Widespread adoption of SaaS platforms such as Salesforce, ServiceNow, Workday, and SAP is driving a profound shift in the technology model for most businesses. These platforms are not just transforming businesses operations but also redefining efficiency, scalability, and security of the business model. Rapid deployment, continuous updates, extensive customization options, and seamless business process integration makes these SaaS platforms indispensable. ​

SaaS spending is projected to grow 20% to total $247.2 billion in 2024. CRM remained the largest market, followed by ERP, and then email and authoring.​

However, the rapid expansion of SaaS has caught many business leaders off guard as their overall technology spend has increased dramatically. Over the past year alone, SaaS prices have risen an average of 12%. Businesses now feel overwhelmed by the growing number of SaaS subscriptions. In 2020, an average company wasted a staggering $18M in unused SaaS licenses each year. Additionally, about 44% of all SaaS application licenses go under-utilized within a typical 30-day period.​

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As businesses continue to grapple with SaaS cost increases, a significant and often overlooked factor is the role of the vendors themselves. Increasingly, SaaS vendors with substantial market power are taking advantage of their dominance, creating new challenges for clients trying to manage and reduce costs. Whether it’s through restrictive contractual terms, limited transparency on pricing, or inflexible licensing models, many SaaS vendors leverage their position to drive up costs and limit customer control.​

As a result, some clients such as Klarna are now replacing their Salesforce and Workday installations with inhouse software built using low or no-code platforms and generative AI. This shift could reflect an early trend in the market as organizations seek more control, flexibility, and cost-efficiency in their software ecosystems.​

This whitepaper aims to help you realize the full benefit from your SaaS investments. It offers insights into the challenges and strategies for managing SaaS costs, selecting the right SaaS platform, and managing vendor relationships.​

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Having established the growing importance of managing SaaS costs, let’s delve into some of the common challenges (Exhibit 1):​

1. CHOOSING A SUBOPTIMAL SUBSCRIPTION PLAN​

Selecting the appropriate SaaS product and subscription plan for your business needs can be challenging. SaaS products come with various license types and functionalities that differ between enterprise and non-enterprise versions. Additionally, products often include free allowances (e.g., data storage, sandbox environments) and add-ons such as additional storage or advanced features, which are often underutilized due to complex terms, insufficient documentation, and frequent SKU changes.​

2. MISSED OPPORTUNITIES TO NEGOTIATE​

Given the dominance of the well-known SaaS platforms, organizations often accept quoted prices without exploring negotiation options. Large companies, in particular, miss out on potential corporate discounts. SaaS providers are typically open to customized models, such as freemium versions to pilot programs, re-allocation of licenses for different use cases, and buying back licenses at a discount based on growth projections.​

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3. COSTLY INTEGRATION AND CUSTOMIZATION

While many SaaS providers market their solutions as all-in-one, most have some gaps, necessitating additional satellite tools for various business functions. Ensuring seamless integration between these tools is crucial and often requires skilled professionals. Organizations may need to rely on the SaaS provider or third-party resources for integration, driving up implementation costs, especially if the some of the tools lacks open API provisions.

4. UNDERUTILIZATION

Organizations often fail to fully leverage the capabilities, modules and licenses they have purchased. A lack of user engagement, insufficient training, or misunderstanding of a tool’s potential can exacerbate this issue. A granular view of SaaS usage is needed to uncover underutilized or redundant software and rationalize licenses.

5. EASE OF ACQUISITION AND SHADOW IT

Employees often bypass approval and procurement processes by purchasing apps with their personal credit cards and then expensing them. The ease of acquiring SaaS applications can lead to “Shadow IT,” where unauthorized or unnoticed software leads to redundancy and increased costs.

Focusing on the “quick-win” opportunities (Exhibit 2) can drive significant savings while optimizing overall SaaS management efforts.

It is essential to break down the components that make up SaaS costs to effectively manage and optimize them. SaaS platforms come with a range of costs beyond the subscription fee. These include licensing fees, costs for additional users, data storage charges, and fees for premium support and add-ons (Exhibit 3). Understanding these components helps organizations predict and control their spending.

