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

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

1. Reharvest inactive SaaS licenses

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

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

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

2. Realign software licensing based on actual usage requirements

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

3. Validate pricing is truly best-in-class

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

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

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

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

4. Approach renewals strategically

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

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

5. Get on board with FinOps for cloud cost management

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

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

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

7. Stop overspending on IT professional services

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

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

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

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

9. Explore support alternatives, including third-party

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

10. Optimize contractual business terms for better cost flexibility

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

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

11. Get maximum value from existing technology investments

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

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

12. Identify and remediate billing errors

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

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

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

Software license management has become a key focus and concern as enterprises’ IT estates balloon in scope and cost, and vendors more aggressively audit their customers. Recent research has revealed nearly 70% of companies have undergone a major software license audit in the past three years. For many enterprises, these audits can result in massive financial penalties. It’s not uncommon for vendors like Oracle, Microsoft, SAP, or IBM to charge customers seven or eight figures for noncompliance.

In most cases, an audit leads to discovery of noncompliance. Typically, noncompliance is unintentional. For example, companies often fall out of compliance from:

• Inadvertent misuse, such as buying license types that restrict usage to certain environments, but then finding employees using them in other environments.
• Changes to licensing programs, definitions, and usage rights that evolve over time.
• Upgrading or downgrading software without fully understanding the implications on utilization.
• Complex stipulations about virtualization.
• Shadow IT and apps employees use outside of IT management.

Besides audit worries, there can be significant waste. 85% of companies overpay for IT purchases. And then there is this: a recent survey of six million customers showed that 50% of all software licenses were not being used — adding up to more than half a billion dollars in unnecessary spending.

Employing software license management best practices can provide the insight needed, eliminate wasted spending, and reduce audit worries.

Forrester forecasts that spending on software will be nearly $1 trillion in 2024 and continue to grow at about 12% a year through 2027. With so much money on the line, it’s surprising how few companies have complete visibility into their assets. To change that, enterprises need to put these software license management best practices in place.

Conduct a Comprehensive Software Audit

Software licenses are legal agreements that grant users the right to use a particular software application for a specific period of time. When you accept a license agreement, you commit to abiding by the terms and conditions of the license. So, the first step in effective software license management is making sure you are living up to your contractual obligations.

To do that, you need to know what you have and how it’s being used. Conduct a thorough software license audit across the organization to identify all installed applications, verify license compliance, and establish a baseline for future license management activities.

Your software audit should focus on three main areas:

1. Compliance: Mitigate risk of noncompliance and control costs.
2. Optimization: Make sure the software is right-sized for employee needs
3. Savings: Look for areas where you can eliminate unused software or reallocate rather than purchase new.

Implement a Centralized License Management System

One study of IT leaders revealed that less than 6% said they had complete visibility into how their employees were using software. Without a centralized license management system, it’s a daunting task.

A centralized license management system streamlines the tracking and reporting of software licenses, automates license reconciliation, and can integrate with procurement and asset management systems. This approach provides a single source of truth for software license information to track deployment and usage.

Develop a Software License Management Policy

A well-defined software license management policy outlines the procedures for license acquisition, deployment, tracking, and retirement. This serves as a framework for consistent and standardized license management practices across the organization.

Optimize Software Licensing Models

Organizations should evaluate various licensing models, such as subscription versus perpetual licenses, and leverage volume licensing agreements to optimize costs. Working with a company like NPI can help uncover wasted spending and optimize your software licensing.

Right-sizing software licensing is crucial to optimizing your spending. For example, does everyone in your organization really need a Microsoft 365 E5 license, or could some employees work just fine with a less expensive E3 license?

Establish Ongoing License Monitoring

Implementing software license monitoring tools allows organizations to track software usage and license consumption accurately. This information can help identify underutilized or overused licenses, enabling organizations to optimize license allocation and procurement decisions.

Implement Software License Harvesting

Software license harvesting involves reclaiming unused licenses and redeploying them to areas of need within the organization. This practice can significantly reduce software spending while maintaining compliance with licensing agreements.

Provide Software License Management Training

Educating employees on license compliance and policies, as well as raising awareness of software license management best practices, fosters a culture of responsible software usage. Regular training ensures that everyone understands their roles and responsibilities in maintaining license compliance.

For example, you may be well aware of the dangers of Shadow IT from a cybersecurity and licensing standpoint, but your employees may not be.

Regularly Review and Update Software License Management Practices

As business needs and software landscapes evolve, it is crucial to regularly review and update software license management best practices. Adapting to changing technologies and licensing models ensures that you remain agile and compliant.

Managing Software Licensing Complexity

The average enterprise device has 67 applications installed. About 10% have more than 100. Most departments use between 40 and 60 different apps and company-wide, that number can balloon to more than 200.

For large enterprises, software management is complex. The more employees and locations you have, the more complicated it becomes. These best practices help rein in unnecessary spending, optimize software licenses, and avoid costly noncompliance. By adopting these practices, you can maximize the value of your software assets while reducing your risks.

However, for these software license management best practices to work efficiently, it requires active management and consistent application.

NPI helps enterprise IT teams identify and eliminate overspending on IT purchases, accelerate purchasing cycles, and increase decision-making confidence. Deep, vendor-specific expertise helps enterprises negotiate better deals and right-size licenses across the organization. This experience helps companies optimize deals to align with future needs while maximizing every IT budget dollar.

• Enterprise License Agreement Optimization
• Software License Audit Readiness & Defense
• SaaS License Optimization
• IT Price Benchmark Analysis & Negotiation Intel

Contact NPI today to discuss how we can help you improve software license management, reduce software costs, and maintain compliance across your organization.

The demands being placed on IT procurement teams have reached a fever pitch. The volume of transactions that must be managed at any given time has exploded. The speed at which those transactions have to be executed in order to meet the demands of the business is accelerating. And the amount of category spend on the line is growing. Gartner’s updated forecast estimates worldwide IT spending will grow by 8% to $5.06 trillion in 2024.

Meanwhile, an overstaffed IT sourcing department simply does not exist. There are limited resources and time to achieve best-in-class outcomes. The constant churn of new vendors, new technology, and new sales tactics is an insurmountable challenge for most IT procurement teams. Keeping up with an avalanche of IT renewals is difficult enough. Throw in new IT initiatives (we’re looking at you, AI) and the burden on IT procurement teams has reached dangerous proportions.

