How to Create a SaaS Spend Management Strategy

Wondering why you’re hearing about SaaS spend management more and more lately?

These days, SaaS apps are everywhere, and adoption is still growing at an impressive rate. Gartner projects that SaaS spending will grow over 17% in 2024, with the market exceeding $232 billion. Unfortunately, much of that spend is wasted on zombie apps, overlapping software offerings, as well as under-utilized and over-provisioned licenses. Additionally, shadow IT and gaps in employee offboarding processes for SaaS apps create security and compliance risks that can impact the bottom line. 

A practical SaaS spend management strategy can help IT departments and managed service providers (MSPs) reduce SaaS waste and, as an added benefit, improve productivity and security posture. This article will take a deep dive into the world of SaaS spend management, including how to develop a strategy, best practices for implementing it, and tools to help you get it right.

What is SaaS spend management?

SaaS spend management is the practice of controlling and optimizing SaaS costs. 

On the surface, that’s a straightforward concept. In practice is where things get tricky.

SaaS purchased through employee expense accounts, decentralized purchasing, and other forms of shadow IT make it difficult to accurately quantify, let alone control, SaaS spending. SaaS management platforms (SMPs) typically include features that enable SaaS spend management. 

The fundamental benefit of SaaS spend management is simple: better SaaS return on investment (ROI). Because of the workflows and business outcomes that SaaS spend management strategies unlock, it can also improve productivity, security, and compliance. 

Why SaaS spend management matters

SaaS spend management helps organizations improve their bottom line, strengthen their security posture, and reduce compliance risk. The bottom-line impact is the easiest to conceptualize, so let’s start there. 

Based on a recent Gartner report, as many as 25% of provisioned licenses are not regularly used by employees—it’s just wasted spend. In a world where the average SaaS spend per employee is $2,623, that waste can add up fast. If organizations can identify that waste and weed it out, they can meaningfully reduce IT costs without meaningfully hurting productivity. 

In addition to “financial waste,” the security and compliance risk associated with shadow IT and SaaS apps that lack proper governance make effective SaaS management all the more important. 

For example, suppose a well-intentioned employee sources a SaaS application to generate quarterly reports without going through the proper IT channels. On the surface, we have an employee solving a business problem, but what if they’re working with data from European Union (EU) citizens and the app isn’t compliant with General Data Protection Regulation (GDPR)? With a recent study suggesting 90% of apps analyzed by Usercentrics aren’t GDPR compliant, that’s a real risk.  

Similarly, without IT oversight, the app’s security is a question mark. Additionally, shadow IT statistics show us that it can increase the risk of poor security practices like shared credentials. This often happens because employees share accounts to prevent paying for a new license. And if the SaaS vendor is breached, IT may not know company data is at risk so they can take corrective action.

💡Pro tip: Get a better sense of your organization’s shadow IT risk factor using the worksheet in our Modern Professional’s Guide to Shadow IT.

Case in point: Employee offboarding 

Employee offboarding is a textbook example of why SaaS management matters. The licenses and user accounts for unmanaged SaaS and shadow IT apps are unable to be controlled by IT. Ex-employees might retain access to those apps for months after they’re no longer part of the organization. This creates a double whammy of bad outcomes for businesses:

• Paying for licenses that shouldn’t be used
• Increased risk of unauthorized access by ex-employees. Did you know 31% of employees admit to access from a previous employer? 

How to create a SaaS spend management strategy 

Effective SaaS spend management requires collaboration between IT, finance, and procurement teams. It also requires a practical strategy that balances productivity, costs, security, and compliance. The sections below cover the key aspects of creating a sound SaaS spend management strategy.

Step 1: Assess business needs

The first step in developing a SaaS spend management strategy is clarifying what problems your business needs to solve. Taking stock of your SaaS spending, inventory, policies, and governance is a good starting point. 

Initially, you probably won’t have all the answers you need because, frankly, shadow IT makes it hard to quantify SaaS usage in an organization. That’s okay. As your SaaS management initiative matures, the right set of policies and SaaS spend management software can help improve your overall visibility. For now, take Authur Ashe’s advice and “Start where you are, use what you have, do what you can.” 

