12 IT Cost Reduction Strategies to Eliminate Toxic Spend 

June 06, 2024

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Gartner estimates that 30% of SaaS spend is toxic — wasted on unused licenses and features. For enterprise companies, that can lead to seven figures of unnecessary spending. NPI’s data indicates the problem is only getting worse, and it’s by no means limited to SaaS. Overspending across all subcategories of IT is both common and concerning.

IT procurement teams need to establish tight control to right-size IT spending and eliminate toxic spend on SaaS and on other IT subcategories. Here are 12 IT cost reduction strategies that drive down costs without sacrificing quality.

1. Reharvest inactive SaaS licenses

SaaS licenses have grown significantly over the past few years. The average enterprise company had just 16 SaaS licenses in 2017, but today has more than 130. It’s become challenging to manage these contracts and usage. Yet harvesting inactive SaaS licenses is an easy way to reduce costs.

When employees leave, get promoted, or are reassigned, licenses sit idle. Often, these licenses never get reassigned to incoming employees — leading to continued growth in licensing costs that are simply unnecessary.

Auditing your SaaS subscriptions to identify waste can produce significant savings. A robust license management process can streamline tracking and ensure you are paying for what you actually use.

2. Realign software licensing based on actual usage requirements

Another area that is ripe for IT cost reduction is matching software licenses to usage. Many users only need basic functionality or access, but organizations often overpay by choosing the same, overpowered license types for all users. For example, Microsoft 365 E5 licensing offers advanced data analytics capabilities that many users may not need. Switching some users to E3 licenses can reduce costs.

3. Validate pricing is truly best-in-class

Vendor pricing is hard to pin down. How do you know if you’re getting the best deal? You need an independent analysis to understand what companies are really paying. This is true for all enterprise software, hardware, telecom and cloud investments. NPI’s data indicates that 89% of enterprise IT purchases and renewals are overpriced.

An example is ERP. For many organizations, ERP implementations are one of the most complex and expensive IT projects. Vendors love bundling pricing, which obscures their pricing strategy and makes it difficult to tell how much you’re paying for components and whether it’s a fair price. Price benchmark analysis often reveals significant savings.

CASB is another example. Cloud Access Security Broker (CASB) solutions act as an added layer of security for enterprise cloud services, serving as a proxy between traffic and core hosted applications — but pricing can vary greatly and there may be significant opportunities for IT cost reduction strategies.

IT price benchmark analysis helps you determine best-in-class pricing targets so you can negotiate the lowest price possible on your IT purchase and renewal.

4. Approach renewals strategically

Software and service renewals often come with automatic price increases. This can drive up costs quickly if you aren’t paying attention. The best advice is to take renewals off autopilot and to manage them carefully. Leave runway to re-evaluate your contracts, renegotiate terms, and consider alternative providers.

Make sure you don’t rubber-stamp these auto-renewals and provide proper notice to renegotiate. With increased competition among providers, there may be an opportunity for significant IT cost reduction.

5. Get on board with FinOps for cloud cost management

A Forrester study uncovered that a staggering 94% of enterprises are overspending in the cloud. As more companies move from on-prem to cloud resources, managing cloud costs is mission-critical. FinOps strategies are necessary to optimize cloud spending.

FinOps tools can help right-size cloud applications to avoid idle instances or unused resources from continuing to rack up cloud fees.

6. Don’t forget the hardware

Cloud spending and SaaS costs are now taking up the bulk of IT budgets, but hardware expenses can also contribute to toxic spend. It’s worth assessing your hardware inventory, consolidating redundant assets, and doing a cost analysis on on-premise hardware vs. cloud resources.

7. Stop overspending on IT professional services

IT professional services rate cards are notoriously overpriced. Conduct periodic price benchmark reviews of your IT professional services providers to make sure you are getting competitive rates in every geography.

8. Rein in telecom spend

For many companies, telecom spend is out of control. In fact, in our experience, a majority of companies are overspending on their wireless, wireline, and network connectivity. In some cases, this adds up to seven figures in unnecessary spend.

Reviewing your charges with a critical eye and ensuring your contracts align with your usage is a first step to eliminating toxic spend in your telecom budget. Some key places where costs can get out of hand include:

  • Inconsistent wireline pricing across multiple locations and/or regions
  • Inability to align wireless usage with carrier/provider options
  • Stranded costs for both wireline and wireless – another classic toxic spend example
  • Low visibility into wireless churn and rogue purchasing
  • Inability to leverage customer value and volume
  • Failure to secure best-in-class rates, discounts, and incentives for wireless services
  • Poor compliance monitoring

9. Explore support alternatives, including third-party

In some cases, your vendor isn’t the only organization capable of providing quality support. There are often third-party suppliers that can provide the expertise you need at a lower cost.

10. Optimize contractual business terms for better cost flexibility

Taking a critical look at your overall tech stack can help identify areas where you can consolidate purchasing to leverage discounts or incentives. There may also be discounts or credits that you are unaware of — and vendors may not be sharing with you unless you ask.

There’s also a misconception that while pricing may be negotiable, terms are not. That’s simply not true. You may be able to optimize your contractual business terms to provide greater flexibility.

11. Get maximum value from existing technology investments

Before investing in new technology or cloud services, you need to make sure you are leveraging existing IT assets. Optimizing resource allocation, conducting IT audits, and providing user training can help ensure you are getting the full value of what you already have.

In many cases, this can avoid spending on new tech or upgrades that are unnecessary.

12. Identify and remediate billing errors

Whether accidental or intentional, billing errors are common. Unnoticed, they can add up over time. You need a formal process for reviewing invoices to ensure accuracy and alignment with usage.

Carefully reviewing bills not only catches errors but may also provide insight into areas that can lead to additional IT cost reduction strategies.

Stop overspending on IT and telecom and maximize the effectiveness of your IT procurement teams and processes. Contact NPI today.