SaaS Management
Erin Geiger, Director of Content at Lumos

SaaS License Management

The average company uses well over 100 SaaS applications—that’s a lot of licenses to manage. Learn why license management is important, and how to get started.

In the roughly 25 years since the first Software-as-a-Service (SaaS) offering hit the open market, it has absolutely exploded in popularity. Worldwide, organizations were using an average of 130 different SaaS applications in 2022. Perhaps “using” isn’t the right word, since research shows that companies are wasting millions of dollars on unused licenses, a major challenge they must overcome if they want to optimize their business. 

It’s a very real, and very expensive challenge. But it’s not insurmountable, by any means. What’s needed is comprehensive SaaS management, including SaaS license management. If you’re not sure what license management entails, why it’s so important, or how you can get started, you should find the answers in this article. We’ll start simply, by defining what, exactly, we mean by software license management.

What Is Meant by Software License Management?

The phrase “software license management” refers to a system for tracking, documenting, and managing the different softwares used within an organization. It’s a subset or subcategory of SaaS management. The general concept of license management applies to standalone software products as well as SaaS technology platforms. 

What Are the 2 Types of Software Licenses?

In terms of copyright law, software will either be categorized as either proprietary or free and open source software (commonly known simply as “open source”). 

  • A majority of the software used by a business will generally be considered proprietary, meaning users gain access to the software product or SaaS platform and its features, but they’re not able to access or modify its source code—a precaution that prevents reverse engineering and other unauthorized usage. 
  • By contrast, open source software makes its product—as well as its source code—available to its users.

Within these two broad categories, there are more specific software license types that exist along a sort of continuum with proprietary software at one end and open source at the other. In all, there are at least five distinct license types (which you can learn more about in this TechTarget article) including lesser general public licenses, permissive licenses, and copyleft licenses.

What Is SaaS Licensing, and What Is SaaS Subscription Management?

SaaS licensing refers to the establishment of a contract (and its terms) between SaaS application providers and the businesses that use them. SaaS subscription management—or just SaaS management—for companies involves tracking and monitoring the various software and SaaS products and their licenses/subscriptions. 

Successful SaaS management means more than just keeping an up-to-date record of all active SaaS subscriptions. It also means tracking the services/features you’re using (vs. what you’re paying for), subscription terms and duration, how frequently each application is used, and so on. 

Common SaaS subscription examples for businesses include things like:

  • Accounting Software
  • Content Management Systems (CMS)
  • Customer Relationship Management (CRM) Systems
  • Enterprise Resource Planning (ERP) Solutions
  • Project Management Software
  • Internal Communication/Collaboration Solutions
  • Human Resources Applications

What Is SaaS User Management?

SaaS user management—a component of SaaS license management—specifically focuses on the creation and management of user accounts for each application the business uses. Effective SaaS user management plays a critical role in broader SaaS license management by helping organizations to optimize their licenses and subscriptions to reduce costs without sacrificing utility.

Why Is SaaS License Management Important?

Effective SaaS license management provides greater visibility into an organization’s tech stack, including how individual applications are being used and the ROI they are delivering (or not). That way, companies can better prioritize—and budget for—their most pressing needs, while shedding costs related to software licenses that are no longer being used, or used infrequently.

Increased Visibility and Oversight

Visibility and oversight are mission-critical considerations that, unfortunately, aren’t always at the forefront of every business decision. All too often, business moves fast and new SaaS applications might be quickly adopted and integrated into an organization’s techstack and workflows—perhaps too quickly. 

Ultimately, a rushed adoption or implementation process can cause greater headaches in both the short- and long-term. While you may adopt a specific SaaS application for a well-defined use-case, it’s important to think about how it might impact the utility or ROI of other applications. When multiple SaaS products are in use with overlapping functions, it can cause confusion—not to mention ballooning costs.

More Apps to Manage Means a Greater Need for Visibility

Every year, companies are spending more and more on SaaS applications. This is understandable when you consider how much the SaaS market size has grown to nearly $200B—and is expected to continue its rise. 

As recently as 2017, companies were only using an average of 16 different applications, but those numbers have significantly risen, year-over-year, ballooning to 130 applications by 2022. This is largely due to how the SaaS market has evolved over the years, resulting in an ever-increasing number of categories and subcategories of apps and a generally more crowded landscape. 

Certain challenges come with each new SaaS platform a company subscribes to, starting with integration challenges. Ideally, all software applications would seamlessly work together, but that’s simply not the case. With each new application, companies have plenty of work to do on the back-end, like choosing the appropriate features and subscription plan, creating and managing users, configuring access controls, and so on.

Optimizing Costs

For many organizations, the most compelling argument for effective SaaS license management relates to optimizing costs—including the reduction of wasted or unneeded licenses.

“Are We Using This Enough to Justify the Cost?”

This is a question that comes up frequently for businesses, especially as they see their IT budgets increase over time. If a company doesn’t have effective SaaS management practices in place, unused or underutilized software will continue to bite into their budgets without providing much—if anything—of value. Through increased visibility and oversight (discussed above), it becomes much easier to determine which subscriptions to keep, and which to move on from.