Step 2: Align on objectives and KPIs

Once you understand your high-level business needs, refine them down into more detailed objectives. For example, you might want to reduce unused licenses by 20% within a year, rework your policy for software and account inventory reporting with compliance officials, or ensure all SaaS apps are subject to IT oversight within the next six months. 

The specifics will vary depending on your business needs. Still, the core principle is consistent: quantify what you want to do using specific, measurable, attainable, relevant, and time-bound (SMART) objectives and define how you will measure success using key performance indicators (KPIs).

Step 3: Establish a comprehensive SaaS spending policy 

A well-defined SaaS spending policy is the cornerstone of SaaS spend management. Key aspects of a SaaS spending policy include:

• Well-defined budgets to determine who can spend what amount of money on SaaS apps. 
• Clear change management  processes to make it simple for employees to request software and disincentivize shadow IT. 
• Evaluation criteria for new apps to ensure acquiring new software makes business sense and meets security and compliance requirements. 
• A central purchasing process to reduce the risk of SaaS apps flying under IT’s radar and enable the benefits of bulk licensing where applicable. 
• License and renewal management to help the business “right size” license purchases, renew (or cancel) in a timely fashion, and scale up and down efficiently. 

We’ll take a closer look at some of these tactics in the best practices section later in this article. 

Step 4: Continuously assess 

No strategy is perfect, and you should continuously monitor your SaaS spend and ROI over time. Additionally, listen to your internal stakeholders and external partners to identify and take advantage of improvement opportunities.

Shadow IT is often introduced to solve business problems. Consider these tools as potential investments as employees have already sourced them to solve business problems.

5 practical SaaS spend management best practices

Implementing your SaaS spend management strategy requires the right tactics. And, it’s not just about finding the best SaaS spend management software. People and processes matter just as much as tools. These five best practices can help you get the operational aspects of controlling SaaS spending right. 

1. Make SaaS part of the budget

For SaaS management to be effective, SaaS budgets must be well-defined and well-understood for all organizational stakeholders.

Because it’s so easy to purchase SaaS (typically just a credit card and some basic info) it can be tough to create realistic budgets that include all the SaaS spend in your organization. Being intentional about making SaaS part of each business unit’s budget can help drive more discipline around SaaS spend management. 

If you’re not sure where to start with setting a SaaS budget, here are some tips to help get it right:

• Make sure you have a SaaS inventory. Your SaaS inventory, which should include apps, licenses, and rates, will serve as the baseline for your budget. 
• Incentivize staff to report their own shadow IT. Employees might think they’ll get in trouble if they tell IT about shadow IT. If so, they’re less likely to disclose everything. Remember, in many cases people using shadow IT are just trying to solve a business problem. As you gather data and create budgets, create an environment where employees feel comfortable telling you about their “unauthorized” SaaS apps.
• Allocate costs wisely. In some cases, it can be tricky to properly allocate costs to the right ledger. Work with stakeholders to ensure you’re allocating costs to the correct business units and the teams deriving value from the software are being “billed” for it. 

2. Centrally track SaaS licenses 

Central tracking of software licenses enables IT to streamline license and renewal management. With the ubiquity and cost of SaaS apps, this can save a lot of time and energy, even for relatively small businesses. 

For many teams, a spreadsheet is their go-to SaaS spend management software. Unfortunately, spreadsheets are not usually the right tool for the job. Spreadsheets depend on manual updates and self reporting; as a result, they’re often inaccurate and stale.

A SaaS spend management platform that supports dynamic updates and automatic SaaS discovery can help solve these problems. For example, Brightworks Group—which offers cloud-based managed services to companies in multiple verticals—chose Auvik SaaS Management (ASM) to track and optimize their clients SaaS contracts. Using ASM’s advanced insights into user access methods, shared accounts, and high-risk shadow IT have allowed Brightworks to reduce client spend while decreasing risk.

3. Monitor actual SaaS usage

There are multiple ways to monitor SaaS usage. You could track whether or not licenses are used at all. This approach is excellent for identifying instances of clear waste. You could go a layer deeper and monitor logins to ensure someone is logging into the app. However, even then, you don’t know if users derive any value from the software.