Here are some observations to illustrate these points more clearly:

• NPI’s clients purchased from over 600 new vendors in the past 12 months – the highest number we’ve seen in the last 20 years.
• Our data indicates that enterprises overpay for more than 85% of their IT purchases and renewals compared to fair market value pricing.
• The challenges of managing AI spend in the cloud era are revealing themselves. Consider this: Microsoft captured one-quarter of the global cloud market for the first time in Q1. Part of that reason is AI demand.
• Over-deployments and suboptimal licensing continue to cost companies millions of dollars every year. For one client, we uncovered annual savings of nearly $3M on their O365 estate – even though they had recently installed a leading SaaS management and optimization platform.

Navigating the Next Wave: Questions to Ask

The IT industry is in the midst of an historic innovation cycle that’s on par with the introduction of home internet access and the smartphone. Those cycles opened the door to companies and applications that fundamentally changed business models. Generative AI is doing something very similar, and the implications are redefining enterprise demand, spend, and resource requirements. Organizations will integrate AI-powered capabilities at various speeds over the next few years, but the writing is on the wall. Things are changing, and they’re changing rapidly.

Which bring us to the main point. IT procurement teams must ask themselves: Are we ready? Do we have the right tools, resources, and processes?

For many, the answer is “not yet” – which is not a criticism in any way. It’s the nature of the scope of the shift we’re all a part of. However, IT sourcing leaders must actively start re-engineering the IT procurement toolkit to meet changing and growing demands. Here are some considerations to help organizations move along in this process:

• Where are my IT cost blind spots? Examples include software license over-deployment and underutilization.
• Where are my most critical skill and knowledge gaps?
• What tools do I need to manage a growing number of IT renewals?
• Given the volume of new purchases and renewals, how can I streamline and strengthen preparation for vendor negotiation?
• How do I stay on top of vendors’ licensing, pricing, and business changes – particularly those that impact our spend?
• How do I ensure world-class negotiation outcomes with new vendors where my team has little/no experience?
• How do I ensure we pay the lowest price and negotiate the most favorable contractual business terms?
• When, where, and how will GenAI improve our organization’s IT procurement process?

Adapting IT Procurement: Staying Ahead in a Rapidly Evolving Technological Landscape

As we navigate the current IT innovation cycle, the role of IT procurement is becoming more pivotal than ever. The pressures of escalating IT spending, coupled with the relentless pace of technological change, demand a proactive and adaptive approach from procurement teams. The data and trends outlined in this post underscore a critical message: readiness and adaptability are not just beneficial but essential for survival and success in this new landscape.

Organizations that take the initiative to evolve their procurement strategies, sharpen their negotiating acumen, and adopt innovative tools, especially for managing AI-driven demands, will not only withstand the pressures of change but also thrive in capitalizing on the opportunities it presents.

Are you attending Procurement Foundry’s Forge Tech Sourcing event in Boston on May 14th? NPI CEO Jon Winsett will be discussing the modern IT procurement toolkit at Procurement Foundry’s Forge Tech Sourcing event in Boston on May 14th. To learn what must-have skills and tools will help IT procurement negotiate world-class deal outcomes in the next 1 to 3 years, don’t miss this session!

Enterprise SaaS spending has exploded in recent years. That’s not surprising as SaaS is the preferred software delivery model for most organizations. However, only in recent years has SaaS spending overtaken traditional software investments, with 64.5% of organizations choosing SaaS compared to 34.5% opting for on-premise. Estimates show SaaS revenues are expected to increase to $282.2 billion in 2024 and to $374.5 billion by 2028. And perhaps most telling is more and more enterprise software vendors are phasing out perpetual licenses altogether.

For all the benefits of SaaS, the cost advantages are still hotly debated. Renting versus owning has its price over the long term. But SaaS spend management challenges don’t end there. SaaS offers good cover for a lot of unintentional cost waste and enterprises must be well-versed in how to minimize overspending risk.

• What is SaaS Spend Management?
• Why SaaS Spend Management is Important
• SaaS Spend Management Best Practices
• Developing a SaaS Spend Optimization Strategy
• How To Responsibly Reduce Your SaaS Spend
• How to Know When I Need SaaS Buying Assistance?
• Why Do You Need a SaaS Spend Management Strategy?
• 3 Steps to Creating a SaaS Spend Management Strategy
• Regulate Your SaaS Spend With NPI

REGISTER NOW for our free “Eliminating SaaS Toxic Spend” webinar to strengthen your spend management strategy and reduce waste.

What is SaaS Spend Management?

To gain a better understanding of SaaS spend management, one must first acknowledge how the purchase of software has evolved in the SaaS era. With on-premise software, the enterprise’s IT and IT procurement teams were involved closely in nearly every software purchasing decision. Once they had a list of business requirements and goals, they would evaluate potential candidates, determine their vendor of choice, and negotiate pricing and terms. IT would install, configure, and maintain those applications throughout the software’s lifecycle. Rinse and repeat.

With SaaS, things changed significantly. In many cases, nothing needed to be installed. In some cases, nothing needed to be maintained. SaaS vendors began marketing to departmental users. It wasn’t long before many SaaS purchases became largely decentralized. A marketing or finance department could easily bypass IT and procurement and subscribe to the features and functionality they needed at a fixed monthly rate. The term “shadow IT” emerged. And with it came a concerning lack of visibility into what the organization owned, how it was being used, if best practices were used during vendor negotiations, and general spend oversight.

A clear need for SaaS spend management emerged amid these concerns. SaaS spend management refers to the ways that a company both monitors and controls the amount of money it is spending on various SaaS subscriptions regularly. As SaaS spend has become more unwieldy, organizations have realized they have a visibility problem – particularly among their largest software estates. How many licenses do they own? Who is using them and how? What is the process for spotting and decommissioning inactive licenses? Are there redundant features and capabilities among different deployments?

Current SaaS spend management best practices address these challenges and make it easier for companies to spot and eliminate toxic spend in their organization.

Why SaaS Spend Management is Important

• Departments are managing more enterprise applications than IT, accounting for 56% of all company app ownership and management, up from 4% year over year, according to a recent report.
• Most departments use between 40 and 60 different applications. Companywide, departments use an average of over 200 apps.
• Gartner estimates 30% of SaaS spend is toxic – meaning it’s spent on unused licenses and features.
• Studies show many businesses have between two and three times more SaaS and cloud-based applications than they assume they have.

Having said that, without the proper governance in place, the risk of material overspending on SaaS is alarmingly high.

SaaS Spend Management Best Practices:

NPI recommends enterprises focus on the following SaaS spend management best practices:

Conduct a SaaS License Optimization Assessment

For large SaaS estates like M365, Adobe Creative Cloud, Salesforce, ServiceNow, and Workday, it’s important to gain a clear picture of what you own, who’s using it, and how it’s being used. Assessments should be performed at least once a year – or more depending on workforce changes. They are particularly useful in advance of a renewal event.

