Your job as an IT sourcing professional is extraordinarily tough – and becoming more challenging every day. You’re tasked with ensuring hardware, software, and services align with your budgetary and business goals. For IT purchases and renewals, this can be extremely challenging across complex contracts, service tiers, and a constantly evolving product mix.

Another challenge? Enterprise IT spend is skyrocketing. Gartner estimates worldwide IT spending will total $5.26 trillion in 2024, an increase of 7.5% from 2023 – and is on track to surpass $8 trillion by 2030. IT sourcing teams today must be strategic and agile in order to speed buying cycles while simultaneously spending judiciously.

The first step? Having the right intel to help you negotiate world-class outcomes on IT purchases and renewals. Procurement market intelligence for IT sourcing is critical to getting the right products without overspending.

What is Market Intelligence in Procurement and Why is it Important to IT Buyers?

Procurement market intelligence encompasses the gathering and analysis of market trends, supplier capabilities, pricing benchmarks, and vendor risks. It’s a critical part of the due diligence and preparation required to select the right supplier and SKUs at the right price. Without this information, buyers are all but guaranteed to overpay for IT purchases and renewals.

This isn’t hyperbole. Our procurement market intelligence team has analyzed billions of dollars in actual spend and found that enterprises typically overpay for more than 85% of their hardware, software, cloud, IT professional services, and SaaS purchases. It’s not uncommon for benchmark data and procurement market intelligence to reduce large enterprise IT purchase and renewal costs by 7 or 8 figures.

Market intelligence in IT procurement evens the playing field with IT vendors, arming you with the information you need to negotiate better contracts.

Types of IT Procurement Market Intelligence

Negotiations are stacked in favor of the suppliers. They do a large number of deals and know what the market will bear. In addition, IT contracts today are incredibly complex and change regularly. While suppliers know every detail in their agreements and all the nuances of product use rights, IT buyers typically don’t. Suppliers use this to their advantage. They have a game plan and are well-trained to execute it flawlessly.

Procurement market intelligence is critical to understanding current market dynamics to develop your own game plan and ensure you get best-in-class pricing and avoid overpaying for IT purchases.

Key Components of Procurement Market Intelligence

To negotiate more favorable contracts and lower prices, procurement market intelligence provides you with actionable intel to even the odds.

Market and competitive analysis involves studying the broader market, including trends, pricing, and the competitive landscape. This component helps you down-select the shortlist of viable suppliers for your needs.

Supplier analysis is the process of evaluating the capabilities, strengths, and risks of viable potential and existing suppliers. This involves assessing factors such as financial stability, strategic focus, performance trajectory (up or down – that influences your negotiation strategy), among others.

Supplier analysis helps you identify the best partner for your IT procurement needs, ensuring you choose the right vendor for your business.

Cost analysis focuses on understanding the cost structures of products and services you are considering. This includes analyzing pricing models, identifying cost drivers, and comparing prices across different options. For example, you may be getting a good price on a SaaS solution, but dramatically overpaying for support costs.

You need hard data to secure world-class negotiations, including:

• Historical pricing and consumption intel
• Benchmark pricing data for specific products
• Licensing and subscription intel
• Vendor negotiation behavior intel and motivations

Cost analysis helps you define your identify opportunities for cost savings and negotiate better deals. License optimization consulting can also reveal cost reduction for your software, SaaS and cloud services deployments. It ensures you have the best-fit licenses, are matching deployment to actual usage requirements, and know the pros and cons of licensing options.

NPI’s expert IT procurement consulting can help you buy only what you need at the lowest possible rates.

Benefits of Implementing Procurement Market Intelligence

With procurement market intelligence, you can improve your IT acquisition and management strategy in several key ways.

By providing detailed insights into market pricing, cost structures, and supplier performance, you can make better decisions to reduce procurement costs. These savings can be applied to other resources needed to meet business goals.

With insights into market trends, emerging technologies, and competitor activities, you can remain competitive without overspending. This enables you to adapt your procurement strategies to capitalize on new opportunities and stay ahead of industry changes.

Overspending introduces risks. When you overpay or have excess capacity or licenses, you are tying up capital that could be invested in other critical areas. Bad deals don’t get better with age. As time passes, your IT bills add up fast – especially when initial SaaS deals are overpriced and annual increases compound the problem.

Reduced risk translates into more stable and reliable procurement outcomes that help future-proof your investments.

Strategic sourcing focuses on optimizing the procurement process to achieve the best possible outcomes. When used in conjunction with IT price benchmark analysis, you can be confident you’re getting the lowest possible prices for the products and services you need for initial procurement and renewals.

IT Procurement Solutions with NPI

NPI helps businesses leverage procurement market intelligence to make smarter IT purchases. Our expert team provides IT procurement consulting solutions that include supplier analysis, benchmark pricing intel, cost analysis, and risk management. By partnering with NPI, you gain access to the insights and tools needed to make smarter, more strategic IT procurement decisions.

Contact NPI to optimize your IT procurement negotiation outcomes.

In the wake of Broadcom’s acquisition of VMware, enterprise customers are facing renewal cost increases of 5X to 10X. The shift from perpetual licenses to subscription-only models has compounded the financial strain, leaving many organizations in a difficult position. Fortunately, by taking proactive steps, companies can minimize the financial impact and avoid being blindsided during their next renewal.

In this blog post, we’re sharing a few key insights to help you begin addressing the challenges of rising VMware renewal costs. These highlights are drawn from our recently published bulletin, How to Mitigate and Minimize VMware Renewal Cost Increases. If you’re a VMware customer, we highly recommend downloading the full bulletin for more in-depth guidance.

The most important piece of advice? No matter what your renewal date is, START TO PREPARE NOW. If you’re a VMware customer, we highly recommend downloading the full bulletin for more in-depth guidance.

Here are some actionable steps to get you started:

1. Understanding VMware's Pricing Strategy and Its Impact on Renewal Costs

Broadcom’s acquisition of VMware in November 2023 brought sweeping changes, most notably the elimination of perpetual licenses and the move to core-based licensing. These changes are central to Broadcom’s growth strategy and are designed to drive revenue through subscription models and bundled product offerings. By understanding Broadcom’s motivations, you can anticipate future developments and better prepare for negotiations. For example, VMware’s vSphere and vSAN products are now available only in bundles, forcing enterprises into solutions that may not align with their current infrastructure needs. Recognizing these trends allows companies to develop strategies for adapting to or mitigating these forced transitions.

2. Prepare for VMware Renewal Pricing Hikes

VMware renewal costs are surging, with some organizations reporting increases of 5X or more. While there’s no way to completely avoid price hikes, planning ahead can minimize their impact. Begin by conducting a comprehensive review of your VMware environment several months before renewal. This allows you to assess how changes in licensing structures will affect your costs and to make informed decisions about optimizing your VMware footprint.

3. Conduct a License Position Assessment (LPA)

One of the most effective ways to minimize costs is by performing a License Position Assessment. This detailed analysis provides several key benefits:

• Educates your team on how current products map to VMware’s new solution structure.
• Right-sizes your usage to optimize core density and capacity.
• Optimizes compliance, helping you avoid costly penalties during VMware’s aggressive software audits.Given the aggressive nature of Broadcom’s approach, understanding your compliance position is essential to avoid audit risks.

4. Beware of Increased Audit Risks

Broadcom has intensified its software audit tactics, using them as leverage during renewal negotiations. If you delay or resist renewals, you risk triggering an audit, which can result in significant financial penalties. Many organizations lack the visibility into their VMware usage necessary to ensure compliance, making them vulnerable to costly surprises. Taking proactive steps, such as conducting a License Position Assessment, can safeguard against these risks. Ensuring compliance before entering into negotiations gives you the upper hand and reduces the likelihood of punitive audits.

For additional guidance and a more in-depth look at how you can mitigate rising VMware renewal costs, download our full bulletin. You’ll find expert guidance tailored to help you navigate the evolving VMware landscape while protecting your IT budget.

