SaaS Costs to Decline in 2023

Software-as-a-service, or SaaS, is a cloud-based delivery model that allows users to access software applications through subscriptions rather than purchasing and installing them. Service providers host the software on their servers and make it available to subscribing users through web browsers, mobile applications and APIs. Compared to traditional software delivery models, SaaS offers customers many benefits, including lower upfront costs, scalability, flexibility, and availability. Using the SaaS model, users can avoid investing in expensive infrastructure and instead pay a subscription fee to access the software as an on-demand service.

The SaaS industry has experienced impressive growth over the past five years. According to a recent report, 99% of companies use at least one SaaS solution to run their business, with 38% of companies reporting that all of their operational processes rely on SaaS platforms. The SaaS industry is growing at 18% annually.

The meaning of SaaS

Until the last decade of the last century, businesses relied on packaged software installed on their internal systems. Below are some of the key factors that have contributed to the replacement of standalone in-house software with SaaS solutions:

• Many organizations have moved from traditional in-house software to cloud-based SaaS solutions because of the scalability, flexibility and cost-effectiveness offered by SaaS.
• Major cloud providers such as AWS, Microsoft Azure, and Google Cloud have made significant investments in expanding their services, resulting in a more robust cloud infrastructure.
• SaaS providers use AI to provide advanced features such as predictive analytics, natural language processing (NLP), and machine learning (ML).
• SaaS providers expand beyond operating systems and platforms and allow third-party developers to build and deploy their own applications on top of SaaS infrastructure. This opens up new opportunities for innovation, customization and cross-platform integration.
• SaaS providers increasingly provide integration with other applications and services, making it easier for users to connect and share data across different systems and platforms.
• Data security has become a top priority for SaaS providers, with an emphasis on providing advanced security features such as encryption, authentication, and access control.

SaaS spending growth in 2023

Although reports have shown that switching to a SaaS-based system can result in a 16.1% reduction in IT maintenance costs, companies continue to be concerned and confused by the rising costs of SaaS subscriptions. As the economy faces another tough year and businesses shrink, there are concerns about uncertain SaaS spending in 2023 and beyond. In addition, the SaaS inflation rate is 3.5 times higher than the market inflation rate in the US. Finances Online reports that large SaaS enterprises in the United States will increase prices by an average of 7.9% in 2022, small companies by 6.3%, and mid-sized firms by 6.2% in 2022.

A recent survey found that 57% of IT teams are under pressure to reduce SaaS costs, and this trend is likely to continue.

Some of the reasons for increasing SaaS costs for companies include:

• Mismanagement of SaaS can lead to wasteful spending and overspending, leading to unnecessary costs.
• Mismanagement of licenses is a common cause of wasted SaaS spend.
• Failure to license software used by ex-employees can result in further budget overspending.
• Ad-hoc purchases of SaaS products can lead to uncontrolled spending and loss of budget control.
• A lack of awareness and planning can lead to repeated, last-minute purchases of similar SaaS products.
• Manually managing SaaS spend can lead to errors and oversights, making it difficult to track licenses and incurring unnecessary costs.

The Importance of SaaS Cost Management

Effective SaaS cost management can reduce unnecessary costs and maximize RoI on SaaS applications. SaaS costs include the following:

• Acquisition Costs: Selecting and purchasing any SaaS subscription involves ensuring that the tool fits your business needs, operating procedures, and budget. An extensive analysis of the existing workflow and deployment of the SaaS subscription to the workflow should be performed to minimize the risk of the organization purchasing redundant or, worse, unnecessary services. Preliminary analysis can help businesses identify effective and suitable SaaS tools to increase their productivity and profitability.
• Usage costs: The proof of the pudding, as they say, is in the eating. Effective SaaS cost management requires that SaaS application usage and performance be continuously monitored and optimized to meet business needs. Periodic evaluation of its usage, features and RoI is essential to optimize the SaaS portfolio.
• Maintenance Costs: A period review is essential to decide whether a SaaS application justifies its existence in terms of RoI. Optimizing a SaaS tool requires consolidating overlay tools, allocating resources based on business needs, and renegotiating/updating subscription contracts to eliminate unused features. Such optimization helps an organization make informed decisions about renewing, renewing, downgrading, or terminating subscriptions.