Establishing an accurate optimized usage baseline can help you more clearly define renewal demand and align cost and usage. Using standard inputs from your existing applications and tools, NPI’s SaaS license optimization assessment services provide a detailed analysis to identify specific, actionable cost reduction opportunities in two areas:

1. Reclaim inactive licenses: A license optimization assessment reveals inactive licenses. Examples include employees who no longer use a license, ex-employees and contractors, multiple licenses assigned to a single user, or even “no pulse” users like printers and conference rooms. Identifying these instances allows you to liberate inactive licenses for redeployment instead of purchasing additional licenses to fulfill changing requirements.
2. Right-size and realign underused licenses: The assessment also reveals licenses that are overpowered and recommends realignment of best-match license type to users based on task, role, and utilization. More often than not, enterprises will find they are paying for at least some licenses that provide more functionality than needed at an unnecessarily high cost. Examples include Microsoft 365 customers who deploy a one-size-fits-all E3 or E5 subscription across thousands of users rather than leveraging frontline worker SKUs or other lower-cost options for workers that need less functionality.

Benchmark SaaS Pricing

All the SaaS license optimization tactics in the world can’t fix SaaS overspending if companies are paying more than they should at the SKU level. One mistake enterprise SaaS users make is assuming SaaS pricing is inflexible and cannot be negotiated. This isn’t true. SaaS vendor pricing disparity between customers is frequent. To make sure you’re paying a fair price for the SaaS services, perform an IT price benchmark analysis on your next SaaS renewal or purchase. This will identify gaps as compared to best-in-class pricing that can reduce costs significantly.

Developing a SaaS Spend Optimization Strategy

A comprehensive SaaS spend optimization strategy should focus on the following key areas:

• Centralizing procurement and oversight of all SaaS apps to improve visibility and control. This includes creating SaaS procurement policies and having a cross-functional team to evaluate new SaaS requests.
• Conducting periodic SaaS license optimization assessments to identify and eliminate waste from unused and underutilized licenses. Assign clear business owners.
• Benchmarking pricing on key large-estate SaaS apps before renewals to ensure favorable contract terms. Consider 3rd party sourcing assistance.
• Creating and enforcing SaaS governance policies on subscription lengths, data ownership/security, and vendor management.
• Developing processes to track SaaS ROI and business outcomes. Require insights into usage and adoption before renewal.
• Providing self-service access to approved SaaS apps and automated offboarding for deactivated users.
• Exploring SaaS management platforms that centralize procurement, spending analytics, and optimization.

How To Responsibly Reduce Your SaaS Spend

When companies set out to reduce SaaS spend, it can be tempting to take a blanket approach, such as cutting subscriptions across the board by a set percentage. However, this tactic generally backfires. Such cuts run the risk of eliminating software that employees need. This can hurt productivity and morale.

Instead, finance and IT leaders need a strategic, user-focused approach that balances savings with business enablement.

Conduct Granular SaaS Utilization Analysis

Before making any changes, IT and finance teams need to analyze adoption and usage patterns. Gather data on license activations versus logins over time. Identify applications with a high volume of unused or inactive licenses to cut first.

Align Changes to Business Goals

Review software applications individually through the lens of current business priorities and goals. Which supports revenue-driving activities? Which enable operational efficiencies? Consider the downstream impact and align proposed subscription changes accordingly.

Communicate Proactively, Phase Incrementally

Be transparent about why you are making these decisions and a timeline for changes. For example, if you are replacing E5 licenses with M365, employees may need to prepare. Also, consider phasing adjustments over time in smaller increments to give users time to adapt while allowing you to continuously monitor outcomes.

The key is maintaining open lines of communication. This balanced approach helps rein in unnecessary SaaS spend without disrupting operations.

How to Know When I Need SaaS Buying Assistance?

IT and procurement staff often feel overwhelmed with the work on their plate and lack the bandwidth to effectively negotiate favorable terms. There’s a lot that can be negotiated, even from boilerplate agreements. However, most internal teams lack this insight. Specialized consultants like NPI can provide industry benchmarking, licensing expertise, usage analysis, and spend optimization insights that internal teams simply cannot supply alone. The experts at NPI track thousands of deals across industries and know where opportunities are to improve negotiation outcomes for SaaS purchases and renewals.

How do you know if your organization will benefit from SaaS purchase and renewal optimization assistance? Signs include:

Expiring High-Value SaaS Contracts

If large SaaS renewals like Salesforce or Workday or ServiceNow are around the corner, outside help developing a cost, usage and license-optimized renewal strategy is prudent.

Pricing Disparity

IT price benchmark analysis comparing contract rates to peers can reveal significant pricing gaps. This indicates missed savings opportunities from less-than-optimal negotiations.

Shifting Usage

Growth, downsizing, or remote work transitions can drastically alter SaaS usage profiles. Consultants can rapidly realign subscription levels to evolving business environments.

Budget Surprises

Sudden or unexplainable spikes in SaaS spend signal lost visibility. External experts excel at auditing portfolios to identify cost-saving opportunities to reduce costs.

Siloed Buying

Disjointed procurement processes with disjointed SaaS buying teams can accelerate waste. NPI delivers economies of skill and scale to inform spend.

Why Do You Need a SaaS Spend Management Strategy?

The lack of cohesive SaaS governance threatens both efficiency and cost control. Decentralized buying leaves finance with limited visibility to overall spend. IT scrambles to integrate fragmented systems. Employees endure challenging workflows.

Without a strategy, unrestrained SaaS sprawl can quickly spread out of control. It’s a fact: enterprises will overspend for 85% of their IT purchases in the next year. IT pricing and terms are notoriously inconsistent, and most organizations have limited insight into complex choices.

Conversely, a tightly orchestrated SaaS management strategy delivers amplified impact across software investments – promoting agility while maximizing value extracted from each dollar.

Strategic oversight is critical because it:

• Optimizes SaaS Investments: Identifies and eliminates redundant systems while right-sizing utilized subscriptions to ideal levels. This tailors investment to fit changing needs.
• Speeds Deployment: With centralized oversight, procurement policies, and processes streamline the path to acquire and integrate new software.
• Unifies Control: Top-down governance builds connections between siloed teams. IT, finance, and business units collaborate to optimize decisions.
• Drives Visibility: Consolidated management and usage analytics provide transparency into SaaS spend. This allows course correction when waste emerges.
• Mitigates Risk: Checks and balances for decentralized buying provide accountability. Standard de-provisioning minimizes the potential for bloat.

3 Steps to Creating a SaaS Spend Management Strategy

Like any major organizational initiative, developing an impactful SaaS governance strategy requires methodical planning and cross-functional collaboration. By rallying stakeholders across departments and systematically mapping current-state gaps, companies lay the groundwork for streamlined oversight.