Do you have a VMware renewal planned in the next 12 months? Contact NPI today. We can help you achieve material savings.

Microsoft’s Enterprise Subscription Agreement has been around for decades. But it’s long been overshadowed by its perpetual licensing counterpart, the Enterprise Agreement – the agreement of choice for enterprise customers for many years.

The Microsoft EA made a lot of sense when offerings were largely perpetual licenses – think Office Pro Plus, Core/Enterprise CAL, and the Desktop OS. At the end of the EA term, customers had the option not to renew their EA, take a Software Assurance vacation, and ride out the perpetual use rights of the products they licensed.

Subscription licensing obviously changed that, and Microsoft certainly wasn’t the first enterprise software vendor to take this route. In 2011, Microsoft introduced Office 365, which was its first major foray into subscription-based licensing. Customers only had rights to the product as long as the subscriptions were active.

What is a Microsoft Enterprise Subscription Agreement and How Does it Differ from a Microsoft EA?

Today, Microsoft’s offerings are predominantly offered through subscription-based licensing, especially for its key products and services. As a result, Microsoft’s Enterprise Subscription Agreement (ESA) has emerged as a particularly versatile licensing vehicle for many customers.

The Enterprise Subscription Agreement’s structure differs from the traditional Enterprise Agreement in that only the first year’s order is formalized on the Customer Price Sheet. In comparison, the EA’s Customer Price Sheet has lists orders for all three years. With a Microsoft ESA, the process for second and third-year orders involves the customer giving their license counts to their licensing solution provider (LSP), who places the order with Microsoft on their behalf.

Advantages of a Microsoft Enterprise Subscription Agreement (Microsoft ESA)

The real advantage of the Enterprise Subscription Agreement is that the license counts are ‘reset’ on an annual basis, up or down, with the baseline remaining at 500 seats. Organizations can add or remove users, products, or services during the term of the agreement to match their current needs and changing requirements. They only pay for what they use.

Another important distinction between the Enterprise Agreement and the Enterprise Subscription Agreement is how and when the future pricing table in the Customer Price Sheet is leveraged. During the term of an Enterprise Agreement, if a customer’s user count grows and qualifies for the next pricing tier, they would have to wait until the agreement’s expiration to enjoy the next tier of pricing/discounts. With the Enterprise Subscription Agreement, in that same scenario, the customer can leverage the next tier of pricing as soon as their quantity qualifies.

Hiding in Plain Sight – Why a Microsoft ESA is Worth Considering

Why don’t more customers take advantage of the flexibility of the Microsoft Enterprise Subscription Agreement? In our opinion, it’s largely market awareness and seller motivation. Most Microsoft sales reps have little motivation to introduce ESAs as an option.

With an Enterprise Agreement, Microsoft has visibility into all three years of revenue. Furthermore, the customer only has the ability to add enterprise licenses – not reduce. There is a clause in the Microsoft Enterprise Agreement that states if the number of licenses covered by an Enrollment changes by more than 10 percent because of an acquisition, divestiture or merger, Microsoft will work with the Enrolled Affiliate in good faith to determine how to accommodate its changed circumstances in the context of their agreement. However, invoking this clause in real life has shown that Microsoft holds all the leverage.

It’s important to point out that the Enterprise Subscription Agreement is not a fit for all customers, especially those with perpetual licenses. But for those companies that have upgraded or purchase subscription-only licenses, the Microsoft ESA is worth exploring. Just remember – with little motivation for Microsoft to push the ESA, the onus is on the customer to inquire and evaluate whether it’s a viable option for their requirements!

Are you a large enterprise purchasing or renewing with Microsoft? NPI can help determine your best options for contracting and licensing Microsoft products. Contact us to learn more.

A common refrain at NPI is that enterprise IT procurement practitioners have one of the toughest jobs in corporate America. Today’s IT sourcing pros are responsible for aligning business strategy, technical requirements, budget, vendor selection, and negotiation among very different groups of stakeholders – each of whom have their own agenda and expectations.

Meanwhile, despite their outsized responsibilities, most IT procurement teams are under-resourced and under-supported. They’re grappling with an accelerated pace of IT buying as transaction volume and spending grow. Gartner estimates worldwide IT spending will total $5.26 trillion in 2024. By 2030, that number will surpass $8 trillion.

We recently hosted a live session with SIG to discuss the state of IT procurement (and how AI can help). You can watch the full recording here. Here are some highlights of what we covered:

Why IT Vendors Hold More Leverage Over Enterprise IT Buyers

Buy-side leverage continues to erode for multiple reasons. The internal dynamics mentioned earlier play a large role in this, but it’s the external dynamics that present the biggest challenges:

• Rampant Pricing Disparity – There is no Kelley Blue Book for IT buying. Each purchase has dozens of unique factors that impact pricing and terms. Determining whether or not you’re getting a good deal from a vendor is impossible without access to external peer purchasing data. This is why vendors can get away with 10 to 90% variance in pricing for similar purchases.
• Overly Complex Licensing – The number of licensing/subscription options offered by enterprise tech vendors is astounding. Microsoft has well over 1,000 SKUs, not including Azure. Salesforce estates can comprise 25+ products. Usage terms and definitions vary vendor to vendor. Exacerbating the problem is licensing models and terms change constantly. The knowledge you gained from your last Microsoft EA or SAP renewal could be null and void at your next renewal.All of this points to a larger problem – overbuying. Vendors intentionally make licensing complex so it’s easier for customers to buy more quantities or functionality than they need.
• Clear Vendor Advantages – It’s important to acknowledge the sophistication of the enterprise tech vendor sales machine. They are the most highly-trained, highly-compensated sales teams in the world. They execute strategic selling playbooks that are designed to extract the maximum revenue possible from every transaction.Incumbent vendors are typically deeply entrenched in customer’s IT and operational infrastructures. This makes is difficult for customers to switch to a provider, giving vendors excessive leverage during negotiations.
• Avalanche of IT Renewals  – Managing the status quo has become overwhelming as IT buyers must manage, prepare and negotiate an inordinate number of renewals. For this reason, many teams take an “autopilot” approach to renewals, simply agreeing to “routine” cost and quantity increases without reconciling actual usage requirements with scope.

Using AI to Gain Leverage and Improve IT Procurement Outcomes

In today’s fast-paced IT procurement landscape, AI has become a valuable tool to help tech sourcing pros overcome the vendor/buyer leverage imbalance. It has the potential to transform the way organizations approach IT purchasing, enabling them to make smarter, more strategic decisions (for NPI Vantage Pro™ clients, it already is!).

The harnessing of AI-driven insights in certain high-impact areas of the IT vendor negotiation process gives IT procurement leaders a significant edge. These areas include:

• Competitor Intelligence: AI-driven tools can significantly enhance competitor intelligence in IT procurement by providing real-time insights into the market landscape. By analyzing competitors’ pricing strategies, product offerings, and market positions, AI helps procurement leaders understand where their organization stands and identify opportunities for leverage. These insights allow procurement teams to negotiate better terms, as they can anticipate competitors’ moves and counter with more informed strategies. This level of intelligence enables organizations to make data-driven decisions that improve purchasing outcomes and maintain a competitive edge.
• Price Trend Tracking: Tracking price trends is crucial for IT procurement and, with access to extensive peer purchase data, AI can make a huge difference here. AI-powered analytics can detect patterns in pricing, helping procurement teams anticipate market shifts and price fluctuations. By understanding these trends, organizations can time their more purchases strategically and secure optimal pricing.
• Supplier Risk: AI enhances the assessment of supplier risk by analyzing multiple factors such as supply chain stability, cybersecurity practices, and compliance with ESG standards. AI algorithms can quickly evaluate these risks and provide a comprehensive overview of a supplier’s reliability. This allows procurement teams to make informed decisions, avoiding potential pitfalls associated with high-risk suppliers. By reducing supplier-related uncertainties, AI helps ensure that IT procurement processes are more secure and resilient, minimizing the likelihood of disruptions.
• Deal Prioritization and Categorization: AI can revolutionize deal prioritization and categorization by automating the analysis of various deal parameters, such as expiration dates, contract values, and negotiation complexity. AI tools can rank deals based on their importance and urgency, enabling procurement leaders to focus on the most critical negotiations first. This strategic approach ensures that resources are allocated efficiently, and high-value deals are not overlooked. Additionally, AI can categorize deals into different risk and value segments, allowing for a more tailored negotiation strategy.
• Market Behavior Scoring: AI-powered market behavior scoring provides procurement leaders with an in-depth understanding of market dynamics. By analyzing factors like vendor pricing variability, market demand, and economic indicators, AI assigns scores that reflect the current market behavior. These scores help procurement teams align their strategies with market conditions, ensuring they are negotiating and purchasing at optimal times. With accurate market behavior scores, organizations can make more informed decisions that lead to better purchasing outcomes, ultimately enhancing the value obtained from IT investments.