According to a Gartner report, “Through 2027, organizations that fail to attain centralized visibility and coordinate SaaS life cycles will overspend on SaaS by at least 25% due to unused entitlements and unnecessary, overlapping tools.” The growing adoption of SaaS solutions, coupled with limited visibility into the entire SaaS portfolio—including unapproved (or shadow) SaaS—and the prevalence of over-deployed and under consumed licenses, poses significant financial, operational, and cybersecurity risks for organizations.

To effectively manage and optimize SaaS usage, organizations need to address these challenges by gaining better control over their SaaS environment. By optimizing SaaS usage, companies can not only reduce costs but also enhance operational efficiency and security posture, ultimately deriving greater value from their SaaS investments.

1. DISCOVER

To manage SaaS costs effectively, organizations must first discover all the SaaS applications being used across the organization, including both approved and unapproved (shadow) SaaS. This helps gain centralized visibility into the entire SaaS portfolio. Once this inventory is completed, organizations can then evaluate whether the current platforms are the right fit in terms of alignment with business objectives, security standards, and scalability

1.1 Inventory all applications: Create an inventory of all applications, identify applications not being used or with overlapping functionalities

1.2 Uncover unused or underutilized entitlements: Request comprehensive usage report from vendors to gain insights into license entitlements & features usage, frequency of use and user info

1.3 Detect shadow IT: Identify unauthorized applications being used by employees, leading to security risks and unmanaged costs

1.4 Evaluate SaaS platforms: Ensure current platforms align with business goals,, reducing overlap and optimizing costs

2. MANAGE

Once organizations have a clear understanding of their SaaS environment, they need to manage their SaaS lifecycle effectively to control costs and reduce risks. This involves maintaining proper oversight and governance of SaaS usage & entitlements as well as ensuring alignment with business needs.

2.1 Governance & oversight: Set up a SaaS management committee to monitor SaaS usage & costs with guidelines for purchasing, using, and renewing SaaS

2.2 Analyze utilization across use-cases: Regularly review user activity and license utilization data to identify unused or underutilized licenses

2.3 Revoke or reallocate unused licenses: Based on the analysis, revoke or reallocate licenses to areas where they are needed

2.4 Provide Training and Support to Increase Adoption: Work with vendors to provide training to help leverage full capabilities of the software

3. Optimize

Finally, organizations should continuously optimize their SaaS investments to drive maximum value. This involves ongoing evaluation, adjustment, and refinement of the SaaS portfolio to stay aligned with business objectives and cost efficiency.

3.1 Right-size and optimize license usage: Regularly review SaaS contracts and adjust license to eliminate unnecessary add-ons and non-utilized core licenses

3.2 Eliminate or consolidate overlapping tools: Based on the overlap analysis, consolidate redundant tools and standardize on a single solution

3.3 Maintain a regular audit schedule: Conduct regular audits to ensure the SaaS portfolio is aligned with business needs and evolving organizational requirements.

Ensuring that you have the right platform can significantly impact overall costs and value. Organizations should evaluate platforms across:

1. DEFINING SUCCESS

Start by identifying clear goals and business outcomes the SaaS solution needs to support, ensuring you understand both current pain points and future requirements. Are you aiming to boost efficiency, reduce costs, or improve customer satisfaction? Articulate these objectives and make them specific and measurable. Perform a comprehensive needs assessment to determine which features and functionalities are essential, and whether the platform should serve customer-facing or internal users. Aligning these requirements with your strategic goals ensures the platform not only addresses immediate needs but also supports long-term business direction and scalability.

2. PLATFORM CAPABILITIES AND FLEXIBILITY

Assess how well the platform can handle growth and accommodate increasing data volumes. Also, ensure a vendor-agnostic front-end to reduce dependency on a single vendor. Consider usability to ensure ease of adoption and evaluate the platform’s training and onboarding support. Moreover, seamless integration with existing systems and robust analytics capabilities are non-negotiables, especially for gaining actionable insights.

3. SECURITY & COMPLIANCE: SAFEGUARDING YOUR BUSINESS

In today’s digital landscape, security and compliance are more than just checkboxes—they are essential to maintaining trust and protecting your business. Scrutinize the platform’s encryption standards and data protection measures. Ensure the platform complies with relevant industry regulations, safeguarding your organization from legal risks and enhancing your reputation for reliability and responsibility.