Here are three key phases for constructing your SaaS management blueprint:

Step 1: Assemble a Team

Kick things off by pulling together an interdisciplinary working group. Ensure representation spanning IT, finance, security, procurement, and influential business units. This cross-section of leaders will weigh trade-offs and guide policy decisions from planning through execution.

Step 2: Understand the Landscape

Next, dig into the weeds of current SaaS spend from ownership to utilization. Catalog all active subscriptions along with associated costs and contracted terms. Paint a picture of lineage and connections across systems.

Step 3: Codify Standards and Systems

With clarity on scope and opportunities, define centralized processes governing request routing, vendor selection, license administration, and usage measurement. Detail policies for procurement, access controls, and de-provisioning. Develop dashboards to monitor adoption and spending.

Regulate Your SaaS Spend With NPI

NPI provides comprehensive SaaS cost optimization services grounded in license optimization, price benchmark analysis, IT asset management (ITAM), and workflow automation. By leveraging NPI’s assessment, advisory, and benchmarking capabilities, enterprises can effectively control runaway SaaS waste and spend. Our analytics-driven approach provides complete visibility into SaaS investments so you can make data-driven decisions that balance savings and business enablement.

If you’d like to find out more information about SaaS spend management best practices, or how NPI can help you implement them for fast SaaS cost reductions, contact NPI today.

When you consider that IT spending in 2023 topped $4.6 trillion globally and is forecast to reach $5.1 trillion in 2024, making sure you manage your IT budget effectively and get a fair price for what you’re buying is crucial.

Unfortunately, most enterprises are overpaying. NPI’s objective price benchmarkanalysis turns up savings on more than 85% of the quotes we examine. Savings can range from 10% to 50% and higher. In this article, we’ll take a look at some IT budgeting best practices and tangible ways to reduce your costs while ensuring you get the technology you need to succeed.

What is IT Budgeting and What Role Does IT Procurement Play?

IT budgeting is the process of planning and allocating funding for an enterprise’s tech infrastructure, systems and operations. It includes anything related to technology to support the organization, including staffing, hardware, software, maintenance, and more.

IT procurement teams execute the budget, make sourcing selections, execute contracts, ensure compliance with internal and industry regulations, and work with vendors for smooth integration. They also work to control purchase and renewal costs.

What is Included in an IT Budget?

IT budgets lay out your plan for spending in the coming cycle and act as a strategic tool for driving business growth. Here are some of the key items within IT budgets.

The IT personnel budget includes the salaries, benefits, bonuses, and training for staff, including IT managers, software developers, systems analysts, database administrators, security analysts, network engineers, technical support, and other technology roles across the organization.

The infrastructure portion of the IT budget covers physical servers, networking hardware, data centers, cloud computing services, hosting, storage, backup, disaster recovery sites, and the maintenance of these systems.

Hardware spending encompasses computers, laptops, tablets, phones, printers, monitors, docking stations, networking gear, cables, and any other devices that employees utilize day-to-day.

There are costs for purchasing and renewing software licenses or subscriptions, including operating systems, productivity suites, business applications, databases, analytics tools, security software, and developer tools.

The services category includes professional fees for installing, migrating, maintaining, supporting, customizing, or optimizing the organization’s various IT systems and infrastructure.

Ongoing subscriptions need to be accounted for whether it is software-as-a-service, platform-as-a-service, infrastructure-as-a-service, or any IT capability that is delivered using a subscription model.

This category includes IT expenses that don’t fall neatly into other categories, such as IT staff training and certification, related travel, disposal, and any general operating expenses.

How Often Should IT Budgeting Take Place?

Most organizations plan their IT budget at the end of the year or fiscal year for the next budget cycle. Working with an IT roadmap helps to define goals for the long term to keep budgets on track. However, with constantly evolving technology, many companies are also doing quarterly or monthly budget reviews to realign spending as opportunities or challenges arise.

Effective IT budgeting starts by making sure spending is aligned with business strategy. Organizations need to plan carefully to maximize spending to achieve goals. So, look first at your business objectives and then identify the technology needed to achieve them.

Here are some of the other key IT budgeting best practices.

Conduct an Audit of All Enterprise IT

By creating an inventory of your hardware, software, and licenses, you can often find hidden savings from unused licenses or redundant subscriptions. Don’t forget telecom! yet research shows that the majority of enterprises overspend by 30% or more.

An audit also becomes critical when you are considering adding components to your legacy equipment to ensure seamless integration.

Successful adoption of technology relies heavily on end users, so you need to make sure you get buy-in from key stakeholders throughout your organization. You don’t want to spend your IT budget on things that won’t get used — or valued — by employees.

Practice Value-Based Budgeting

When budgeting for acquisitions, focus on the total cost of ownership (TCO). This includes the hard costs as well as benefits such as increased productivity, dealing with competitive threats, and increased customer satisfaction. You can’t afford to save a few bucks upfront if the tech won’t deliver on your goals. On the flipside, savings on the front-end are meaningless if those savings are later spent troubleshooting areas that should have been accounted for earlier (e.g. integration, process re-engineering, etc.).

Technology is constantly evolving, and so are business goals. While you want to build a solid IT budget plan, you want to be able to shift spending as priorities change. You need some flexibility in your budget to fund such shifts when needed.

IT budgets are rarely — if ever — “set it and forget it.” You should monitor your IT spending at least monthly, analyze variances, and look for areas for improvement. IT budgeting best practices would be to compare designated spend against plans to make sure you are hitting the mark on company goals.

Overspending on enterprise IT is common and costly. When evaluating purchases, procurement teams struggle with several challenges that make it difficult to assess whether you’re getting a fair price. For example:

• Pricing is inconsistent and often less than transparent.
• Licensing terms are increasingly complex and volatile.
• It’s challenging to stay on top of thousands of vendors and their constantly changing offerings.

Add in the time pressure to keep projects on track and vendor sales teams that are trained to get maximum revenue from customers, and it’s no surprise that enterprises overpay for over 85% of their IT purchases.

Benchmark Pricing to Ensure Fair Deals

You need an independent way to benchmark quotes to see how they stack up against pricing for peer purchases in the market. NPI analyzes deals from nearly every major supplier and can help make sure the price you’re being quoted is best-in-class and within fair market value range.

Optimize Software Licensing on Large Software Estates

Not only will performing a comprehensive software license review help you minimize risk in case of a software audit, but it often finds unused or underutilized licenses that can produce significant cost savings. For example, NPI’s Microsoft Licensing and Cost Optimization regularly delivers seven and eight-figure savings on volume licensing costs.

