The average company now has over 100 different software tools in rotation to facilitate its key business operations.
Regardless of where you think your organization falls on this scale, there’s every chance that you’re paying out a massive expense to software vendors each year. In fact, research shows that companies are now spending an average of $2,623 per employee, per year on software as a service (SaaS).
So, if you’re a business owner or CFO looking to trim your company’s expenses, how can you reduce your software spending? These are our top four cost-cutting recommendations.
1. Application rationalization
Application rationalization is the process of assessing the existing portfolio of SaaS tools in use at your organization in order to terminate redundant licenses and subscriptions.
Using an application rationalization framework, the IT or procurement teams within an organization can make a record of each tool and attempt to justify its continued use, evaluating its contract, company uptake, and the features it offers in comparison to other software in your tech stack.
Software management company Vertice advises in its own application rationalization framework that “applications that are determined to be either redundant, duplicate or simply no longer required can then be cancelled or the number of licenses amended”.
This way, they explain, you can cut down the number of tools in use so that once the process is complete “you’ll be left with a lean, productive suite of applications that provide an improved return on investment”.
2. Negotiate on your software deals
According to a report by OpenView, up to 55% of software vendors choose not to publish their prices publicly. And even if they do, these standardized tier prices aren’t necessarily set in stone. The truth is, there’s usually room for negotiation when procuring business software contracts — and many businesses’ pay rates are based on their specific usage patterns and needs.
Many of the moving parts in a software contract can be negotiated, so the terms that you haggle with are not limited to just the recurring cost. Negotiating with other factors such as price uplift protection and auto-renewal clauses can also help you to keep track of your software spending and minimize unnecessary costs down the line, and you can even bag a discount for vendor loyalty or other commitments.
3. Sign on for multi-year contracts
One specific bargaining tool at your disposal when you renew or take on a new plan is the length of the contract. If a given tool is particularly embedded in your business operations, it may be wise to sign up for a multi-year contract.
Whether it’s for one year, or two, or you opt for an even longer plan, multi-year subscriptions can earn you significant discounts. According to SaaStr, the average vendor will provide an additional 10-20% discount for multi-year contracts in comparison to yearly plans.
Factor in each of the apps in your organization’s software portfolio that could benefit from a longer subscription and you’ll see that savings could quickly accumulate.
However, you need to be confident that your staff will still be using the subscription in several years’ time, so you should forecast variables such as projected revenue and growth as a company before you commit for a longer period.
4. Use free alternatives
Flexera reports that nearly a third of SaaS spending is under-utilized, with many companies not using the features offered by various subscriptions to their full potential. So, while it may seem obvious, your organization could benefit from switching from your paid plans to a free, or ‘freemium’ subscription, as offered by a number of large SaaS vendors.
Slack, for example, offers whole-enterprise plans with advanced features for a monthly rate — but did you know that to use the tool just for direct messaging, you can get a private network and unlimited messaging all for free?
Inevitably, there will be some tools in your portfolio that you require an advanced set of features or access rights for — but for those that you aren’t using as much, inquire about downgrading. As a cost-cutting measure, switch to a free iteration of the same software or even research an unpaid alternative that offers similar functionality.