4. PRICING: VALUE BEYOND COST

A clear understanding of the platform’s pricing structure is critical to avoid unexpected expenses and ensure a good return on investment. Analyze the cost-effectiveness of subscription fees, pay-per-use options, and any hidden costs. Consider both initial implementation expenses and ongoing maintenance and support costs. A thorough evaluation of the total cost of ownership, alongside expected benefits, will help justify the investment and support long-term financial planning.

5. SUPPORT: BUILDING A RELIABLE PARTNERSHIP

A robust support system is crucial for smooth operation and maximizing the platform’s potential. Evaluate the available support channels and the vendor’s responsiveness to issues and queries. High-quality training resources and comprehensive documentation are vital for empowering users and ensuring quick adoption. Assess the platform’s uptime guarantees and disaster recovery mechanisms to ensure continuous operation and business resilience.

Organizations need to adopt a comprehensive and continuous approach that ensures control over software usage, aligning it with business goals and minimizing risks. Executive leadership is crucial to enabling this governance model, ensuring that SaaS adoption is deliberate and structured, rather than occurring in fragmented and potentially risky ways.

The full lifecycle needs to be governed to overcome these challenges. It extends beyond the initial planning and deployment stages to encompass continuous management and eventual decommissioning. Effective governance includes oversight of usage, compliance, and risk management throughout the software’s lifecycle.

Many organizations tend to focus heavily on just selecting the right SaaS solution and implementing it. However, ongoing management and decommissioning, are equally critical (Exhibit 6). With the widespread adoption of SaaS solutions, companies often end up with fragmented usage, compliance risks, and a lack of clarity into how these tools contribute to long-term business goals.

Navigating SaaS renewals can be challenging and expensive. Several firms find themselves overspending without realizing the full potential of their platforms.

There are some proven ways to ensure a happy renewal:

1. START EARLY

Initiate the renewal process well in advance, ideally 180-240 days before contract expiration. Early planning allows for thorough stakeholder consultation, information collection, and preparation for your negotiation strategy.

2. RIGHT-SIZE DEMAND

Optimize your licensing by analyzing current and future needs. Identify underutilized licenses for potential reallocation or removal, maintaining a utilization rate of around 90%. This approach helps maximize investment while accommodating future growth. Moreover, base your renewal negotiations on accurate data, including license utilization, price benchmarks, and ownership details.

3. ENGAGE BUSINESS OWNERS

Involve application owners in the renewal discussions to understand their needs and challenges. Also, collaborate closely with IT and procurement teams to align strategies and present a united front. This collaboration helps align SaaS solutions with actual business requirements, facilitating effective rightsizing and application rationalization.

4. GATHER AND ADDRESS PAIN POINTS

Document pain points related to software and its infrastructure, such as data issues or performance bottlenecks. Addressing these during renewal negotiations can lead to better support and service terms, enhancing overall software value.

5. CLARIFY CONTRACTUAL TERMS

Review and clarify any ambiguous terms related to renewals and pricing in the contract. A clear understanding of these terms provides leverage and ensures that you aren’t locked into unfavorable conditions.

6. UTILIZE LEGAL LEVERAGE

Use contractual rights to strengthen your position, such as securing buy-as-you-go terms or swap rights for licenses. These provisions offer flexibility to adapt to changing business needs and optimize cost.

As SaaS adoption accelerates and becomes critical to business success, IT leaders face growing pressure to manage these applications effectively. Uncontrolled SaaS usage can lead to inefficiencies, rising costs, and compliance risks. Additionally, the ease of procuring SaaS today can ironically lead to spiraling costs if not kept in check. To navigate this, organizations need a comprehensive, end-to-end SaaS management strategy—one that addresses shadow IT risks, optimizes usage, and aligns with business objectives.

Implementing structured SaaS governance unlocks visibility and control, enabling businesses to eliminate redundancies, address license overlaps, and tackle underutilization. By aligning portfolios with strategic goals and budgets, companies can foster a cost-effective and balanced SaaS ecosystem.

Continuous monitoring and realignment maximize SaaS investments, transforming growth into operational efficiency while driving sustainable long-term value.