Amid ongoing economic uncertainty and recession concerns in the market, CFOs are making critical decisions regarding cost optimization and budget cuts. Businesses are actively striving to be cash flow positive; however, they seem to be neglecting a prominent cost escalator: software as a service (SaaS) applications.
The widespread adoption of SaaS applications in recent years is evident, yet in many organizations, these apps remain largely unaccounted for, inadequately tracked, and poorly managed. Which can be a challenge for CFOs, making cost optimization decisions harder for the team.
With organizations reporting that software spend is the third-highest expense after employee and office costs, here are six effective strategies for CFOs to reduce software spend and get the most out of their software investments in uncertain, inflated market conditions.
1. Analyze What You Have
Conduct a thorough analysis of your SaaS stack, how much you spend on it, and the ROI it generates. Compile a complete inventory of all the SaaS applications your organization is currently using.
Once you have a comprehensive list, analyze the app spend and usage. This involves understanding the subscription fees and additional costs like user licenses, maintenance, and support.
And then benchmark your SaaS spend against industry peers or similar organizations. According to a recent SaaS spend report, a company with 500-1000 employees uses 300-400 apps on average and spends around $5 million to $15 million on SaaS applications.
This benchmarking process helps you understand whether you’re paying higher or lower than your peers and identifies areas where potential cost savings could be achieved.
2. Vendor Consolidation
A rapid approach for CFOs to cut costs is consolidating redundant applications. Instead of using two or more software solutions that perform similar functions, CFOs can streamline their software stack and save on spend by consolidating those app features into one comprehensive application.
This approach minimizes the financial burden of managing multiple applications and associated licenses. It enhances operational efficiency, as employees can collaborate and work within one comprehensive platform, making SaaS and spend management easier.
3. Preventing Shadow IT Before it Happens
Gartner reports show that 30% to 40% of IT spending goes to shadow IT, where employees purchase applications using corporate credit cards without IT approval.
As a CFO, you must have access to advanced SaaS spend management solutions for complete visibility over your SaaS stack. Stop relying on spreadsheets.
With a spend management platform, you can see who uses unsanctioned applications and make informed optimization decisions. The system proactively sends alerts upon detection of unsanctioned applications, effectively preventing instances of shadow IT before they occur.
App catalog is another effective way to prevent shadow IT. By offering employees a sanctioned inventory of applications to choose from, you deter them from procuring unauthorized software independently, ultimately reducing the risk of shadow IT.
4. Analyzing the Usage Patterns
ROI is a significant factor in understanding the value of the applications. Poor ROI is a consequence of poor usage. Many organizations have this practice of purchasing licenses more than the requirements, and those licenses would end up unused, leading to wasted spend.
Merely monitoring logins is inadequate; what's required is tracking whether all the features are used or not. CFOs can leverage a spend management platform to monitor real-time user activity and feature usage patterns, e.g., how many opportunities were created in Salesforce, or how many meetings were recorded via Zoom, warranting a user has an enterprise-level license.
This enables them to reallocate or optimize underutilized licenses during negotiations, increasing cost savings.
5. Build a Cost-Conscious Culture
Build a culture of cost-consciousness in an organization to prevent users from exceeding allocated budgets, making shadow purchases, etc. Educate the team on cost-conscious benefits, the challenges of uncontrolled spending, and how it will impact the bottom line.
Users must focus on the ROI of applications when raising a purchase request instead of purchasing a product just to get a task done.
CFOs must ask the right questions before approving a purchase request:
- What advantages will the application bring to the organization?
- How much ROI will this app generate?
- What is the expected duration of the application's usage by the team?
- How quickly will it influence our revenue or expenses?
- Will there be additional/hidden costs regarding support, upgrades, etc.?
- Is the application within the allocated budget?
Incorporate these questions into your intake forms to gain insight into the reasons behind each request and anticipate the expected outcomes from the application.
When implemented at the grassroots level, this approach will naturally nurture a culture of financial consciousness, leading to well-managed spending and reliable investment returns.
6. Streamline the Procurement Process
Don’t stop with the intake forms. Go ahead and create a world-class procurement process, train your employees to use it, and ensure they follow a standardized process while purchasing SaaS applications.
A streamlined procurement process with automated workflows will provide transparency to the users; they’ll be able to track their requests in real-time, increasing accountability and expediting the purchasing process.
A streamlined procurement process will help the CFO prevent overspending on applications, making aligning the spending with their financial goals easier.
By implementing these strategies, CFOs can easily navigate uncertain times, ensuring every software investment contributes meaningfully to the company's top and bottom lines.