Reducing SaaS Expenses in the Time of Corona
Key Stakeholders: Chief Information Officers, Chief Financial Officers, IT Finance Directors and Managers, IT Procurement Directors and Managers, Accounting Directors and Managers, Telecom Expense Directors and Managers, IT Operations, IT Strategy, FinOps Directors and Managers
Why It Matters: SaaS expenses add up fast, especially when employees use more than one app for the same purpose. In the time of COVID-19, it’s critical to pare down costs and save jobs.
Top Takeaway: In cash-strapped environments, Software as a Service is an area of spend that is ripe for review based on employee flux, new application needs, and a round of quarantine-induced Shadow IT.
Managing IT in the Time of Corona calls for inquiry into a number of areas. So far, we’ve talked about the six overall stages of COVID IT management, ways to adjust telecom and network resources for the rest of 2020 (and beyond), and controlling wireless expenses as 40% of staff or more work from home. The next category to assess? Software as a Service, or SaaS. Digging into this facet of the technology environment will uncover which apps employees use so the enterprise can make some crucial decisions: what stays, what goes, what needs new contract terms. This action is essential as the world heads toward a recession of unknown length and impact. IT, financing and procurement must do their part now to help the business batten down the hatches. Analyzing the current state of SaaS, and then streamlining it, will address this need.
No One Wants to Lose
Before you start, understand that employees will want to cling to their apps – and SaaS vendors will want to keep your organization as a customer. The IT team and its colleagues will have to walk a fine line between keeping staff happy and protecting the business’s bottom line. The reason why boils down to one reality – that people are perhaps even more attached to their apps than to their mobile devices. That’s because apps serve specific purposes and solve particular problems.
At the same time, the last thing SaaS vendors want, or need, right now is to lose clients. COVID-19 already has given rise to the highest jobless rate in over 80 years. Companies throughout the United States are motivated to retain as many customers as possible and that goes for the SaaS world as well. In fact, this segment of technology well could be the most relationship-dependent. Again, apps are personal and SaaS profitability is dependent on medium-to-long term relationships. SaaS companies need time to prove the indispensability of their software and earn the long-term contracts and relationships that lead to profit. This means that SaaS companies have incentives to work with enterprises seeking to organize and reduce costs.
Don’t Fear ‘DISRUPT’ion
Before deciding which apps make sense to keep, and which need to hit the highway, “DISRUPT” your environment with the following assessment:
Discover new apps. Find out what’s residing in the enterprise and whether it is IT-approved.
Inventory all licenses. Understand what the organization is paying for each month, and evaluate whether the licenses match up with employee numbers and roles.
Spend and usage visibility. Does the IT team have this level of insight? If not, who does?
Recycle licenses. Where can IT re-allocate use of a license instead of paying for an additional one?
Unite SaaS categories. Simply put, consolidate vendors. Many apps serve a similar purpose. Choose the best one for the organization and eliminate the rest.
Prune unused services. On a similar note, get rid of any SaaS employees do not use. Why pay something for nothing?
Training and enablement. Educate employees so they know how to make the most of the SaaS for which the company is paying. This will ensure the organization and its people use the app to its full advantage.
The “DISRUPT” phase of a SaaS assessment may take several months to complete. But it’s just the first step in a series of actions IT needs to take to better prepare the organization for predicted economic headwinds.
Follow These Steps
The steps below provide a mix of recommendations for reducing what the organization spends on SaaS, and for (re)negotiating with vendors. After you benchmark your spend, take the rest of these steps in the order that makes the most sense for your business leading up to the final negotiation process.
Step 1: Benchmark March and April’s Spend
Next comes the much-discussed benchmarking phase we’ve been driving home for the past couple months. As we note in previous blogs on COVID IT, benchmarking March and April 2020 usage and spend is a must. Glossing over, or skipping this step, would prove fatal to effective IT expense management in the face of a looming recession. You do not want to optimize on pre-COVID-19 assumptions. The sooner IT can pinpoint how COVID has affected the organization, the sooner it can react – all based on data.
Pro tip: Take advantage of free offers. For instance, G2 Track is providing a 90 day free trial of its software expense platform.
