Understanding the cost of inaction to reduce unnecessary spend
Decision paralysis is a common roadblock, but failing to take action can be a costly — yet common — mistake. In 2022, 42% of companies increased their selling, general, and administrative costs, missing significant savings opportunities,” according to a study from The Hackett Group. In the face of SaaS sprawl and hidden costs, inaction spells wasted money. Understanding how to stay proactive and use data to your advantage can help businesses reclaim control, maximize cost savings, and streamline decisions.
What is the cost of inaction?
The average SaaS portfolio is now made up of 371 apps and keeping tabs on renewals, licenses, and shadow IT (also referred to as shadow spend), can be — without the right tools — a daunting task. If you’re still relying on data from vendors for purchases and renewals or struggling to bring teams together for collaboration, you’re looking at a recipe for wasted spend. Not being able to implement controls or proactively take action at any point in the purchase cycle can also result in:
- Out of control renewals. Tracking and managing upcoming renewals is key when looking to optimize spend. At a large scale, it’s easy to forget upcoming renewals and miss crucial deadlines. It’s also easy to tailor your focus towards high cost and value renewals but forget the smaller ones. These costs can quickly add up, especially with growing software portfolios.
An effective renewal strategy goes beyond simple contract management. Having the tangible insights to negotiate contracts can help the process sway in your favor. Understanding the needs and usage of your business, and staying on top of your renewals, can help streamline expenses and enhance operational efficiency.
- Disorganized software management. It’s easy to become complacent in letting SaaS apps overrun your business strategy. If it’s mostly working, taking the time to fix it — or finding the manpower to do so — can feel like a tedious, unnecessary task.
An application that is producing “generally fine” results doesn’t mean it’s the best one for the business. When facing restrictive budgets, consider that the higher priced software might be one that can reduce spend in the long run. Reluctance to take decisive steps in understating what apps are truly essential can lead to continuous overspending without tangible benefits.
- Increased risk and costs. Over 55% of apps are not managed or owned by IT — a costly blindspot that leads to wasted spend, increased risk, and decreased engagement.
While employees may look at one SaaS purchase as having little impact, a culture of maverick spending — the spending that occurs outside of established procurement processes or authorized purchasing channels — can lead to serious budgetary concerns.
Lacking visibility into your SaaS portfolio allows for redundancy and shadow spend to go unchecked, increasing costs and risking security. Inactive users add to the issue, as licenses for redundant or unauthorized software may go underutilized. Without an optimized portfolio, businesses have to solve for out of date licenses, inactive users, and overlapping applications.
Knowing how to overcome inaction is critical when it comes to combating wasted spend and maximizing your investments. To do this effectively, it’s important to differentiate between cost savings and cost avoidance. While both strategies target financial efficiency, they offer distinct and nuanced approaches to optimizing spend.
Recognizing the specific roles each department plays in leveraging both cost savings and cost avoidance will unlock their combined potential to transform your SaaS landscape from a cost burden to a strategic asset.
What is the difference between cost savings vs. cost avoidance?
Cost savings refers to the financial benefit that an organization achieves by reducing its overall spending on things that directly affect its profitability. These savings can be achieved through various actions, such as streamlining efficiency and productivity, as well as negotiating lower prices in upcoming renewals or new purchases.
Cost avoidance is the result of an action taken to prevent having to spend money in the future, while cost savings reflects the money a company didn’t have to spend on something now.
The main difference is the way in which procurement and finance departments approach the idea of cost savings.
Finance teams look for hard savings by reducing total business costs or by lowering specific existing costs to result in a cost reduction. Procurement teams use cost avoidance methods to achieve soft savings. They strategize ways to avoid cost increases or create opportunities to save through insightful sourcing and data-driven contract negotiations.
Take the purchase of a SaaS application, for example. Finance will look at the overall budget to see where costs can be cut to accommodate a tight budget and recommend canceling an upcoming renewal to reduce spend. Procurement, on the other hand, might opt in to the purchase of an additional SaaS application that could achieve exponentially more savings down the road.
How to identify cost saving and cost avoidance opportunities:
In order to optimize spend, it’s key to ensure that procurement, finance, IT, and business leaders are all aligned on their strategies and execution. Joint decision-making is critical for reducing risk, increasing efficiency, and creating higher-quality outcomes across all SaaS investments.
A simple way to achieve this is to develop a Spend Management strategy. The right practice starts with tangible insights and actionable data that bring teams together and enables an organization to:
- Discover new SaaS apps in your organization instantly and see the associated usage and spend. By understanding what licenses are being used and adopted by different teams, a company can rightsize their license and app purchases to make smart buying decisions.
- Compare pricing and usage benchmarks to see how SaaS app pricing and usage measures up to other organizations.
- Reduce risk and optimize spend by cutting back on app overlap and shadow spend.
- Develop reporting around app usage and vendors to drive collaborative decision making across all teams.
- Efficiently manage contracts so they can make data-driven decisions, negotiate confidently, and never miss a renewal. Through automating the intake and renewals process, no-code workflows allow companies to stay on top of important decisions and ensure that all contracts are accounted for.
Overcoming inaction can feel like a daunting task, but the right strategy can put you on the path to success. Focusing on collaboration, decisive action, and managing your portfolio at scale will save you money, reduce risk, and allow you — and the team — to work smarter.
Productiv is the only Spend Management Platform built for bringing teams together. From new purchase requests to renewals, and everything in between, Procurement, Finance, and IT work in Productiv to align around trusted data, get AI powered insights, collaborate, make smarter decisions, and have confidence in every investment, at scale.
Learn more today.