Empowering IT Procurement with AI

The complexities and challenges of IT procurement are undeniable, particularly as the market dynamics continue to shift in favor of vendors. However, AI offers a powerful counterbalance, enabling procurement leaders to regain leverage and make smarter, data-driven decisions. It not only streamlines decision-making but also drives more favorable outcomes, ensuring organizations are protected against overspending in an increasingly competitive market.

For those who want to dive deeper into these topics, don’t forget to check out this recording of our recent SIG educational session!

Enterprise software agreement negotiations require three things: up-to-the-minute supplier and negotiation intelligence, diligent preparation, and introspection. But what does that look like in practice?

We touch on this topic in our ebook, IT Procurement 2030 – Preparing for a New Era of Sourcing and have expanded upon it here. The list of questions below unlock critical information necessary for negotiating a world-class outcome on enterprise software purchases and renewals.

Here is a list of questions IT buyers should ask before vendor negotiations begin:

1.When are our agreements up for renewal?

Enterprise IT procurement teams manage dozens of renewals a year. These renewals range from departmental software to organization-wide deployments that represent tens of millions of dollars of spend. Knowing renewal dates allows IT buyers to proactively plan and avoid “autopilot” negotiations that often result in less favorable terms and pricing (as well as “toxic spend” on unused or overpowered licenses). It provides ample time to explore alternative vendors, gather usage data and requirements, perform IT price and contractual terms benchmarking, and prepare a strong negotiation strategy.

2. How much runway should we give ourselves for renewal planning?

The complexity of enterprise IT renewal events ranges from easy and straightforward to complex and resource-intensive. For example, prep for a Cisco renewal may take 60 days or less, while planning and preparation for a Microsoft Enterprise Agreement renewal should start at least six months in advance (if not sooner – Microsoft begins preparation for the next renewal before the ink is dry on the current contract).

Understanding how soon in advance you should prepare based on vendor and estate complexity gives you a clear advantage at the negotiation table. The challenge? Without a consolidated view into upcoming deals, tracking renewals and preparation timeframes can be a nightmare for large enterprise IT procurement teams.

3. Which deals should I prioritize for negotiation preparation?

Not every renewal should be – or can be – treated equally. Certainly not in today’s IT purchasing environment where deals move fast, vendors have more leverage, and IT procurement resources are overwhelmed.

Prioritizing deals helps IT buyers focus their efforts on the most impactful negotiations. It ensures that high-value, high-importance, and high-risk contracts receive the attention needed to secure favorable terms, best-in-class pricing, and stakeholder and strategy alignment.

4. What behavior should I expect from my vendor at renewal?

Multiple factors inform vendor behavior at the deal table: current financials, sales compensation/incentives, promotion and prioritization of certain offerings, vertical and geographical penetration objectives, recent M&A activity, market position, management and workforce changes, and more. Understanding these motivations is crucial to establishing points of leverage (what is the win/win?) and securing the best possible IT purchase and renewal outcomes.

5. How does our deal compare to market?

Nearly 90% of companies overpay for their IT purchases. That’s because there is no “Kelley Blue Book” for enterprise IT pricing. Why? Because context matters! Commercial terms and pricing are highly dependent upon purchase history, point in time, geography, then-current leverage points, demand trajectory (growing, status-quo or decreasing).

Understanding how your deal stacks up against similar peer purchases gives insight into whether proposed pricing and terms are competitive. It empowers IT buyers to define a target outcome (at market? better than market?), and then develop a negotiation strategy to get there.

6. How flexible is my vendor on pricing?

Knowing a vendor’s pricing flexibility based on in-market behavior data allows IT buyers to negotiate more effectively. It helps buyers identify opportunities for discounts, concessions, or value-added services that can enhance the overall deal.

7. How much do we spend with this supplier?

Understanding total spend with a supplier provides leverage in negotiations. More spending usually equals more negotiating power. This requires IT buyers to have visibility into disparate contracts with a particular vendor, which is common in many large enterprises.

8. Am I choosing the right licensing/subscription options for my current and future-state requirements?

IT vendors profit from complex software licensing and subscription models – and they change frequently. This makes it difficult for IT buyers to:

• Understand the most up-to-date licensing options and their pros and cons
• Determine the cost and licensing implications of environmental factors (for example, virtualization, indirect access and core vs. processor)
• Develop decision-support cost models for enterprise software licensing scenarios
• To negotiate a world-class outcome on an enterprise software agreement, IT buyers must have a full understanding of their licensing/subscription options and their cost implicates as they relate to their unique environment.

9. Who are some viable competitors? Are they already used in my environment?

Identifying viable, credible competitors and their presence in the current environment offers alternatives during negotiations. It gives IT buyers leverage by demonstrating a willingness to switch vendors and encourages better offers from current suppliers.

10. How can I align stakeholders for improved negotiation outcomes?

Early involvement in the buying process allows IT procurement to make sure IT, finance, compliance, legal, and departmental stakeholders are aligned on technical, usage, and operational requirements. It also allows them to closely manage vendor communications, so stakeholders don’t inadvertently share information that sacrifices negotiation leverage.

11. What do I own and who’s using what?

Fact-based visibility into IT solution usage – particularly software – allows IT procurement to identify unused and underutilized assets (licenses, cloud compute, hardware, etc.) that can be liberated, reallocated, and/or right-sized for savings.

12. What is the vendor’s current business health and risk profile?

This information is an important input to negotiation strategy, but also a foundational requirement for increasingly rigorous information security and supply chain resilience procedures. Easy access to this information is a perfect use case for AI.

With some form of cloud adoption and digital transformation touching every industry, there has been a dramatic increase in the number of Software as a Service (SaaS) applications.

Today, managing every phase of the SaaS lifecycle is challenging. From procurement and onboarding to integration and training to security and compliance, to usage and cost optimization, and to licensing and subscription management, it’s easy to make missteps or see costs spiral out of control.

As more companies phase out perpetual licenses in favor of SaaS products, software subscriptions and monthly fees are continuing to rise. Gartner suggests licenses will increase by more than a third by the end of 2025. Managing subscriptions and costs will become crucial to prevent toxic SaaS costs.

• What is SaaS Management?
• What are SaaS Management Platforms?
• Challenges SaaS Management Helps Solve
• Signs You Need a Clear SaaS Management Strategy
• How the Surge in SaaS Subscriptions Shaped Our Present State
• Why Businesses Need SaaS Management
• Key Components of SaaS Management
• Benefits of SaaS Management
• The Role of SaaS Management in Cost Optimization
• Tips on How to Prioritize Your SaaS Spend
• Best Practices for Implementing SaaS Management
• How to Get Started Reducing SaaS Costs

REGISTER NOW for our free “Eliminating SaaS Toxic Spend” webinar to gain practical tips for better SaaS management and cost control.

What is SaaS Management?