Ways to optimize SaaS spending

To develop a successful SaaS spend management strategy, organizations must take steps to understand their SaaS inventory, optimize their usage, and predict their future spend by extrapolating current usage patterns and anticipated future needs. The following steps will help you develop an effective SaaS cost management strategy:

• Maintaining an inventory of all SaaS applications used in the company is essential to avoid duplication and unwanted purchases. Relying on manual spreadsheets or self-reporting can result in inaccurate and outdated inventories.
• Once the inventory is created, it should be pruned to eliminate all subscriptions that are unused, unnecessary, or redundant. This includes deleting underutilized licenses, consolidating duplicate subscriptions, and reducing overlapping features to reduce redundant applications.
• Organizations can use data collected from their SaaS system to predict future SaaS costs. This can be automated through a SaaS management platform that continuously analyzes usage data and trends, providing insight to optimize spend.

SaaS cost management tools are software solutions designed to help organizations optimize spending on SaaS applications. These tools provide real-time visibility into all SaaS purchases, usage data, and costs. By automating workflows and providing data, SaaS cost management tools can help organizations identify unused or unnecessary software, consolidate redundant subscriptions, and negotiate better deals with suppliers. Some popular SaaS expense management tools include Zylo, Cleanshelf, Blissfully, Intello, and Genuity. These tools typically offer features such as auto-discovery, license optimization, expense tracking, and vendor management.

Nanonets Provides cutting-edge AI-based data mining and automation solutions that can streamline SaaS expense management processes and improve data collection and analysis. Integrating Nanonets into your SaaS expense management strategy provides several benefits, including automated expense recognition and classification through AI-powered data mining. This advanced technology helps eliminate manual data entry, reduce errors, and save time for your team. The Nanonets solution can be seamlessly integrated with existing financial and procurement systems, ensuring efficient data flow and coordination between platforms. Using AI-based analytics, Nanonets can help identify trends, predict future SaaS spending patterns, and cost-saving opportunities to enable data-driven decision-making and optimize software investments. The Nanonets solution also provides comprehensive reporting and visualization tools that offer improved visibility into SaaS costs and usage patterns, helping to identify inefficiencies, monitor compliance, and align SaaS investments with strategic business goals.

Benefits of SaaS Cost Management

One of the most important benefits of SaaS cost management is cost control and budget management. As the number of SaaS subscriptions within an organization increases, so does the complexity of managing their associated costs. SaaS cost management tools and strategies allow businesses to establish a clear overview of their SaaS costs, helping them allocate budgets more effectively and identify areas of potential cost savings.

Another important benefit of SaaS cost management is enhanced visibility into SaaS usage and spending. Without proper management, organizations may struggle to track SaaS tools used and costs incurred. SaaS spend management provides a comprehensive understanding of how SaaS tools are being used, enabling decision makers to make data-driven choices and optimize the actual usage of their software investments based on patterns and needs. This level of visibility ensures that organizations only pay for the software they need and use, which can lead to significant cost savings over time.

Finally, SaaS expense management enables better decision-making through data-driven insights. By systematically analyzing SaaS usage data and costs, organizations can identify trends and insights that inform their software acquisition, optimization, and upgrade strategies. For example, usage data analysis can help organizations identify tools that are no longer being used and can be discontinued, resulting in cost savings. This data-driven approach to SaaS spend management helps businesses identify opportunities for improvement and make more informed decisions about their software investments, ultimately leading to more efficient and effective operations.

conclusion

Effective SaaS cost management involves a comprehensive approach that includes thorough auditing of SaaS usage, identifying and prioritizing critical applications, removing unused or redundant applications, consolidating licenses, and negotiating favorable contract terms with vendors. Additionally, optimizing SaaS usage through employee training, automated workflows, and subscription sharing can further reduce costs and improve efficiency. It’s also important to choose the right SaaS applications by prioritizing business-critical applications, choosing flexible pricing plans, considering open source alternatives, and avoiding unnecessary features. By implementing these strategies, organizations can achieve significant cost savings and improve their SaaS management practices.