In today’s business world world, every dollar counts more than ever before. The current economic downturn, financing crisis and the race to have positive cash flow are forcing organizations to reevaluate their budgets and spending habits. This has prompted CFOs to issue mandates and reduce software spend by 10% to 30%.
Based on the data available on my company’s platform, software spend is now the third largest expense for organizations, right behind staff and office costs.
CFOs should work closely with CIOs and department heads to come up with smart plans to cut their SaaS spend and get more bang for their buck. At the same time, reducing software spending should not negatively impact business growth or hinder innovation.
The primary goal for CFOs should be to identify where they are spending, identify departments with the highest costs, and identify cases of low usage and application redundancy.
I think the right approach to reducing SaaS spend involves a data and metrics-driven strategy. By understanding the ROI for each vendor and evaluating SaaS spend per employee, CFOs and CIOs can identify the true value of the software and how quickly it will contribute to revenue and the bottom line. Spend analysis allows you to make informed choices regarding cost optimization.
What does the typical software expenditure in organizations look like?
Our data shows that the engineering department spends the most money, followed by marketing and sales, and then HR. Although the engineering department has the highest spend in terms of dollars, it is not the department with the highest number of SaaS applications. That award goes to the marketing team.
Should we ask the department that spends the most to reduce expenditure?
Software is now the third largest cost item for organizations, after personnel and office costs.
Maybe, but first let’s look at the low-hanging fruit: Sales and marketing teams have the highest number of abandoned and underutilized apps.
Sales and marketing teams must quickly adapt to changes in the market and evolving customer requirements; they often acquire different tools to meet their immediate needs, and when those requirements change, they often move to new tools, leading to low usage and redundant tools.
Second, CFOs can use benchmark data to ensure their spending is in line with companies of similar size. Depending on the size of the company and the employee’s department, companies spend an average of $1,000 to $3,500 on software tools per employee. CFOs must work with teams to optimize the buying process and control spend. If your company’s expenses don’t meet the typical benchmarks of similar companies, it may be a good idea to investigate why.