Not everybody is paying the same price for software maintenance and support. As support costs have risen to about 22% of licensing fees, it adds up quickly. You can typically find significant savings by doing IT benchmark analysis on support fees, eliminating support fees at renewal for unused software, and evaluating third-party support options.

NPI provides a range of services to help you manage your IT spending more efficiently, including IT price benchmark and negotiation intel, license agreement optimization consulting, software license audit services, and more.

Contact NPI today to ensure that you are optimizing the individual purchase transactions that add to your IT budget.

With cloud migration growing rapidly, companies are spending a lot more on SaaS platforms. Gartner forecasts SaaS spending to top $232 billion globally, growing at a rate of nearly 18% annually. These investments are accounting for larger shares of IT budgets as vendors are increasingly aggressive about phasing out residual perpetual licenses in favor of subscription models that provide recurring monthly revenue.

When it’s time for renewal, however, you are at a significant disadvantage without a solid SaaS renewal and spend management strategy.

• What is SaaS Renewal Management?
• How to Prepare for a SaaS Renewal
• Best Practices for Managing Your Software Renewals
• What is a Good SaaS Renewal Rate?
• Negotiating the Best Deal
• NPI Helps Procurement Teams Proactively Manage Renewals

REGISTER NOW for our free “Inside the Mind of the Vendor” webinar to learn how vendors think and negotiate smarter.

What is SaaS Renewal Management?

SaaS renewal management involves tracking, managing, and optimizing the renewal of your SaaS contracts to avoid overpaying and toxic spend. Balancing multiple vendors, complex licensing models, and changing needs, it’s crucial to have a solid renewal negotiation strategy in place to avoid overspending.

How to Prepare for a SaaS Renewal

When you’re heading into a renewal cycle, you need to be armed with information as contracts get close to expiration. You need to gather data including:

• Current license inventory
• Usage and spend analysis
• Future needs

This information can frame your SaaS renewal for optimization. That includes right-sizing license counts, harvesting inactive or underutilized licenses, and selecting license types that best fit your current and future usage requirements.

You also need negotiation intel. More than eight out of 10 companies overpay for their IT assets. Price benchmark analysis helps you determine best-in-class pricing and discount targets so you can negotiate the lowest price possible. NPI provides transaction-specific price benchmark analysis, negotiation intel, and licensing expertise to ensure you can negotiate the best deal on SaaS renewals.

Best Practices for Managing Your SaaS Renewals

Don’t go into SaaS renewals without due diligence ahead of time. Vendors can use time pressure to their advantage, so you need to be proactive and have the intel you need to optimize your renewal. Here are a few best practices for managing SaaS renewals.

1. Avoid Auto-Renewals in SaaS Contracts

Most SaaS vendors include auto-renewal clauses, but they can be a trap. Auto renewals generally include pre-set rate increases and can lead to overspending. They can lock you into deals that are no longer appropriate and take away your opportunity to renegotiate terms.

Make sure you review contracts carefully, track renewal dates, and provide appropriate notice to opt out of auto renewals.

2. Use Per-Renewal Reminders for Better Planning

For all your SaaS contracts, you will want to set reminders in advance of renewal dates. Keep in mind that some SaaS renewals may only require a three-month runway for preparation, while others require more extensive planning (more on that later!). Give yourself enough time to gather the data you need to fully optimize your renewal while also accommodating things like evaluating competitive alternatives, quarter, and fiscal year-end timing incentives, and so on.

3. Assess Usage and Inventory to Reduce Waste

Avoid just renewing the same number of licenses without doing an inventory. Look for opportunities to harvest inactive or underutilized licenses.

An estimated 30% of cloud fees paid are for licenses or subscriptions that are dormant, or for features that are never used. Right-sizing is crucial to avoid spending on licenses you no longer need. You should take a deep dive into SaaS contracts that have multiple license models to ensure usage aligns with what you’re paying for. Does everyone in the organization need the highest level or can you save money by tiering plans based on actual needs?

4. Understand Required Runway for Renewals

SaaS renewal negotiations can get complex and vary greatly between products and vendors. For straightforward renewals with little change, 30-60 days may be enough time to do your analysis. For large enterprise agreements, you may need 6-12 months of runway to complete your due diligence, benchmarking, and negotiations.

5. Access Up-to-Date Licensing Expertise

A lot can change between the time you signed your initial deal and SaaS renewal periods. New subscription metrics and deals get introduced. New competitors hit the market. Terms and conditions can change. Your business needs may evolve.

Ensure you have access to licensing experts like NPI that track transaction-specific data so you have the latest information about current rates and terms with Microsoft, Adobe, Salesforce, SAP, Workday, and other SaaS platforms. Price transparency is critical. Of the $40+ billion in enterprise IT spend NPI analyzes annually, more than 85% of vendor quotes were higher than fair market value.

6. Negotiate Indirect Costs and Contract Terms

SaaS renewals should focus on more than just subscription prices.

There’s a misconception that contractual business terms are non-negotiable for SaaS purchases and renewals, but that’s not true. You can often negotiate more favorable contractual business terms, especially at the enterprise level. Pay close attention to any price escalation language as you may be able to cap pricing for multiple years or avoid automatic increases.

What is a Good SaaS Renewal Rate?

For top vendors, SaaS renewal rates can average between 80% and 90%. Some of the biggest names will see renewal rates even higher. While that spells leverage for the vendor, it doesn’t mean there isn’t room to negotiate. The cost for vendors to acquire a new customer is significantly higher than retaining a current one, so armed with the right information, you may be able to lower your costs during renewal periods.

NPI regularly achieves 7-figure savings. Savings of 20% to 50% on individual purchases are common.

Negotiating the Best Deal

Enterprise IT vendors have an advantage on their side of the table – they know their own licensing and pricing inside and out. Even after doing your internal due diligence, it’s easy to be at a disadvantage when discussing SaaS renewals.

You need to have the same level of expertise and information on your side to ensure you can get market-leading pricing and terms. When you know what other similar-sized purchases in the market cost and where levers exist to negotiate, you can negotiate a fair and competitive deal.

NPI Helps Procurement Teams Proactively Manage Renewals

Enterprise IT vendor licensing, terms, and subscription programs are complex. Pricing is wildly inconsistent even for customers with similarly scoped requirements, and contractual business terms and online service terms can be confusing. NPI helps eliminate blind spots and levels the playing field to help you negotiate best-in-class pricing and terms.

IT Price Benchmark Analysis and Negotiation Intel

NPI’s SmartSpend for IT Buyers subscription service provides you with the critical data you need to negotiate a world-class outcome on your IT purchases and renewals. It includes:

• Price benchmarking: See how your quote stacks up against industry-leading benchmarks.
• Precise savings: Get recommendations for price and discount targets based on volume, timing, and other relevant factors.
• Business terms analysis: See where changes or additions can strengthen deals.
• Vendor-specific negotiation intel: Get insight into vendor and channel motivations, levers, and behavior to enhance your negotiating position.