From 2021 to 2023, overall SaaS spending increased by 33%; but through effective SaaS license management, individual subscriptions can be reviewed and the entire tech stack can be consolidated, streamlined, and optimized. Software licenses, on average, consume roughly one-third (34%) of a company’s IT budget, further underscoring the importance of effective license management.

A Closer Look at the Cost of Wasted Licenses

When you consider the costs of unused or under-utilized SaaS applications, especially at scale, it’s no wonder that SaaS license waste is considered the top challenge for companies’ IT-related spending. According to TechRepublic, a whopping $34B “is wasted annually on unused licenses in the US and UK.” 

A Proactive Approach to Data Security and Regulatory Compliance

As IT professionals know, each SaaS application a company adopts comes with its own security considerations. As long as the organization has well-documented—and well-enforced—security measures and governance policies, it shouldn’t be too difficult to assess an application and implement it without compromising security—or creating compliance issues.

The Vital Importance of Data Security

From basic password security to access controls and more, keeping data and systems secure must be a priority for modern businesses. As we’ve pointed out, the more SaaS applications your company uses, the greater the need for increased visibility into how they are being accessed and used—and the greater the need for IT and security tools like those included in the Lumos platform

Regulatory Compliance, Made Easy

Especially as companies adopt more—and more varied—types of SaaS applications for their business, enforcing compliance becomes increasingly important. It becomes more difficult, too, without a system of software license management best practices. Depending on factors like company type and industry, an organization has certain standards and regulations they must comply with—data privacy standards, for example. 

By keeping close track of how each application is being used, and by whom, your organization can take a more proactive and informed approach to compliance. Before adding a new SaaS product to the mix, review its terms and conditions, so you can maintain regulatory compliance and mitigate potential penalties (legal and/or financial) 

Managing Contracts, Renewals

Whether we’re talking about a standalone software product license or a subscription-based SaaS application, there’s a contract involved. And while many SaaS contracts follow a sort of template, evaluating their terms and conditions isn’t always as easy as comparing apples to apples. 

Keeping track of these various contracts and their terms is an important aspect of SaaS license management. When there’s a reliable system in place for evaluating contracts, it makes it much easier for business leaders to understand each application’s value, and to make the best decisions possible for the business, balancing functionality vs the cost.

“Is This Worth Renewing?”

As each SaaS subscription nears its renewal date, it’s important to regularly assess whether these tools are providing enough value for their cost. All too often, companies tend to “quiet quit” certain apps as they find better alternatives. 

Research shows that the average organization “uses just 56% of their SaaS licenses.” This is a costly problem, especially when you consider that “70% of SaaS application contracts were renewed in 2023, despite being underutilized” by the organization.

Using a platform like Lumos makes it easy to monitor active SaaS subscriptions and make well-informed decisions about which applications to renew and which to let go. 

What Is the License Management Process for SaaS?

A general SaaS license management contains 5 key steps:

  1. Assessing your current SaaS license management practices. How do you evaluate a SaaS application before deciding to adopt and implement it? How do you track how much each application is used, and by which users or departments? Increasing visibility into the organization’s tech stack—and thereby understanding its needs for effective SaaS license management—is the first step for any successful initiative.
  1. “Normalize” talking about SaaS license management. Implementing an effective, well-rounded SaaS license management system can present a learning curve for some organizations. Evaluating the finer details of each SaaS application and its usage can be overwhelming, especially at first, but it’s not insurmountable. The more awareness there is throughout the organization, the easier it will be to maintain and strengthen the SaaS license management process over time.
  • As you transition from talking about SaaS license management to actually implementing it, set clear software license management roles and responsibilities to ensure that your bases are covered and efforts aren’t being duplicated, as well as processes for continual assessment and further optimization over time.
  1. Centralize all things SaaS license management. Relying on manual processes or managing SaaS licenses on a strictly application-by-application basis is like playing Whack-a-Mole, especially when you consider the sheer number of new applications hitting the marketplace every year, month, and even week. This is where a SaaS license management platform like Lumos can be an absolute game-changer.
  1. Track usage—and ROI—over time. Once the contracts are signed and the terms and conditions have been agreed upon, the next step is to track each app’s usage (and value) so when renewal time rolls around, you’ll be ready to make the right call for your business. Another important thing to consider is that new SaaS applications are constantly hitting the marketplace, so just because a particular app “seems to be working pretty well” doesn’t necessarily mean it’s going to be the best option indefinitely.
  1. Always be looking to refine your SaaS management processes over time. To help you fine-tune and further optimize your SaaS management program, the tools within the Lumos platform enable you to enable self-service, automate key workflows, set role-based access controls, deliver custom reminders, and so much more. What this ultimately means is more efficient operations, reduced IT tickets, and much quicker onboarding for new team members.

What Is the Best SaaS Management Platform?

The best SaaS management platform provides all the necessary tools you need to manage the SaaS subscriptions that keep your business running. It will provide an intuitive, centralized platform for everything from SaaS management to access reviews, identity governance, and self-service automation. 

If you’re looking for the best software license management tools for your business, Lumos checks these boxes—and more. Learn more about our powerful SaaS management platform, or request a demo to see it in action!