So, what is SaaS management? SaaS management is also known as SaaS application management or SaaS governance. Whatever you call it, it involves overseeing all aspects of Software as a Service (SaaS) applications within your company’s technology portfolio. This includes everything from purchasing and onboarding these applications to integrating them into your systems, ensuring they are used effectively, maintaining compliance, and optimizing costs.

In short, it’s about managing the entire lifecycle of SaaS applications to ensure they are used efficiently and cost-effectively.

What are SaaS Management Platforms?

SaaS management platforms (SMPs) help companies catalog their SaaS applications in a centralized way. SaaS management platforms help identify SaaS sprawl and duplication, which is the first step toward rationalization and optimization and managing asset allocation more efficiently.

However, SaaS Management Platforms are not always a comprehensive solution for SaaS cost management. While companies that deploy SaaS management platform solutions get greater visibility into what they’re paying for, these solutions often fail to identify licenses that aren’t being used or under-used. It takes a SaaS license and cost optimization solution that combines deep vendor-specific licensing and IT price benchmarking expertise to understand usage patterns, align licenses with best-fit options, and make sure you’re paying a fair price for the licenses you purchase.

Challenges SaaS Management Helps Solve

SaaS management is essential to right-size your licenses and your costs. More than 85% of companies will overpay for the IT purchases over the next 12 months. A proactive approach to SaaS management can address several key challenges that businesses encounter, such as:

• Shadow IT: Unauthorized software usage that bypasses IT department oversight, potentially compromising security and compliance.
• Cost Overruns: Uncontrolled SaaS adoption leads to redundant applications and unnecessary expenses.
• Integration Complexity: Difficulties in connecting multiple SaaS applications with existing systems and each other.
• Data Silos: Information scattered across various SaaS platforms, hindering collaboration and decision-making.
• Vendor Lock-in: Over-reliance on specific SaaS providers, making it challenging to switch or negotiate better terms.
• Compliance Risks: Ensuring all SaaS applications meet industry regulations and internal policies.
• Performance Monitoring: Tracking the effectiveness and ROI of numerous SaaS applications across the organization.

Signs You Need a Clear SaaS Management Strategy

Managing all of your SaaS assets gets complex quickly, especially for companies in growth stages. If you are seeing any of these warning signs, you need to revisit your SaaS management strategy.

Unexpected SaaS Bills or Budget Overruns

If you find yourself surprised by SaaS-related expenses, it’s a clear indicator that you need a more structured approach to managing your software subscriptions.

Employees Using Unauthorized Applications

Employees often turn to SaaS solutions to solve problems, enhance operations, or streamline their workflows. While their intentions may be good, this often leads to unauthorized applications within your organization. This shadow IT can pose significant security risks and create data silos. If you discover that teams are regularly adopting new tools without IT approval, it’s time for a formal SaaS management strategy.

Difficulty Tracking Which Departments Are Using Specific SaaS Tools

As your SaaS ecosystem grows, keeping track of who’s using what can become increasingly challenging. If you find yourself struggling to answer questions like “Why are we paying for three different project management platforms?” you need a better strategy to track resource allocation efficiently.

Overlapping Functions Between Different SaaS Applications

It’s common for different departments to adopt tools with similar functionalities. For example, you might discover your marketing team is using one email automation platform while your sales team is using another. This creates software bloat and adds unnecessary costs. It also creates data silos and hurts cross-departmental collaboration. If you’re noticing significant overlap in your SaaS toolset, it’s time to implement a strategy that promotes consolidation and maximizes the value of your SaaS investments.

Challenges in Managing Multiple Renewal Dates and Contract Terms

Keeping track of various renewal dates, contract terms, and licensing agreements can become a logistical nightmare. Yet, missing a renewal deadline could result in service interruptions or unfavorable auto-renewals. If you find yourself constantly scrambling to manage these details, it’s a clear sign that you need a centralized system for tracking and managing all your SaaS contracts.

Inconsistent Onboarding and Offboarding

When employees join or leave your organization, managing their access to various SaaS applications should be a smooth, standardized process. However, if you’re noticing that new hires are struggling to gain access to necessary tools, or worse — former employees still have active accounts — it’s time to reassess your SaaS management practices. Unassigned licenses can run up the costs.

Compliance Audit Failures or Near-Misses

Software companies are increasingly aggressive in license audits and noncompliance can be extremely expensive. If you’ve experienced compliance audit failures or near-misses related to your SaaS usage, it’s a glaring sign that your current management approach is inadequate.

A robust SaaS management strategy will include regular compliance checks and risk assessments, helping you avoid costly penalties and reputational damage.

How the Surge in SaaS Subscriptions Shaped Our Present State

The shift away from on-premise software to SaaS has been accelerating for years with remote work intensifying the pace. Today, large enterprises use an average of 664 SaaS applications according to one study – a number that’s shocking to even the organizations that use them. Many businesses find they have 2-3X more SaaS and cloud-based applications than they assumed.

Why Businesses Need SaaS Management

In most enterprises, SaaS sprawl is common. And more than half of the average company’s app ownership and management is dispersed rather than centralized.

In some companies, there’s nobody actively taking a proactive, holistic approach to managing all SaaS assets. Businesses are forecast to spend an estimated $900 billion by 2030 on SaaS. It’s not unusual to find in large enterprises that 30% or more of total SaaS spending is made up of unused licenses and features.

Even when customers buy only what they need, they’re often paying prices that are above best-in-class rates.

Key Components of SaaS Management

For an effective SaaS management strategy, you need a comprehensive approach to each component.

SaaS Asset Management

• Comprehensive inventory of all SaaS applications
• Categorization based on function, criticality, and business impact
• Integration with IT asset management systems for a holistic view
• Regular audits to ensure the accuracy and completeness of the SaaS portfolio
  

SaaS Inventory Management

• Real-time tracking of SaaS usage across the organization
• Identification of underutilized or abandoned applications
• Monitoring of user access levels and permissions
• Automated discovery tools to detect new SaaS applications
  

SaaS License Management

• Centralized repository of all SaaS licenses and their details
• Alignment of license types with actual usage patterns
• Proactive alerts for license expirations and renewal deadlines
• Optimization strategies to maximize license utilization
  

SaaS Subscription Management

• Tracking of subscription models (per-user, tiered, usage-based)
• Analysis of subscription costs against business value
• Consolidation of subscriptions where possible
• Negotiation strategies for better subscription terms
  

SaaS Renewal Management

• Calendar of upcoming renewals with time for negotiations
• Evaluation process for each renewal decision
• Negotiation playbooks for key SaaS vendors
• Integration with budgeting and procurement processes

Benefits of SaaS Management

One of the biggest benefits of effective SaaS management is transparency. You get a holistic view of all the apps that are being used throughout your organization. This provides a foundation for optimizing your licenses and providing the tools your enterprise needs while avoiding overspending on resources that are not required. This transparency translates into tangible advantages across various aspects of business operations and IT management.

Cost Savings Made Tangible

SaaS management helps minimize spending by right-sizing your tech, eliminating shadow IT, maintaining compliance, and managing your SaaS contracts and providers. By actively monitoring usage and eliminating underutilized or duplicate licenses, companies can significantly reduce their overall SaaS expenditure.

Boosting Productivity: Streamlining Your Workflow

Effective SaaS management ensures that employees have access to the right tools when they need them, which streamlines workflows and boosts overall productivity. By integrating and managing these tools efficiently, organizations can eliminate bottlenecks and enhance collaboration.

Security and Compliance: Protecting Your Assets

SaaS management is crucial for maintaining security and compliance. By ensuring all SaaS applications adhere to corporate security policies and compliance requirements, companies can protect sensitive data and avoid costly regulatory penalties.

Enhanced Transparency of SaaS Estate

Having a clear and comprehensive view of the entire SaaS estate allows for better decision-making and strategic planning. Enhanced transparency ensures that all stakeholders are aware of the SaaS tools being used, their costs, and their benefits, leading to more informed and effective management.