Request a sample Fair Market Value Report to see how it works.

SaaS License Optimization Consulting

For large SaaS estates, NPI can help you identify specific, actionable cost-reduction opportunities through detailed analysis and SaaS license optimization. Significant savings commonly come from right-sizing license assignments and redeployment or elimination of inactive licenses.

By matching costs with deployment, you can develop an optimal licensing strategy to meet current and future needs while avoiding wasted spending. With NPI, you get line-item analysis by vendor specialists to uncover the details to better manage enterprise SaaS costs.

Negotiate Better SaaS Renewals

You need a partner on your side to help optimize SaaS renewals and avoid overpaying. Contact the experts at NPI today.

Microsoft is no stranger to antitrust investigations, but the latest inquiries coming out of the European Union have given the tech industry (and some Microsoft customers) pause. If you’re not already familiar with Microsoft’s antitrust investigation history, here is a quick primer:

In 1998, the Justice Dept and 20 states charged Microsoft with violating antitrust laws. At the heart of the issue was whether Microsoft had used its Windows monopoly to force computer makers to exclude a browser made by Netscape on their PCs. In 2000, Judge Thomas Penfield Jackson ruled that Microsoft had unlawfully maintained its monopoly with Windows and had unlawfully tied its Internet Explorer browser to Windows. The company was ordered to break into two entities – one focused on Windows, and one focused on everything else.

This understandably sent shockwaves through the business world. However, the judge was eventually removed from the case and it was settled without a company breakup. Microsoft agreed to abide by a consent decree overseen by the new judge for five years, which was extended twice, expiring in 2011.

In December 2022, the FTC filed a lawsuit aimed at stopping the acquisition of Activision by Microsoft, arguing that Microsoft would use Activision’s popular games to suppress competition to its Xbox consoles and dominate fast-growing subscription and cloud gaming businesses. The FTC is in a difficult position, given that it lost a lower court decision and that the EU and the United Kingdom have blessed the merger.

Bundling Teams with Office Brings New Microsoft Antitrust Scrutiny

Then came the issue with Teams, which may signal that Microsoft’s streak of beating antitrust suits is ending. Following a July 2020 complaint from Salesforce-owned Slack, the European Commission launched an investigation into Microsoft’s coupling of Office and Teams, just months after a global pandemic began and the Microsoft Teams userbase started to grow rapidly.

To satisfy regulators, Microsoft proactively unbundled Teams from its Office 365 suites in October 2023 for Enterprise customers in the European Union and Switzerland. The current version of Office 365 that excludes Teams is priced 2 euros cheaper than with Teams, and new Enterprise customers can buy a standalone version of Teams for 5 euros per month.

However, it appears these changes have not done enough to satisfy regulators as the European Commission is said to be preparing a statement of objections to send to the company. Observers say Microsoft’s offer as it stands would be unlikely to win over the EU antitrust watchdog.

The stakes are high for Microsoft even as they seek a more conciliatory approach with regulators. The vendor racked up 2.2 billion euros in antitrust fines in the previous decade for tying or bundling two or more products together.

Will Microsoft’s Antitrust Investigation Woes Affect U.S. Customers?

While Microsoft’s antitrust headaches are ongoing, they are currently geographically isolated to the European Union. It’s unlikely Microsoft’s U.S. customers will feel a direct impact from these investigations and subsequent decisions/rulings anytime soon (they are renowned for operating on years-long timelines) – or at all. Antitrust cases are typically region-specific, meaning rulings in the EU primarily affect Microsoft’s operations and offerings within the European Economic Area (EEA).

However, there are possible ripple effects that could create indirect impacts. If the EU imposes significant sanctions or restrictions on Microsoft, the company could alter its global practices in a way that affects U.S. customers – whether that’s through changes to pricing, licensing, and SKUs, or something more substantial. Furthermore, EU antitrust cases can set precedents that influence future regulations.

We’ll continue to monitor the outcomes and their impact on Microsoft procurement for global enterprises.

Looking for Microsoft negotiation and licensing guidance? NPI’s Microsoft Cost and License Optimization experts can help. Contact us to learn more. 

The enterprise telecommunications marketplace has undergone significant transformations over the last 25 years, influenced by technological advancements, regulatory changes, and evolving business demands. During that time, the market has transitioned from analog to digital technologies. The expansion of broadband internet access made high-speed internet a utility as essential as water or electricity. Data services have exploded and telecom providers have shifted to data-centric business models.

The transformations have also reshaped the provider landscape. Massive industry consolidation has blurred the lines between traditional telecommunications service providers, software, and cloud providers – and these changes are still playing out today. In fact, the maturity and convergence of technology stacks have poised 2024 to be one of the most competitive years in the history of telecommunications.

Understanding the Impact of Telecom Industry Changes on Enterprise Businesses

To understand where the market is heading, it’s important to understand a short history of four primary applications for enterprise telecom services:

• Large Corporate and Regional Offices: In the late 1990s and into the early 2000s, most large corporate and regional offices were still using digital Private Branch Exchanges (PBXs) dominated by Siemens, Nortel, NEC, and others. Since the mid-2000s, most of these systems migrated to VoIP technology. This market was led and dominated by Cisco Call Manager. The application of voice services has shifted again to cloud-based services.
• Branch Offices and Field Offices: From the late 1990s and well beyond 2015, most branch and field offices were supported by smaller PBXs, Key Systems, or just Plain Old Telephone Service (POTS). Over the past decade, these services have been replaced first by hosted voice providers such as 8×8, Five9 and Vonage. More recently, many of these services have migrated once again, typically to Microsoft Teams, Cisco, or others.
• Omni-Channel Contact Centers: Twenty years ago, most enterprise contact centers (they were “call centers” at the time) were supported by specialized hardware from suppliers such as Avaya, Nice and Verint. After 2015, call centers became contact centers and added online chat, text messaging, and social media to create a very flexible customer experience across multiple communication mediums. The systems supporting this application included a mixture of the same suppliers plus some new ones, such as Twilio.
• Collaboration Services: The only collaboration that existed in the 1990s (even though Webex was founded in 1995) was for audio conferencing. Audio Conferencing remained the primary tool for collaboration through to the early 2010s. The dominate supplier was Cisco Webex. Over the last decade, additional suppliers such as Zoom, BlueJeans, Teams, and many more entered the marketplace – with others also exiting (e.g. BlueJeans following Verizon acquisition).

