimated $19,200 annually to $219,200 due to the SSO tax—a more than 10x increase.

6 Best Practices to reduce SaaS spend

Starting from the procurement stage, here are some practical steps you can take to get your SaaS spending under control:

1. Conduct a SaaS audit

Don’t wait to reactively optimize spending after it spirals out of control. A successful SaaS spend management strategy begins at the procurement stage. Before committing to a new tool, inventory all SaaS tools already in use. You may find another tool in your environment that serves the same purpose. A SaaS audit will also help you identify existing tools that can be cut off because they are redundant. The easiest way to perform such an audit is to scan your workspace for all SaaS apps used by your employees.

2. Always negotiate

Many SaaS vendors are willing to offer discounts, especially for volume purchases or as an incentive to onboard customers at the end of a quarter when they aim to hit their quota goals. Unlike other goods and services, selling SaaS has a very high margin; therefore, you’ll often be able to score higher discounts than in other industries. Always negotiate pricing and explore custom contract terms to get the best value.

3. Switch to Annual or Multi-Year Subscriptions

Monthly subscriptions offer flexibility but often come at a higher cost per month compared to longer-term commitments. Many SaaS providers incentivize customers to opt for annual or multi-year plans by offering significant discounts —sometimes saving 20% or more. By switching to an annual or multi-year subscription, you can substantially reduce your SaaS expenses over time.

4. Track SaaS usage

Track SaaS usage regularly, leveraging analytics from SaaS apps to understand how often and how fully employees use each tool. Identify underutilized licenses and tools that don’t deliver value, and either renegotiate terms, downgrade plans, or cancel subscriptions. For example, Zoom offers a free tier supporting up to 40 minutes of video calls. Instead of purchasing licenses for all users, you can shift some to the free plan.

5. Utilize time based access controls

Don’t wait for the next access review to discover underutilized or unused licenses. Instead, give users access only for the specific period they need it. Tools like AccessOwl can automatically deactivate user accounts when they’re no longer required.

6. Track subscription renewal dates

Many SaaS tools auto-renew subscriptions, leading to unintentional spending on tools and licenses no longer needed. After analyzing SaaS usage data, you may decide to reduce the number of active seats. However, if the subscription auto-renews before you renegotiate, you’ll incur unnecessary expenses. Set reminders before auto-renewal dates to avoid this trap.

Bonus tip: Consider open source alternatives

For certain use cases, consider self-hosted, open-source alternatives to premium SaaS subscriptions. These can provide similar functionality at a fraction of the cost. However, open-source tools require technical expertise to configure and customize for your needs. Additionally, they can introduce risks if not vetted for security or reliability. For example, cal.com is an open-source alternative to Calendly.

What Not to Do (Bad Practices)

When trying to reduce SaaS spend, businesses sometimes take actions that seem cost-effective but have negative implications. One such action is account sharing.

While this practice will reduce the amount of licenses needed, it makes it harder to track and control access. Shared accounts can be abused to gain unauthorized access to sensitive company data.

Only consider account sharing as a last resort and use a password manager to discourage unsafe password practices. Whenever a user leaves, ensure all passwords they had access to are rotated.

How to simplify SaaS spend management with automation 

For businesses with a large SaaS footprint, manually tracking usage and expenses can quickly become overwhelming. Nine out of ten IT executives believe manual SaaS management methods lead to inefficient SaaS spend management.

Imagine tracking usage for over 50 SaaS apps. First, you need to log into each app individually to get the usage data. If the app doesn’t have built-in reporting capabilities, you have to export a CSV file with the data. You then need to sort this data into useful SaaS spend insights and create a central repository to record it. 

And remember you’ll need to repeat regularly because SaaS spend management is a continuous process. Automation tools, on the other hand, integrate with all the SaaS apps to provide real-time insights on a centralized platform.

Here are three key methods to simplify SaaS spend management through automation

1. Use SaaS Spend Management Software

Dedicated SaaS spend management tools are designed to centralize SaaS cost and usage data so you can quickly determine which areas to optimize. Here’s what to expect from these tools:

• SaaS cost tracking:  Monitor spending across all software subscriptions, broken down by department or individual.

• Renewal date tracking: Receive automatic reminders of upcoming subscription renewals, ensuring you’re ready to renegotiate contracts or cancel unused subscriptions.

• SaaS usage tracking: Track who is using which tools, the number of licenses purchased, and whether each license is being fully utilized.

2. Use a SaaS Access Management Tool

Access management tools help optimize SaaS costs by ensuring employees only have access to the software they need, for the exact time they need it. Features include:

• Time-based access control - Automatically grant access for specific periods based on need. Once the project ends, access is revoked to prevent unused licenses from lingering.

• Automatic offboarding - When an employee leaves or transitions to a new role, access management tools automatically revoke their SaaS access, reducing the risk of unused or forgotten subscriptions. This includes access to Shadow SaaS that you might have been unaware of.

• Least privilege access - While typically used for security, this principle can also help with SaaS spend management as well. Many SaaS tools have free tools that are sufficient for certain use cases. Like in the case of Zoom with up to 40 minutes of free video call. Loom, Notion, and Slack have similar free tiers.  A smart approach is to provide minimum access to new joiners and only provide additional access based on real needs.

• Access reviews - Automating access reviews makes it easy to audit who has access to which tools, helping you identify underutilized licenses.

On top of cutting down on unnecessary SaaS expenses, access management tools also help with operational efficiency, security, and compliance.

3. Use a Procurement and Contract Negotiation Tool

Procurement tools help you optimize SaaS spend in three main ways.

• SaaS app database - You get to choose the best and most economical tool from multiple options that have been scored based on factors such as customer ratings, active user count, and user reviews.

• SaaS cost insights - These tools can also provide you with historical data such as the cost of a tool, and seats per package enabling you to negotiate better pricing and secure custom contract terms.

• Third-party negotiation services - Some procurement companies also offer consultants to negotiate contracts on your behalf and secure the best possible deals.

AccessOwl: Combining SaaS Spend and Access Management

AccessOwl doubles as a SaaS spend and access management tool, making it the perfect solution for businesses seeking a comprehensive platform to optimize costs.

What AccessOwl customers can expect:

• SaaS cost tracking at all levels - Easily monitor spending across departments and individuals, providing clear visibility into where your budget is going.

• SaaS usage tracking - Know exactly who is using each application and how often, helping you eliminate underutilized licenses.

• Subscription date tracking - Stay ahead of renewals to renegotiate contracts or cancel unnecessary subscriptions.

• Time-based access control - Automatically assign and revoke SaaS access based on project timelines or employee needs, ensuring licenses are only active when required.

• Automatic offboarding - Ensure that SaaS licenses are immediately removed when an employee leaves or transitions to a new role, eliminating the risk of unused subscriptions.

• Automated access reviews - Regular access reviews are automated, so you can continuously audit who has access to what, allowing you to optimize license usage and costs.

Conclusion

Implementing a SaaS spend management strategy is critical for reducing unnecessary expenses, and automation is key to making that process efficient and sustainable. Get started with AccessOwl today to simplify SaaS expense management with automation.