The Role of SaaS Management in Cost Optimization

An NPI analysis revealed that 89% of the contracts we analyzed for license and renewals were overpriced.

Active SaaS Management is key to reducing and optimizing costs. This includes:

• Eliminating Redundancies: Identifying and consolidating overlapping SaaS tools.
• Right-sizing Licenses: Adjusting license types and quantities based on actual usage.
• Leveraging Volume Discounts: Consolidating purchases across departments for better pricing.
• Optimizing Renewal Timing: Aligning renewal dates for stronger negotiating positions.
• Implementing Chargeback Models: Encouraging responsible usage by attributing costs to departments.
• Forecasting Future Spend: Using usage trends to predict and plan for future SaaS expenses.
• Benchmarking Costs: Comparing SaaS spend against industry standards to identify savings opportunities.

Tips on How to Prioritize Your SaaS Spend

As enterprise SaaS portfolios grow, Software Asset Managers (SAMs) and vendor management teams need to be proactive about classifying SaaS assets as well as monitoring usage levels.

Classifying SaaS Assets

There’s often duplication in the tech stack, leading to wasted spending. It helps to classify each SaaS provider into one of these four categories to look for overlap and usage levels for efficient subscription and license management:

1. Enterprise SaaS: Used across an enterprise
2. Functional SaaS: Targets a single function/solution
3. Process SaaS: Targets workflow across multiple functions
4. Task SaaS: Fulfills specific tasks, such as storage
   

Defining Usage Levels

You’ll want to prioritize your focus for maximum benefit. While every classification can yield savings and efficiencies, it’s best to start at the enterprise level because the savings potential is greatest. Within the portfolio of enterprise SaaS products, there may be hundreds, thousands, or tens of thousands of users.

Bloat is common and it may be costing you. Internal audits almost always reveal a significant number of abandoned or unused SaaS and software licenses. Perhaps someone left your company and a license was never reassigned or, during the onboarding phase, extra licenses were bought assuming future growth. Either way, these costs impact your bottom line unnecessarily.

Reclaiming Inactive Licenses

Finding users that are no longer active, multiple licenses assigned to single users, or “no pulse” users like printers or smart devices can quickly add up. A SaaS license optimization assessment can uncover wasted spend so licenses can be dropped at the next renewal cycle or reassigned.

Right-sizing Underused Licenses

An assessment can also help find areas where licenses are underutilized. For example, an enterprise may have Microsoft 365 E5 subscriptions for all its team members, yet many frontline workers do not require the full E5 functionality.

IT pricing and terms are inconsistent from vendor to vendor and make it challenging to know what is a reasonable price and track whether you’re getting what you pay for. You need to know current market-based pricing and terms to make an informed decision about procurement, management, and renewals.

Armed with data, you can negotiate better deals and right-size your subscriptions.

Best Practices for Implementing SaaS Management

Individual departments are typically managing more enterprise applications than IT. So, you need to start with a cross-functional team to account for all of your SaaS spend.

Establish a SaaS Governance Team

Create a team that includes representatives from IT, Finance, Procurement, and key business units. A diverse group creates a holistic approach to SaaS management —balancing technical, financial, and operational considerations.

Implement a SaaS Request and Approval Process

Develop a streamlined process for employees to request new SaaS tools while maintaining oversight. This process should include evaluation criteria such as security requirements, integration capabilities, and cost considerations. By centralizing requests, you can prevent redundant purchases and ensure all new licenses align with organizational goals.

Conduct Regular SaaS Audits

Perform quarterly reviews of your SaaS portfolio to identify optimization opportunities. These audits should assess usage patterns, costs, and the overall value delivered by each application. Regular audits will help you eliminate redundant or underutilized tools, optimize licensing, and ensure your investments meet evolving business needs.

Leverage Automation

Utilize SaaS management platforms to automate discovery, monitoring and reporting of your SaaS ecosystem. Automation can significantly reduce the manual effort required for tasks like license tracking, usage monitoring, and cost allocation.

Platforms purpose built for IT procurement can also help you with renewal planning and negotiation strategizing – two often overlooked areas of SaaS management that deliver significant savings with minimal disruption.

Establish KPIs for SaaS Performance

Define and monitor key performance indicators to evaluate the value of each SaaS investment. These KPIs might include user adoption rates, productivity improvements, cost savings, or specific business outcomes. By tracking these metrics, you can make better decisions about which tools to retain, upgrade, or phase out to deliver maximum value to your organization.

How to Get Started Reducing SaaS Costs

NPI offers SaaS license and cost optimization services that help companies:

• Reclaim inactive licenses
• Right-size license types based on actual demand/usage requirements
• Create a
  license purchase and deployment strategy that aligns with your company’s current and future-state requirements.
• Negotiate best pricing and terms

NPI provides vendor– and transaction-specific analysis so you have the right licensing, pricing and negotiation intel to help you negotiate a world-class outcome for your SaaS purchases and renewals. While SaaS management platforms offer spend visibility, material savings can only be achieved by paying for only what you need, when you need it, and at a fair price. This outcome requires NPI’s SaaS License Optimization Assessment services.

At NPI, we help enterprise IT procurement teams identify and eliminate overspending on IT purchases, accelerate purchasing cycles, increase decision-making confidence, and align internal buying teams. This helps you get the best price possible, optimize your deal, and maximize the impact of your IT investment. Contact NPI to learn more.

Over the last 21 years, enterprise IT procurement has emerged from the shadows and into the spotlight. Today’s IT procurement practitioners manage the largest, most important category of indirect spend. How well they manage that spend isn’t just important – it’s critical to the success of their organizations.

We understand the daily grind IT procurement professionals face. They’re constantly bombarded with requests, manage a complex web of vendors, and are pressured to get the most out of every IT budget dollar. Negotiating the best deals on software, hardware, and services feels like an uphill battle. The blind spots – there are many – contribute to a level of overspending that is growing in lockstep with IT spend itself.

Today, we’re taking a bold step in reducing this overspending while providing much-needed relief to enterprise IT procurement teams.

Purpose-built for Enterprise IT Procurement and Unparalleled Savings

We’re thrilled to announce the launch of NPI Vantage™ Pro, a groundbreaking platform purpose-built for enterprise IT procurement professionals.

NPI Vantage Pro leverages the power of AI and market intelligence to provide you with the ultimate advantage: proactive planning and preparation for vendor negotiations. It puts the information and tools you need to achieve world-class IT purchase outcomes right at your fingertips while also helping you manage and prioritize renewals and purchases.

NPI Vantage Pro is available as an upgrade to NPI’s core IT price benchmark analysis subscription, combining the power of our platform with NPI’s vast $250B+ market intelligence database. This unique combination empowers IT procurement teams to achieve savings of 25 to 30% (and potentially more) on IT purchases and renewals.

Negotiate Smarter, Easier, Faster

NPI Vantage Pro is specifically designed to address the unique challenges of modern enterprise IT procurement teams, giving them the tools and knowledge to:

• Boost Confidence: Gain a deeper understanding of the vendor landscape with AI-powered insights into pricing trends, vendor behavior, and market complexity.
• Optimize Savings: Identify cost-saving opportunities through spend visualizations and strategic sourcing recommendations.
• Streamline Workflows: Manage upcoming renewals, purchases, and tasks with a calendared view integrated with market data.
• Negotiate Smarter: Save tens of hours of research time with NPI’s vendor-specific reports, packed with current information on products, market position, financials, and more, to understand a vendor’s motivations at the negotiation table.

Key Features to Empower Your IT Procurement Team

• Supplier Dynamics™: Eliminate hours of pre-negotiation prep work. Supplier Dynamics provides synthesized intel on 1,000+ vendors with insights into vendor behavior, pricing trends, and market complexity.
• Supplier Risk: Quickly assess supplier risk factors across supply chain, cybersecurity, ESG, and DEI.
• Supplier IQ™: Gain insight into your vendors’ current business environment with AI-powered Supplier Briefings to inform your understanding of the vendor’s motivations at the negotiation table.
• Smart Calendar: Redefine how you manage and prioritize IT purchases and renewals with a calendared view of all upcoming renewals. Includes integrated market behavior scores to give you unmatched actionable intelligence at a glance.
• Spend Visibility: Simplify the analysis of complex spending data with a prioritized, at-a-glance view of key spending metrics and critical tasks. Highlight cost optimization and strategic sourcing opportunities through dynamic visualizations across vendors and contract types.