A New Era of Telecom Services and Providers

Today, the telecom provider landscape looks vastly different than it did even a decade ago. We’re now in the era of Unified Communication. The technologies described in the previous sections have converged and nearly every supplier now has an all-encompassing cloud solution that delivers all four communication applications. In addition to services offered by traditional telecom suppliers, many features are also available from AWS, Azure, and Google Cloud.

According to DataHorizon Research, the UC market value is expected to reach $584 billion by 2032 with a CAGR of 17.7%. As growth explodes, we can expect significant competition and consolidation in 2024 and the decade ahead.

Tips for Preparing for a More Competitive Telecom Marketplace

NPI recommends enterprises take a few steps to prepare for market changes to ensure they’re managing telecom spend wisely:

Identify opportunities for provider consolidation. Enterprises should review their portfolio of communication suppliers and develop strategies for consolidating. In some cases, a single supplier approach may make sense to maximize discounts and deal size leverage.

Benchmark rates and pricing. As the competitive landscape evolves, anticipate shifts in pricing. Performing price benchmark analysis on all telecom purchases will ensure you’re paying a best-in-class price that’s either at or below fair market value.

Don’t forget routine service and carrier (provider) contract optimization. There are dozens of cost-related business terms in your carrier/provider contract – and each should be fully optimized according to your current and future-state usage requirements. Likewise, the optimal selection of plans and services (and the grooming of unused services) will ensure you’re only paying for what you need.

If you have questions about how your business can rein in telecom spend, NPI can help. Contact us to learn more.

Enterprise IT buyers are no stranger to software price increases these days as most vendors have raised rates on incumbent solutions to drive revenues higher. In some cases, the scope of these rate hikes is justified given external economic factors like inflation and supply chain disruptions. But there are other times when the scope is beyond justification. Smartsheet’s recent price increases are a good example of the latter.

The rate of renewal increases for Smartsheet’s popular project and portfolio management (PPM) solutions has been noticeably high lately. Standard price hikes of 3% to 5% year-over-year have given way to stratospheric increases of 30% to 50% in some instances. That’s nearly 10x higher than expected standards.

What’s Driving Smartsheet’s Price Increases?

NPI has identified two main factors driving Smartsheet to raise prices at such alarming levels. The first is pricing disparity for Smartsheet’s Enterprise license, despite the vendor’s reputation for offering deals at or near list price. The second is the introduction of “connected user” licensing tied to tangential system usage.

Historically, Smartsheet has had a reputation for offering its main Enterprise licensing close to list price with near-zero discounts, even in larger deals. Recently, however, NPI has observed notable pricing disparity on some deals. This should be a red flag for customers who are assuming Smartsheet is taking a status quo approach to how it prices new purchases and renewals.

In addition to harsh pricing on the main Enterprise subscription, Smartsheet has introduced “Advance Plans.” Available in three editions (Silver, Gold, and Platinum), these plans offer attractive new features and usage rights. Smartsheet’s Advance Plans count “connected users,” which the vendor defines as the total number of licensed users, internal collaborators, or previously-licensed users. But many customers have found the definition of these users to be murky.

To mitigate (or neutralize) the impact of higher Smartsheet pricing and licensing changes, NPI recommends three tactics when purchasing or renewing with Smartsheet:

Determine Fair Market Value Price Targets for Current and Upcoming Smartsheet Price Proposals

For Enterprise subscription customers, the main challenge in negotiating a good deal with Smartsheet is determining what’s a fair price and where the vendor is negotiable. Although Smartsheet continues to offer list price on many enterprise-sized deals, NPI has seen fluctuations in the pricing trendline across the larger volume of data points we track.

Customers purchasing or renewing with Smartsheet should perform IT price benchmarking to determine if current deal pricing is within fair market value range. The precision of this exercise allows customers to aim for a definite mark on the fair market value spectrum instead of simply guessing what’s possible. Those that don’t can expect to pay above market price – a move that could become the baseline for higher pricing in future renewals.

Review and Challenge “Connected” User Counts

Connected users represent the tangentially connected users that may access parts of Smartsheet’s subscriptions. However, NPI finds that Smartsheet will at times overinflate the figures for connected user counts. Because of this, NPI recommends validating any concerns and challenging counts when Smartsheet may be overstepping bounds for what it counts under new Advance Plans. NPI also recommends seeking proposals for at least two of the main Advance Plan options to contrast and compare options.

Evaluate Competitive Alternatives

Should Smartsheet prove resistant to price reduction efforts, NPI recommends considering RFP activities to see if alternative solutions could add leverage to negotiations. This can be a lengthy process, so it requires advance planning ahead of any renewals and/or new deals.

Push Back Against Smartsheet Price Increases

As Smartsheet’s pricing and licensing evolves, it’s important for customers to have a strategy in place to systematically minimize or neutralize any negative impacts on their spend. IT price benchmarking is one example of a simple tactic that can yield material savings. Challenging opaque licensing policies is another example – there are plenty of instances where vendors inaccurately categorize users resulting in customers paying for more costly licensing.

Do you have a Smartsheet purchase or renewal planned in the coming year? NPI’s IT price benchmarking services can help. Contact us to learn more.

In the past seven years, the SaaS industry has grown an estimated 500%. It’s no surprise that organizations with more than 1,000 employees use an average of 177 SaaS applications. Today, SaaS applications account for 70% of total company software use and that number is expected to grow as many IT vendors phase out on-premise software offerings.

Costs are rising as well. On average, SaaS platform fees have increased 12% over the past year with some vendors publishing higher price hikes. As a result, greater emphasis is being placed on how IT procurement practitioners negotiate, manage, and optimize SaaS spend.

1. What is SaaS Licensing?
2. SaaS Licensing Model vs Perpetual License Model
3. What Does a SaaS License Agreement Include?
4. Subscription-Based SaaS Licensing Models
5. Is SaaS Pricing Negotiable?
6. What to Consider When Choosing a SaaS License
7. The Importance of SaaS License Management and Optimization
8. Unlocking Savings and Minimizing Risk with NPI

REGISTER NOW for our free “Eliminating SaaS Toxic Spend” webinar to spot hidden waste and keep your licensing costs in check.

What is SaaS Licensing?

SaaS licensing refers to the terms, conditions, and fees agreed to between a SaaS provider and customer to access and utilize cloud-based software. Rather than owning perpetual software installed on-premises, SaaS tools are subscribed to as online services.

A SaaS license agreement details the subscriber’s rights to leverage the software functionalities throughout the term of the contract. The agreement also covers restrictions, compliance terms, service commitments from the provider, and payment structure.

