There has been a lot of debate about the phasing out of on-premise software in favor of SaaS. The overall consensus is something like this – on-premise is going the way of the residential landline. Sure, it will continue to exist and some will continue to use it (more than enterprise SaaS providers would have you believe). But the overall transition to SaaS is accelerating. Gartner estimates IT spending on public cloud will overtake spending on traditional IT sometime in 2025, and SaaS is a large component in that shift.
So where does that leave SAM and software cost management best practices? Foundationally, many of the principles remain the same. But the tactics to manage enterprise SaaS costs versus on-premise need refreshing.
Start By Prioritizing Your Focus
One of the core tenets of supplier management is supplier segmentation. To effectively manage suppliers, they must be segmented according to spend, function, etc. The same goes for SaaS suppliers.
Not all suppliers are created equal. A subset of your SaaS portfolio accounts for the largest spend and risk. NPI recommends focusing primarily on enterprise SaaS vendors – those vendors that account for the majority of your SaaS spend and touch the greatest number of workers in the business. Common ones are Salesforce, Microsoft (Office 365), Workday and Adobe.
Don’t Overlook Vendor Management
A comprehensive approach to SaaS cost management must include vendor management – and the nuances of managing a SaaS provider are important. Cross-functional team alignment is mandatory. This includes procurement, IT, business units, and ITAM.
There are several factors driving the criticality of cross-functional team alignment:
- Deals are getting bigger and are spanning the entire organization. Let’s use a Salesforce purchase as an example. You may have multiple instances of Salesforce running in your business, but if you’re not leveraging your total footprint for a purchase or renewal, you’re leaving money and concessions on the deal table. It’s also very easy to suboptimize a deal because different products (Sales Cloud, Service Cloud, etc.) each have different constituencies. Instead of optimizing a slice of the pie, you need to optimize for the entire enterprise footprint.
- IT needs to have specialized resources who understand different products offered by one vendor. What functionality can be used across different areas of the business? How are these licensed and priced?
- Unmanaged vendor communication can impact in-flight purchases and renewals. Continuing with the Salesforce example, the vendor often has multiple salespeople selling into different parts of the business. You can be assured that the Salesforce team is fully aligned on how to extract the most revenue from your business and counts on lack of internal alignment to get the job done.
Three Questions to Ask
To effectively manage enterprise SaaS spend, start with these three questions:
- Are you using everything that you’ve purchased? Conduct an annual license optimization assessment on each of your major SaaS estates to determine if you can right-size license assignments, liberate inactive licenses for redeployment, or reduce your demand forecast for upcoming renewals.
- Are all the licenses and ‘Add-ons’ you own (or intend to purchase) aligned with your use cases and current- and/or future-state requirements? This is fundamental to optimizing any enterprise-scale license agreements with your SaaS vendors.
- Are you paying the best price? Price transparency is historically awful for enterprise SaaS purchases and renewals. What one customer pays can be significantly more or less than what another customer with similar requirements pays. To determine if you’re paying a fair (or better…) price, perform IT price benchmarking analysis on all new purchases and renewals. This intel will be critical to a successful negotiation and to de-risking your current and future-state spend.
- Bulletin: Is Salesforce’s Rapid Growth Good for Customers?
- Blog: Why Does the Salesforce Renewal Negotiation Have to Be So Hard?
- Blog: When to Start Working on Your Salesforce Renewal
- NPI Service: IT Price Benchmark Analysis and Negotiation Intel
- NPI Service: SaaS License Optimization Assessment
- NPI Service: Enterprise Software License Optimization Consulting