Turbocharge IT Procurement Effectiveness

We realize there are many tools in the procurement technology marketplace and that it’s often difficult to discern which ones will deliver meaningful value in the trenches. This is especially true for IT procurement, where the spend is greater, the stakes are higher, and the process of negotiating a world-class purchase outcome is far different than for any other category of enterprise spend.

That’s precisely why we created NPI Vantage Pro. Furthermore, it’s why we developed it in concert with our clients. From product roadmapping through our Early Support Program, we have listened to what our clients want and need to do their jobs faster, easier, smarter, and more effectively. The insights delivered through NPI Vantage Pro are having a measurable, material, and meaningful impact on IT purchase and renewal negotiation outcomes.

Schedule a personalized demo of NPI Vantage Pro today and see how it can transform your IT procurement process. Visit https://npifinancial.com/npi-vantagepro/ to learn more.

One of Bill Gates’s first emails to the newly formed Microsoft included an aspirational goal of “a computer on every desk and in every home.” That ambitious vision led Microsoft for the first forty years of its existence. With new leadership comes new visions, though, and Satya Nadella recently stated, “We are the Copilot company. We believe in a future where there will be a Copilot for everyone and everything you do.”

Microsoft has certainly taken this latest vision to heart, promoting Copilot quite aggressively. The software giant’s goal is loud and clear: to “deliver Copilot in Windows to every employee, across any device.”

One way that Microsoft wants to make Copilot an enterprise reality is to work with industry partners to deliver new PCs with Copilot technology built into the hardware by including a special Neural Processing Unit to provide the horsepower to support AI at the desktop. June 18th was the launch date for both Microsoft’s own Copilot+ PCs and offerings from third parties. The pricing on these new devices is similar to the “Copilot free” versions, and that’s likely a good thing for Microsoft as we anticipate the new normal will be a Copilot+ PC moving forward.

Another Way to Increase Azure Spend

So, why a blog post if this is a good thing? That’s a good question.

We’ve previously written about the not-so-obvious dependencies with Copilot. It’s debatable whether the productivity gains users may experience with Copilot will turn out to be real – there are only so many ways you can dress up a PowerPoint or create nice charts with Excel. One could argue that an advanced Office class for your power users might be less expensive than buying Copilot for M365 for everyone (at $30 per user per month).

Of course, the real benefit to Copilot is using the Large Language Model so that Copilot can provide informed opinions about your data – meaning your data needs to reside somewhere where Copilot can find it. Think about that for a moment and consider what your Azure spend may look like after enterprise-wide adoption of Copilot.

Enterprise Cost Considerations for Microsoft Copilot+ PCs

It seems there’s a Copilot for everything – Copilot for M365, M365 Copilot Sales, M365 Copilot Services, Copilot Studio Subscription, GitHub Copilot for Business, GitHub Copilot for Enterprise, and now – Copilot+ hardware. In agreement with Satya, Microsoft is undoubtedly the Copilot company.

In negotiating with Microsoft, you should ask yourself whether the Copilot functionality is something you believe should be included in your existing licenses, or something that qualifies to be considered a for-fee enhancement. Said another way, Microsoft is monetizing the next generation of products by including Copilot – and in a way that will challenge enterprise budgets.

We all expect software to continue to get better, faster, and more sophisticated, and to some degree that is competitive table stakes. Time will tell how the economics of this new vision will play out.

It’s too early to tell whether Microsoft will sell their new Copilot+ PCs to large enterprises, although most sales teams at Microsoft have had Surface quotas for years. We speculate that Microsoft will incentivize its enterprise customers to purchase the new AI-enabled hardware.

To learn more about NPI’s Microsoft cost and licensing optimization services, contact us.

IT managers are under more pressure than ever to control costs. It’s a challenging balancing act to ensure you are providing the right tools your business needs while also getting best-in-class pricing.

This is made even more difficult when you don’t have access to insider knowledge about pricing from recent transactions. ServiceNow sales reps are professional negotiators and they come armed with deep data and product knowledge you likely don’t have. This can easily lead to overpaying or winding up with SKUs that you don’t need.

NPI’s ServiceNow Purchase Optimization Services helps enterprises save an average of 10% to 30% on their ServiceNow purchases and renewals by leveraging real-world transaction data to level the playing field.

ServiceNow’s Expectations from Their Customers

You need to first understand how ServiceNow approaches sales and renewals. Here are some of the key things their sales reps focus on.

ServiceNow knows that it makes it harder for customers to move to other products when multiple parts of your business use their products. The more products you use, the more you get locked into renewals. Yet, we often find unused products that increase the price.

Sales reps are focusing their efforts more on C-suite execs. They know that to maximize adoption, there needs to be widespread buy-in, so they need to include more than just CIOs and other IT leaders. If your team isn’t aligned on goals, it can be a problem.

Nearly 1,900 customers are at the $1 million plus level and that number is growing about 15% per year. ServiceNow focuses on growing its biggest accounts — moving spending levels from an average of $3 million in 2020 to $4.5 million in 2024.

Against this backdrop, you need to enter any ServiceNow contract negotiation with the information and data you need to extract maximum value from your licensing without overpaying.

Looking to optimize your ServiceNow contract negotiation? Here are 10 tips that can help.

Understand Your Current Contract & Utilization

You need a clear understanding of your current contracts, utilization, and plans for ServiceNow integration. These steps should be taken before you start the negotiation process to focus your efforts.

1. Strategic Alignment of Purchases and Renewals

Assess your current ServiceNow contracts and ensure they align with your IT roadmap. Invest in the solutions that your team and infrastructure are prepared to support, focusing on priority implementations that deliver the highest ROI.

For new purchases, you will want to conduct a usage analysis across your organization to determine the licensing combinations you actually need. Depending on the job and needs, not everyone may require access to the highest levels of licensing. You should evaluate different scenarios to choose the SKUs that right-size your spending.

3. License Optimization Assessment for Renewals

If you are heading into license renewal negotiations, conduct a license optimization assessment. This will identify the licenses that can repurposed or terminated. The majority of enterprises have unused licenses that simply add to costs.

Develop Your ServiceNow Negotiation Roadmap

As you plan your negotiation, make sure you come to the table with the information you need. Knowing where ServiceNow has flexibility in pricing, terms, and options will help you structure better deals.

4. Benchmark and Optimize Pricing

ServiceNow contract negotiation often yields significant price discrepancies. Customers making similar purchases may see transaction pricing and discounts that vary greatly — leading to overpayment. Benchmarking actual transactions is the only way to ensure you are getting fair market pricing.

Business terms can also vary from contract to contract and create hidden costs. Price protections, service level agreements, and data ownership rights can be tuned to prevent unnecessary costs.

6. Know the Available Product Options

ServiceNow’s portfolio and pricing models change regularly, especially as they phase out old offerings and expand their enterprise footprint. Negotiating the best deal requires an understanding of the full mix of SKUs, and licensing models to optimize usage and costs.

For example, are you better off purchasing ServiceNow ITSM Enterprise or IT Service Management Standard and Professional licenses? Do you need both Discovery and Service Mapping, which can be bought together or separately?

Despite what you may hear, there are options to negotiate that go beyond basic pricing and terms — if you know what to ask for. For example, you may be able to negotiate future product price protections, renewal price protections, or swap rights for products or volumes you aren’t using with a particular product.

You need to stay focused on what you need and not what they’re trying to sell. Make sure discussions focus on how their solutions provide value that aligns with your needs. You will want to create a roadmap for growth over time, which may help get price concessions now with the potential for expanded offerings in the future.

