Businesses are spending billions annually on their software-as-a-service (SaaS) stack while enduring countless hours of buying, renewing, negotiating and managing their services.
According to Vertice, a series A startup founded to help companies save money on their SaaS, not only is monitoring and managing SaaS renewals an ongoing headache for companies of all sizes, it’s costly too. Vertice estimates that some businesses could be overpaying by as much as 20 per cent per year for their products.
Here Joel Windels, VP marketing at Vertice, explores how to help startups manage their SaaS costs in a sustainable way.
Fintech startups have, unsurprisingly, one eye on finance and one eye on technology. In more volatile markets, the financial component becomes more important. This means that as the wider economic landscape continues to apply pressure on fintech firms, attention on the bottom line grows in importance.
When cashflows are constrained, CFOs look to variable cost centers for ways to extend runways and adjust forecasts. Ultimately, that often means making cuts to headcount. More than 19,000 employees have been laid off across 190 fintech and crypto vendors in 2022 alone.
Reducing spend without reducing headcount
Not much of the spend at a startup is variable. Even those that are tend to be relatively inflexible – cloud costs have a heavy baseline and office space is difficult to adjust. The easiest place to swiftly manage the bottom line is to tackle payroll. Employees eat up a large part of the run rate, so making redundancies and slashing salaries is an effective way to rebalance the financial forecast. The problem is, of course, that letting people go can be incredibly painful, both for those leaving and for those left behind, and will leave the company in a weaker, less-resourced position.
A growing number of fintech companies are finding ways to avoid this while still taking meaningful cost cutting measures. SaaS purchasing has spiraled in recent years, with the 2020 pandemic accelerating the pace of investment in the tools that enable digital working.
Few businesses in the space could efficiently operate without licences for products like Slack, Teams, Figma, Salesforce, Google Workspace and so on, regularly creating a Frankenstack of technologies. What tech firm could realistically support digital-first growth without them? Productivity software like this is fundamental to getting work done, yet the cost to support this enablement has ballooned.
The average tech startup / scaleup now spends between $4,000 to $5,000 on SaaS per employee, which is around $1 in every $8 spent as a business overall. Strategically reducing and managing this line item provides an intelligent option to reduce costs without cutting headcount.
The difficulty in reducing SaaS spend
It’s a challenge to lower SaaS costs. A really big challenge, actually. That’s because so much of the buying process takes place in secret. Over half of vendors mask their pricing, so having a benchmark for list pricing becomes difficult. Encouraging prospective customers to speak with the sales team is a common technique, with the intention of the vendor to try and charge as much as possible on a customer-by-customer basis.
Discounting is a widely-accepted practice in SaaS too. Some customers will pay €15 a licence while others will pay just €0.50. Getting transparency into what you should be paying is almost impossible. Ultimately SaaS vendors have designed their business models to maximise their revenue, of course, but the outcome is that customers are not empowered to manage their costs.
There are additional issues further complicating SaaS purchasing. Shelfware and tool duplication are present everywhere – licenses that go unused and multiple products with similar functionality being deployed in different corners of the business. In order to effectively manage the overall costs of SaaS, it also requires universal visibility of the SaaS stack. This is almost impossible with siloed decision making, Shadow IT and dispersed buying power across finance, IT, department heads and procurement.
Using real pricing data to get significant discounts
Reducing the total amount spent on SaaS by a third would amount to a net saving of five to six per cent in most startups. That’s a significant financial lever to pull. Yet to be able to pull it, companies need to understand how their SaaS spend compares with others.
While services and products are available to compare functionality, like Gartner or G2, the options for gathering intelligence on pricing is more fragmented. It’s not uncommon to have to crawl through forums and Reddit posts just to get insight into the discounting opportunity during a renewal. Asking peers and connecting with the wider startup network is another way to drive a more informed negotiation.
Ultimately, however, getting the best possible price for dozens of different SaaS products can quickly become a full time job. New solutions have emerged to fill this gap in recent months, helping startups manage their SaaS costs in a sustainable way.
Vertice, for example, maintains a database of tens of thousands of vendor contracts. This allows its customers to benchmark real pricing data, comparing the actual buying price for thousands of products to the list price – a figure which is also often obscured. Knowing that a customer with a particular requirement at a particular scale is paying $5 rather than the list price of $10 can help a similar customer renegotiate their $9 renewal.
It also helps to have awareness of the various traits of each vendor, such as autorenewals, price uplifts, economies of scale, bundling, term length, buying centers, time of year and more.
Cut costs without any financial risk
Combining pricing insights with a deep knowledge of the SaaS industry changes the balance in contract negotiations for customers, and helps startups save 20 to 40 per cent on their total SaaS spend. Vertice even offers its customers a savings guarantee, meaning organisations will dramatically cut their SaaS costs or get their money back.