SaaS Licensing Model vs Perpetual License Model

SaaS licensing operates on a subscription basis, where businesses pay a recurring fee for access to software. This model offers flexibility, scalability, and automatic updates, making it ideal for businesses looking for a cost-efficient and dynamic solution. On the other hand, perpetual licensing involves a one-time upfront payment for software, but this can lead to additional costs over time for maintenance, upgrades, and support. While perpetual licenses may appeal to businesses that prefer one-time costs and long-term ownership, SaaS licensing is often more adaptable and offers more predictable ongoing costs.

What Does a SaaS License Agreement Include?

While specific sections vary across providers, SaaS contracts typically cover:

• Software access permissions
• Usage definitions and metrics
• Service commitment assurances
• Data ownership, security, and privacy
• Fees, billing, and payment
• Contract duration, renewal, and termination

Understanding these components at a granular and transparent level allows consumers to accurately compare offerings, negotiate better pricing and contractual business terms, and select the best fit SaaS solution.

Subscription-Based SaaS Licensing Models

Unlike traditional software that is purchased outright with perpetual rights, SaaS is offered through subscription-based licensing. The subscription model comes in several pricing structures. Examples include:

Freemium offers limited functionality at no charge to attract user sign-ups. Revenue is generated from premium add-ons or by converting a percentage of users to paid plans.

Flat-rate plans charge a fixed recurring fee to access the full software suite. Simple and predictable, fixed pricing works for basic SaaS needs.

With usage-based pricing, recurring fees scale up/down based on utilization metrics like storage consumed, compute hours leveraged, data transferred, etc. Pay only for what you use.

In feature-based plans, rates are tiered based on the capabilities unlocked. Entry-level subscribers get core features while premium plans enable advanced tools.

Tiered pricing bases rates on attributes like the number of users, transaction volumes, bandwidth amounts, or other thresholds. For example, per-user pricing is common for collaboration platforms.

Is SaaS Pricing Negotiable?

While SaaS price transparency is improving, it’s historically been awful for enterprise-scale SaaS purchases and renewals. Custom quotes can vary greatly even for the same products. Buyers should be aware that it’s a myth that the SaaS subscription price is not negotiable. Armed with the right market information, it is possible to negotiate lower pricing for enterprises.

Performing price benchmark analysis to determine if you’re paying a fair, competitive price for your SaaS purchase or renewal typically uncovers significant savings targets. If you’re wondering how effective this tactic is, consider this: 89% of the deals NPI analyzes are priced above fair market value.

What to Consider When Choosing a SaaS License

Choosing the right SaaS products, negotiating a fair agreement, and optimizing your SaaS licensing can be complex. It’s easy to overspend and miss opportunities to save money.

Compare the capabilities of SaaS offerings to address:

• Current business requirements
• Future roadmap and growth
• Supported integrations

Validate that the solution can deliver on both present and upcoming needs.

Select a subscription model aligning to expected volumes for:

• Bandwidth
• Storage
• Number of users
• Transactions
• Compute resources

Proper allocation avoids over/under-provisioning.

Assess Data Control and Security

Validate a provider’s ability to meet:

• Data ownership rights
• Physical and logical security
• Access controls
• Encryption protocols
• Compliance standards
• Breach notification policies

Evaluate how well a SaaS platform integrates with:

• Existing SaaS solutions
• On-premises legacy systems
• Required third-party applications

Hybrid environment support expands possibilities.

Calculate Total Cost of Ownership

Consider all direct and indirect expenses:

• Subscription licensing fees
• Onboarding/implementation costs
• Training and adoption programs
• Ongoing administrative overhead
• Change management requirements

Full TCO analysis prevents surprise expenses and, depending on the SaaS vendor, can also uncover areas of negotiation flexibility (e.g. training and implementation credits). At the same time, however, organizations should be very conscious of overspending. SaaS spend management and analysis are crucial to maximize SaaS licenses and control spending.

Evaluate License Management Capabilities

Seek SaaS solutions that enable you to:

• Track subscriptions enterprise-wide
• Optimize license allotments
• Govern usage to meet targets
• Automate management actions

The Importance of SaaS License Management and Optimization

As organizations adopt more SaaS applications, they accumulate multiple subscriptions carrying distinct terms governed by individual contracts. Scaling usage while maintaining compliance and costs depends on capabilities to automate license management.

Look for integrated solutions that deliver:

• Centralized view of subscriptions
• Configurable permissions and role-based access
• Subscription optimization recommendations
• Usage metrics monitoring and anomaly detection
• Proactive subscription renewals and contract management

With comprehensive visibility and control over multi-SaaS environments, consumers can maximize value. This avoids toxic SaaS spend waste. While the simplicity and flexibility of SaaS solutions are attractive, overspending is rampant. Research shows that 30% or more of fees paid for major SaaS platforms are attributed to unused or underutilized licenses. This excess spend adds up quickly. For example, a 500-seat Microsoft 365 E5 enterprise agreement with a $38 monthly license fee totals $228,000 per year. An estimated 30% waste factor represents $68,400 in unnecessary spending. For a 10,000-employee organization, the annual wasted spend soars to more than $1.3 million.

What drives this epidemic of SaaS cost waste? A few key factors come into play:

• Lack of Visibility into Usage/Subscription Alignment: Too often, enterprises pay for too many SaaS subscriptions/licenses or for more functionality than they actually need. SaaS sprawl is a sure way to sink the enterprise IT budget.
• Absence of Controls: Without checks and guards in place, unused licenses go unnoticed while new subscriptions spin out of control. Regular SaaS license optimization assessment on key SaaS estates (e.g. Salesforce, Microsoft, etc.) is critical.
• IT Procurement Resource Constraints: IT procurement and software asset management practitioners have their hands full as the business requires more mission-critical IT purchases and renewals at a faster speed. Without outside vendor-specific licensing and pricing expertise, it’s impossible for most teams to determine if they’re paying a fair price for the license/subscription options best suited to meet their requirements.
• Complacency: Given the flexibility of the cloud (and the dearth of internal cost management resources in most enterprises), there is less urgency to monitor spending. But just as the cloud provides ease of access, lack of governance invites waste.

Unlocking Savings and Minimizing Risk with NPI

Addressing toxic SaaS spend requires attacking all these fronts through rigorous SaaS cost and license optimization as well as deep pricing and license/subscription expertise.

Optimizing your SaaS cost and license management is a core capability at NPI. We are experts who are 100% focused on helping you optimize costs and minimize risk in your enterprise SaaS licensing agreements. NPI performs turnkey SaaS license optimization assessments for Microsoft 365, Salesforce, SAP, Adobe Creative Cloud, Workday, and more.

Rightsizing your license agreements optimizes your SaaS licenses and saves you money. Contact NPI today to get started.