Make sure everyone in your organization is on the same page. This helps present a unified message to the ServiceNow reps. This signals that any concessions or change you are asking for is a company-wide initiative and not just a procurement exercise you undertake with all vendors.

Another negotiating tool is knowing your options, such as third-party providers that may help with some levels of implementation or service.

10. Consider Third-Party Services

Before you commit, explore third-party alternatives for professional services. You may be able to find less expensive ServiceNow implementation, customization, and support at significant savings. However, you will also need to benchmark prices to ensure you get the best deal.

Be Prepared for Your ServiceNow Negotiation

ServiceNow has a strong culture of pushing customers to buy more than they need or before they are ready to implement and adopt products. That’s become more prevalent in the past five years and customers are paying the price.

You need expert information on your side of the table to strike the best deal and avoid overpaying. This is especially challenging because of the increasing number of SKUs, changing product options, and licensing complexity.

NPI brings transparency into the process, providing you with benchmarking based on actual ServiceNow transactions. Over the next 12 months, 85% of companies will overpay for their IT purchases. We can help you avoid overpaying and achieve best-in-class pricing, while aligning your IT and business roadmap with ServiceNow’s.

Contact NPI today to discuss your options.

The NPI team never misses an opportunity to connect with the IT procurement community. Over the past few weeks, we’ve attended the Procurement Foundry’s Forge: Tech Sourcing conference and ProcureCon IT Sourcing 2024. Here are five key takeaways from these events:

1. While IT Procurement’s Role is Becoming More Critical, Resource Constraints are Serious

IT procurement has never been more crucial to the business, but teams are often under-resourced and under-budgeted. The rapid pace of change – from the broader tech marketplace to licensing and pricing at the vendor-specific level – leaves little time or resources for education and expertise development. One of the biggest concerns is the amount of time teams are spending on administrative tasks like tracking spend, order intakes, chasing renewal deadlines, etc. It’s hard to be strategic when you’re focused on the tactical. Almost everyone we spoke to mentioned they were hiring, pointing to significant organizational turnover and disruption. These challenges are further compounded by multiple rapidly evolving IT categories, especially cloud and cybersecurity.

2. Alignment with IT and Business Stakeholders is a Challenge and a Top Priority

Alignment between IT procurement, IT, and business stakeholders remains a challenge. Gaining internal credibility and ensuring timely engagement in projects is an ongoing struggle. Many procurement teams are still battling for visibility and true collaboration with their stakeholders. Continuously proving value to maintain their position at the decision-making table is essential, especially with limited resources and budget. To be effective, procurement must be methodical, strategic, and highly proactive. That brings us back to what we covered in the first takeaway: IT procurement teams need breathing room to be more focused and more strategic.

3. The Rise of AI is Prompting Demand for Practical Use Cases

Artificial Intelligence (AI) is a hot topic in the IT procurement space, but companies are looking for practical use cases that demonstrate meaningful impact quickly. The excitement around AI needs to be matched with real-world applications that provide tangible benefits to procurement processes and outcomes. Check out this video from Jeff Muscarella, NPI EVP of Digital Products and Services, on 3 things every IT practitioner should know about AI:

4. Better IT Spend Visibility is Needed

Improving spend visibility is a significant area of focus, especially as shadow IT spend continues to erode vendor negotiation leverage and cost transparency. Procurement must lead the way in consolidating spend for smarter IT purchasing and advocate for centralized IT spend management. While some companies are centralizing only large expenditures, managing tail spend remains a big question.

5. IT Buyers are Becoming Bolder in How They Approach Enterprise Software Renewals

A new boldness is emerging in how some companies approach enterprise software renewals. With vendors often delaying quotes until the last minute, some companies are now adding contract clauses requiring detailed, itemized renewal quotes six months in advance. This proactive stance helps companies gain visibility into renewals and create competitive leverage. Discussions at the conference highlighted how companies are negotiating to avoid overbuying, taking new measures to increase licensing flexibility (specifically around reallocation), and pushing back against vendor price increases that deliver little value and only serve to increase customer account revenue. IT procurement teams are taking a firm stand by indicating that even deeply entrenched vendors that don’t play fair could eventually find themselves unseated by a competitor in the future.

NPI Takes New Steps to Empower IT Procurement for Strategic Success

These insights highlight the evolving landscape of IT procurement and underscore the importance of strategic, proactive, and well-resourced procurement functions. As we move forward, addressing these challenges and leveraging these opportunities will be key to driving success in IT procurement. Just as we’re witnessing IT procurement teams become bolder, NPI is also taking steps to take on these challenges in new ways.

We recognize there is an immediate need for tools and resources that help IT procurement to:

• Reduce their administrative burden so they can be more strategic and focused on high-value, high-impact activities
• Stay on top of changing licensing, pricing and competitive landscapes at the SKU-level so they can elevate credibility and confidence
• Manage software renewals with ease – this is ground zero for the massive overspending patterns that plague most enterprises
• Implement low-risk/high-reward AI-enabled procurement tools that deliver immediate and measurable cost-savings

Today, over 130 of the Fortune 500 use NPI’s IT transaction optimization services to meet these requirements. We will soon be introducing new groundbreaking capabilities that will empower IT procurement teams even further. Stay tuned to this space over the next few weeks!

For Software as a Service (SaaS) offerings, companies will spend an estimated $273.5 billion in 2023 and over $900 billion by 2030. Unfortunately, most will overpay at a staggering rate. Within large enterprises, 30% or more of total SaaS spending goes to unused licenses and features. Even when customers buy only what they need, they’re often paying prices that are above best-in-class rates.

There is a critical need to improve enterprise SaaS procurement. This includes proper governance, consistent application of best practices, and access to current pricing and licensing intel. Without these things, SaaS procurement will continue to be a hotspot for cost and contractual risk. On the flipside, those enterprises that embrace a strategic approach to SaaS procurement and governance will be able to materially reduce costs while accelerating key business objectives.

SaaS procurement is the process of choosing the right SaaS vendors, solutions, and SKUs to meet current- and future-state business and technical requirements. The goal is to pay only for what you need without overspending with optimized contractual business terms.

It sounds simple enough, but it’s challenging in practice. We share more later in this post on common SaaS procurement challenges.

 It is crucial for enterprises to have effective SaaS procurement best practices and processes in place. These processes must be efficient and optimized for best-in-class vendor negotiation outcomes. The technology-driven market demands that every team utilize software to achieve effective results.

Before Software as a Service (SaaS) became prevalent, procurement teams were the primary authorities on evaluating purchasing processes and reporting findings to internal stakeholders. However, the process to get there was typically long. Today’s business landscape requires more agile purchasing processes – particularly around SaaS, which has become the de facto software delivery model and one that is easily accessible to more departments, users, and stakeholders. The decentralization of IT spending (e.g. shadow IT spend) can be directly attributed to SaaS purchasers bypassing traditional IT procurement channels in the name of efficiency. 

Now, with an abundance of tools, subscriptions, and suppliers, buyers must be focused on procuring SaaS in a way that eliminates cost and supplier risk while also being efficient enough to move at the speed of business, market, and technology evolution. 

The SaaS procurement process requires a step-by-step framework and a coordinated effort across an organization. With governance policies in place, the SaaS procurement process typically follows these seven steps:

1. Identify Business Requirements: Document the specific business needs the SaaS application should address.
2. Research Options: Research the vendor landscape and collect demos and quotes for solutions that may meet the requirements.
3. Choose a Vendor: Select the vendor that best fits the defined business, functional, and budgetary needs.
4. Negotiate the Agreement: Negotiate favorable contractual terms, pricing, and service levels by leveraging benchmarks and market data.
5. Finalize the Contract: Finalize the agreement by codifying all technical, functional, and commercial details into the appropriate contract vehicle.
6. Implement the Software: Onboard the SaaS solution through activating services, migrating data, and rolling out to end users alongside training.
7. Monitor Usage: Continuously monitor usage, spending, and performance to optimize value delivery over time.