Step 2: Prepare for Tough Negotiations
Identify the software vendors with which the organization spends the most money. If your organization is tight for cash, take the following steps. (Note: Amalgam Insights considers these to be extreme measures appropriate only in a pandemic recession or when the survival of the business is at stake.) For each of those providers, choose a “credible threat.” In other words, be ready to move to an app that does the same job as the current one, and be prepared to use that readiness in negotiations. Also, back up all data residing in the current software. Do all this in case it becomes necessary to walk away from negotiations because the vendor won’t work with you. And then make your demand or request, which may include postponed payments or a payment holiday. As a non-software example, consider how Starbucks sought a rent “vacation” for 12 months.
Step 3: Escalate Negotiations in Your Largest SaaS Vendors to the Executive Level
Here, teaming with your CFO on outreach to SaaS vendors’ top leaders should prove really helpful. The CFO office should send a letter to all vendors stating that there is a formal effort to reduce costs and providing guidance both on the current company situation and need for financial relief. Start with the sales and accounts teams so as not to damage good relationships, but be prepared to escalate the conversation. Once the vendor sees that executives are actively reviewing spend for all major accounts, negotiations often get easier. Citing circumstances including COVID-19, the probable recession and high unemployment may help, but credible backing and financial documentation from the CFO cements the seriousness of the requests at hand.
Throughout all the activity, maintain consistency in requests among vendors. The idea is not to play favorites or be a bully. To avoid that, standardize the wording on all negotiation documents and emphasize how much the organization values partnership with its SaaS vendors.
Step 4: Delay, Discount, Deny
Once SaaS providers finally have your business – which usually comes after a prolonged period of time – they know their best interest lies in keeping you as a customer. And in these tough times, these vendors often are willing to make concessions in the interest of long-term relationships. To get the outcome you want for the organization, start with a win-win approach. Offer various carrots such as lengthening the contract, serving as a customer reference, introducing their account team to other people in your business who could use the product, and so on. Ideally your organization and the SaaS vendor will be able to create a tighter relationship that provides quid pro quo benefits.
However, if the vendor will not play ball, it may be time to prove how far you’re willing to go. First off, you may have to show the vendor your books and prove why the organization is asking for new terms. If that doesn’t do the trick, figure out how to push back. Potential tactics include:
• Delaying payments and audits
• Discounting reduced payments
• Disputing excess capacity and unknown charges
Make sure the organization’s usage aligns correctly to the terms of the deal with the SaaS vendor.
Step 5: Rein in Employees
COVID-19 and its subsequent economic effects have made one thing blatantly clear: the SaaS party is over. In these critical times, the business must pare down what it pays for and enforce that change. No longer may employees choose their own separate SaaS vendors. And no longer may they may use 10 apps that does the work of one. Money and jobs are at stake.
So, to rein in employees, categorize apps by whether they are a priority, a luxury or a vanity.
Priority Apps: These apps are mission-critical, show well-articulated value and are widely adopted across the organization.
Luxury Apps: These apps tend to facilitate work, but they have inconsistent value and employees struggle to adopt them.
Vanity Apps: These apps do not contribute to work outcomes, and defining their value proves difficult. Staff only use them in niche instances.
Once all apps are categorized, it becomes easy to whittle down the number and type. Staff will want to push back but if the organization is footing the bill, its best interest is the priority.
Step 6: Think Differently
The key question to ask is, what can IT, finance and procurement do to minimize the organization’s risk and manage cash well? Before stepping into the (figurative) negotiation room, find the answer by analyzing the areas outlined below:
• Reconsider spend and license minimums (the organization may actually have a chance to save money by using an app in a different way, for instance)
• Enact scheduled audits and peak/valley exceptions• Shift from per-user to use case or revenue share (this would eliminate per-user scaling, which adds up quickly)
• Look for leeway (find out if the SaaS vendor has any flexibility on its payment terms, or whether it offers financing. Multiple large technology companies desperate to keep users in the time of Corona are putting up billions of dollars in financing.)
• Include COVID-19-specific clauses (act-of-god type of verbiage can provide a way out if no other path comes of negotiations.)
Together, some or all of these tools and strategies should result in positive change as the organization trims its SaaS expenses. With any luck, negotiations will go smoothly and all parties will exit feeling better about the long-term outlook. We’ve presented the worst-case scenario options in hopes they will lie fallow, but being prepared is better than being surprised.
***If you are seeking outside guidance and a deeper dive on your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation.
***Join us at TEM Expo on July 14 to learn more about how to prepare for COVID IT and take immediate action to cut costs.
***And if you’d like to learn more about this topic now, please watch our webinar.