You can capture more granular details on app utilization by monitoring metrics beyond just license utilization and logins. For example, if users spend a few minutes a quarter logged into an app, it may be a good idea to question if the app provides adequate business value.

Similarly, usage data can help you determine whether newly onboarded apps are being used as expected. You can then optimize further spending based on what you learned. In some cases, that might mean upgrading a SaaS license from a “basic” to a “premium” or similar tier because employees spend too much time in the basic app when the premium software would get the task done quicker.

Remember, the conversation triggered by data is often more important than the data itself.

4. Get everyone involved 

For a SaaS spend management strategy to be effective, it has to be collaborative. In addition to IT, finance, and procurement teams, ensure business users are engaged too. After all, the SaaS apps are in place to improve business outcomes and they’re the ones often using them!

When you’re looking to “optimize cost” and “eliminate shadow IT,” it can be easy to accidentally create an us vs. them environment between business users and IT. Be sensitive to that reality and approach SaaS spend management collaboratively. Survey users, have conversations, and consider all perspectives as you go.

5. Audit the employee lifecycle for waste and risk

Two of the most significant areas of SaaS waste are initial employee onboarding and employee offboarding. We’ve already reviewed the offboarding waste. If you’re unaware of all the apps an employee used, you can’t offboard them and terminate licenses.

But, it doesn’t stop there. If you don’t know what tools they used to complete their job, the new employee replacing them will likely struggle to complete some of the same business workflows. That makes it harder to get newly onboarded employees up and running.

Effective SaaS management and a thorough employee offboarding checklist can help mitigate these risks. By tracking what apps employees use, you can maintain an up-to-date inventory, improve your onboarding flows, and ensure you quickly terminate access when the time comes. 

SaaS spend management tools and solutions

The right tools can help you significantly reduce the complexity of SaaS spend management and improve overall SaaS visibility and return on investment. Below are three different SaaS solutions that can help teams get the most out of their effort. 

1. Auvik SaaS Management (ASM) 

ASM is a robust SaaS management platform that includes SaaS discovery, security, and spend management features. With ASM you can:

• Automate SaaS and account discovery using identity and access management (IAM) integrations and SaaS desktop or browser agents to uncover authorized app and shadow IT usage in your environments. 
• Centralize SaaS management with a single dashboard that provides an accessible and comprehensive overview of your SaaS inventory. 
• Monitor SaaS usage to understand which apps users are accessing and identify red-flag behaviors like insecure file sharing. 
• Analyze and optimize cost to identify waste and improve SaaS ROI. 
• Create custom reports and alerts to detect events and identify patterns that directly impact business outcomes and compliance initiatives. 
• Create onboarding and offboarding workflows to help get newly onboarded employees productive quickly and reduce the risks associated with poor offboarding practices. 

2. Ticketing systems and change management platforms

SaaS management is an ongoing process, not a point-in-time project. There will be problems, change requests, and user complaints. A ticketing system or change management tool can help teams centralize, prioritize, and process these requests appropriately. 

3. Identity and access management (IAM) platforms 

Robust IAM can streamline the process of provisioning and deprovisioning user accounts while granting or revoking access to SaaS applications in one place. While IAM won’t stop a user from creating a new account on a SaaS app, IAM tools can centralize how users authenticate and what apps they can access, making SaaS management significantly easier.

Key SaaS spend management metrics

The right metrics can help teams focus on optimizing business outcomes and measuring what works. For example, monitoring app usage and licenses purchased vs. licenses used can quickly uncover SaaS waste. On the flip side, the same metrics can help quantify the ROI of SaaS investments. 

Here are ten SaaS spend management metrics to help you measure performance over time:

1. License count
2. License cost
3. Total used licenses 
4. Shadow IT utilization
5. Active accounts
6. Inactive accounts
7. Unused accounts 
8. License expiration/renewal dates 
9. Frequency of use
10. Duration of use 

Final thoughts

Continuous improvement is essential to SaaS spend management in the long run. As you observe your SaaS spending metrics and talk to stakeholders, look for ways to improve your strategy. If you’re interested in a tool that can help enable SaaS visibility, cost management, and better feedback loops with your users, we invite you to sign up for a free (no credit card required) trial of Auvik SaaS Management today.