Spend Management POD
Erin Geiger, Director of Content at Lumos

Building a Capital-Efficient SaaS Stack

Here, we share questions to ask and strategies to employ to build and maintain a capital efficient SaaS stack that can scale with your organization’s evolving needs – without blowing the IT budget.

SaaS has revolutionized the way we work. Apps help secure our internal systems by serving as multi-factor authentication touchpoints. We have apps for chatting with teammates, sharing files, viewing analytics dashboards, handling human resources functions – and that’s just the tip of the iceberg. 

Global end user spending on public cloud services – which includes SaaS – is projected to increase by 20.3% this year. While the industry is growing, how IT teams use SaaS is changing. Budgets are being slashed and leaders are being told to do more with less. It’s the perfect time to adopt a capital-efficient mindset when building your SaaS stack. Doing this can help cut duplicative and unnecessary spending, and make sure that SaaS expenditures per employee can be tied directly to the value of the business.

Several surveys of IT leaders in recent years have put the average annual SaaS spend per employee in the several thousands of dollars range. If a company with 100 employees spends $3,000 per year on SaaS subscriptions, this means the company could be spending $25,000 on SaaS subscriptions per month – or $300,000 per year. 

Here’s where that becomes problematic in the current economy, when IT leaders have the mandate to “do more with less.” Approximately 25% of SaaS subscriptions are underutilized or not used at all. For that company with 100 employees, that means $75,000 of SaaS spend is going to waste annually. Let's go SaaS spend management.

“People just keep spinning up more and more instances and just aren’t even reining anything in. And I think now’s a really good time to start looking and auditing what has been done to scale very quickly over the last year and a half,” Brian Seguin, chief operating officer at cloud expertise company Stark and Wayne, says.

The hidden costs of Shadow IT

Employees may feel empowered to expense SaaS applications that help them do their jobs. While the “do it yourself” approach can be efficient, oftentimes these purchases aren’t reported to IT. The consequences of this only snowball from there. The proliferation of shadow IT makes it difficult to determine which applications are being used and how much is being spent – and likely includes some duplicative spending.

Making a list of all applications, their business purpose, cost, and renewal dates, is the first step toward building a capital-efficient SaaS stack – but it will take some major sleuthing to ensure it’s comprehensive.

Just how many apps should you be looking for? The average large company uses 110 SaaS apps – and that’s not counting shadow IT. Creating a centralized record will provide a source of truth for your IT spending and can help track application cost, usage, ownership, and give you an overall picture of your IT spending.

Creating a centralized record will provide a source of truth for your IT spending and can help track application cost, usage, ownership, and give you an overall picture of your IT spending.

While everything ultimately should tie back to the bottom line, examining costs and waste is only part of the capital efficient SaaS journey. Below, we’re sharing some of the questions to ask and proven strategies to employ as you examine how to make your SaaS stack more capital efficient. Find the mix that works for your company, track the data, and prepare to see your total technology spend per employee decrease.

Gather utilization data for every app

The quickest way to reduce IT spend per employee is to gather a granular snapshot of utilization data for each app. This holistic view should include the number of user licenses you’re paying for, and a view that shows logins in the last 30, 60, and 90 days. Be sure to take note of employees who may be over-provisioned. Are they regularly using the extra features the company pays for them to access?

Consider employees who have departed the company. There’s a chance you may still be paying for them to access core apps, and might not even realize it. For example, removing 329 accounts from a popular work communications app at $12.50 per license can save the company $4,122.50. And that's just in one month.

Using a SaaS management platform can help identify and keep track of these inefficiencies, so you can address them as soon as possible.  Sync your account data across spending, purchased licenses, account activity, and shadow IT to get a clear view of your SaaS stack and actionable insights that will save money. A SaaS management platform can serve as a source of truth for your spending, app usage, invoices, and license. Think of it as a piece of infrastructure that can administer software access, streamline budgets, and manage and reclaim unused licenses.

Build a just-in-time inventory of licenses

There’s no need to pay for an entire license for one employee if they only expect to periodically use a service. This is where JIT can help. A SaaS management platform can manage a pool of flexible licenses, granting access to employees when needed, and revoking it when it isn’t being used, so someone else can utilize it. Overall, this reduces a company’s access footprint and cost savings per employee. 

Look for opportunities to consolidate

While some SaaS applications may serve nearly the same – or similar – purposes, now is  the time to determine which ones may be duplicative. Make a list of your top apps, spend, and KPIs. Next, sift through your master list to find similar apps. Ask employees about how their value ties directly to the business. If there isn’t a significant need, or if there’s another app that can be used, consider consolidating and using the additional seats needed as leverage for when it comes time to negotiate your renewal. Ideally, the more employees you add, the cost per seat should be trending downward.

If there isn’t a significant need, or if there’s another app that can be used, consider consolidating and using the additional seats needed as leverage for when it comes time to negotiate your renewal.

Build processes for the future

Shadow IT can feel a bit messy. It can also be responsible for a lot of expensive, labor intensive cybersecurity emergencies that take up IT team members’ time. That doesn’t mean employees still shouldn’t be empowered to expense solutions that help them do their jobs. Instead, create a culture of openness, where employees can ask questions and get their proposed SaaS expenditures reviewed before making a purchase (might we suggest, an AppStore). Be sure to also document everything in your central system, and give employees access to the system, so they can see if an app is already approved.

Monitor performance and adjust accordingly

Building a capital efficient SaaS stack is very much like making a spaghetti sauce that is perfect for your palette. Consider these initial steps the basics. Now, it’s time to taste test and add more spices accordingly (or perhaps drown them out with more tomatoes) to get it just right. Set regular check-ins to monitor your company-wide SaaS usage and performance to identify areas where you can optimize and improve efficiency. With regular check-ins, you’ll be in a position to identify any issues before they become costly problems, keep your stack lean, and be well-informed with data when the time comes to negotiate subscription renewals.

SaaS is an important part of the way we work, but it needs to be working for us. Gartner forecasts that by the end of 2023, 16% of an organization’s total budget will be allocated to SaaS products. Now, it’s up to IT leaders to make sure they’re placing their IT budgets in the right place, cleaning up waste, and most importantly – getting the best bang for their buck to carry their organization through these tumultuous times and set them up for continued success.