Effective SaaS procurement has many benefits that have immediate and long-term impacts on IT readiness and SaaS costs. They include:

• Ensure the business is buying the right SaaS solutions to meet predefined business requirements. Additionally, it supports the organization’s need to stay competitive, agile, and innovative as the business environment and market landscape evolve.
• Choose vendors that are financially sound and meet the buyer’s technical, security, and budget requirements. 
• Leverage pre-existing vendor relationships that could lead to better SaaS procurement negotiation outcomes.
• Eliminate the risk of overbuying by purchasing best-fit licensing and subscription types in the right quantities. 
• Negotiate prices and contractual business terms that are best in class. This means paying a price that is at or below fair market value and negotiating contractual business terms that are flexible enough to support current and future state needs.
• Make sure all renewals are based upon baseline requirements that are current and accurately defined.

Best Practices for Smarter SaaS Procurement

Applying these best practices can result in smarter SaaS procurement:

Smarter SaaS procurement requires a thorough understanding of how the solution will fit into your current tech stack, and how it will be rolled out and utilized over time.. A comprehensive IT roadmap for scaling is crucial to optimizing licensing, pricing, and contractual business terms from the onset of the SaaS customer agreement, including fee structures that match your roll-out plans.

Your SaaS provider will likely promote the most powerful and comprehensive license types.. But not every user needs the most expensive, full-featured options. Categorizing users based on actual usage requirements can yield significant savings.

Leverage Existing Relationships

When evaluating new solutions, explore your options with your current IT vendors to see if they offer similar or overlapping products. You may be able to leverage existing relationships to get better pricing, discounts, or incentives.

SaaS sales teams are often incentivized to sell certain products. When you understand your vendor’s motivations, you will be positioned to negotiate better deals that create a win-win for all parties at the deal table.

In most SaaS procurement negotiations, there’s a significant imbalance when it comes to information. Your vendor’s sales rep has been formally trained not only on the solutions but also on selling skills – across all spend categories, the IT marketplace has one of the most well-trained sales armies. Your rep has probably had hundreds of “at bats” at the negotiation table. They have complex pricing schemas at their disposal that ensure enterprise customers pay as much as possible. There is no pricing transparency, and discounting is wildly inconsistent across similar purchases. On the other hand, SaaS procurement teams may have purchased from this particular vendor once or twice, or maybe never before. So, how do you know if you’re paying a best-in-class price?

IT price benchmarking helps eliminate toxic spend by helping companies determine if they’re paying a fair price – and, if not, provides data-defined pricing targets that are either at or better than fair market value. In 2022, 89% of the IT purchases NPI analyzed were priced above fair market value and this number is holding steady in 2023. Vendors are trying to maximize revenue as they navigate economic volatility, so SaaS buyers must be armed with market data that defines best-in-class pricing and allows them to negotiate a world-class deal outcome.

Auto-renewals may be easier, but they prevent the opportunity to renegotiate. A lot can change within your organization and industry between renewal periods. Your needs may evolve and competitors may offer better solutions. By approaching each renewal cycle with a fresh set of eyes, you can often uncover material savings and an opportunity to lower your SaaS IT spend.

There are also other levers in software renewals besides cost. You will want to examine contractual business terms more carefully to determine whether there are other ways to build flexibility to meet evolving business requirements.

Note: IT vendors will push for auto-renewals. Push back!

Depending on the vendor and your business needs, SLAs may also require some negotiation. Negotiate service commitments, credits, and termination rights while avoiding overspending on unneeded premium support.

Usage levels and needs change over time. It’s important to perform ongoing SaaS license optimization assessments of your estate. Look for unused licenses you can reclaim and reassign and areas where lower-price licensing tiers can be substituted.

Common SaaS Procurement Challenges

In order to optimize SaaS negotiation outcomes, there are several SaaS procurement challenges that must be addressed:

• Shorter purchasing cycles: IT procurement is under pressure to purchase SaaS solutions more quickly to support a more agile business environment. Procurement resources often don’t have the time to fully optimize SaaS purchases.
• Decentralized IT spending: Shadow IT spend is still a major problem within large enterprises as SaaS procurement often happens at the departmental level without any centralized procurement oversight. As much as 30% to 40% of total IT spending in enterprise companies falls in this category. This leads to missed leverage and negotiation opportunities that can cost companies millions over time.
• Rampant pricing disparity: What one SaaS vendor charges one enterprise may be materially more or less than what they charge another customer with similar requirements. IT procurement teams typically lack deep internal pricing intelligence required to identify what constitutes best-in-class pricing.
• Increasingly complex licensing/subscription models: Strong SaaS procurement requires a deep and up-to-the-minute understanding of vendors’ changing licensing/subscription programs. IT procurement teams often lack an understanding of the different options available to them leading them to purchase overpowered SKUs or bundles that offer more functionality than required.

8 Common SaaS Procurement Mistakes

Companies often make several mistakes when purchasing and renewing SaaS solutions. These lead to overspending, elevated supplier risk, and erosion of vendor negotiation leverage. Here are the top offenders:

1. Taking a one-size-fits-all approach to licensing. Companies often purchase overpowered license types for their entire organization instead of defining and purchasing according to specific usage profiles.
2. Renewing on autopilot. Approaching SaaS renewals on autopilot forces buyers to inherit pricing, discounts, contractual business terms, and licensing quantities that may be suboptimal.
3. Failing to run purchases and renewals through IT procurement. Decentralized IT purchasing only benefits the vendor. Centralized IT procurement ensures the buyer is following best practices that lead to world-class deal outcomes.
4. Paying prices that are above fair market value. Without IT price benchmark analysis, companies overpay for 89% of IT purchases and renewals. This is a byproduct of poor vendor pricing transparency. 
5. Not knowing what motivates the vendor. Vendor motivations change frequently depending on incentives, quotas, market pressures, and competitive landscape. Knowing what motivates your vendor is the first step in establishing negotiation leverage.
6. Failure to align stakeholders. Loose lips sink ships, and that certainly applies to IT buying teams. These teams are typically comprised of multiple business and IT stakeholders, and vendors are adept at extracting information from each of them that will increase their leverage at the negotiation table. Vendor communication should be limited, organized, and monitored.
7. Assuming certain contractual business terms are non-negotiable. Price isn’t the only thing up for negotiation during the SaaS procurement process. Contractual business terms should be negotiated for flexibility and incentives that provide soft-dollar savings.
8. Making purchases without visibility into future-state usage requirements. Understanding your future-state requirements will allow you to negotiate a world-class deal outcome that maximizes savings in future renewal events.

Why You Should Bring in Outside SaaS Procurement Expertise

To avoid overspending, IT procurement teams need to have deep vendor-specific internal expertise in SaaS licensing, pricing and negotiation. Since it’s impossible to be an expert in every vendor, most enterprises relay on external subject matter experts. Without access to this expertise, it’s challenging to negotiate a world-class deal or even know if you are overpaying (if you don’t know, you probably are!).

NPI’s IT procurement analysts analyze thousands of SaaS purchases and renewals each year. This experience gives us a deep understanding of up-to-the-minute SaaS pricing and licensing for thousands of SaaS vendors. This allows our clients to accelerate purchasing cycles, eliminate overspending risk, and make SaaS procurement decisions with confidence. 119 of the Fortune 500 use NPI’s services – and for good reason. Of the $25 billion in IT spending NPI assessed in 2022, more than 89% of vendor quotes were above fair market value.

By understanding market dynamics, negotiation levers, and negotiation tactics, NPI’s SaaS procurement experts can help you drive significant savings while ensuring you get the SaaS products you need to run your business productively and competitively You get the independent guidance you need with an intense focus on negotiation strategies and outcomes.

Transaction-specific pricing analysis and negotiation intelligence can help you make best-in-class SaaS purchases. Contact NPI today to learn more.