Renewal management is a constant sticking point for financial managers looking to optimize the way they approach contract renewals for the mission-critical software their organization relies on.
With the rise of Software as a Serivce (SaaS) — money seems to be trickling out every quarter now that subscription-based software is becoming more commonplace for businesses.
So, how do you optimize your budget for renewals without harming productivity? Learn more about how successful companies budget Software-as-a-Service (SaaS) renewals and how you can apply those strategies within your own organization.
What Is Renewal Management?
Renewals are always involved in the B2B SaaS market. SaaS applications are, by definition, subscription-based and require renewals regularly. Subscriptions make sense compared to one-time purchases because they’re consistent and easier to budget. Think about how a Netflix subscription charges the same regular fee every month.
Purchasing online makes it simple for organizations to shop for the software they need, but it also makes it easy to overspend. SaaS vendors always want to push for renewals and will send out notifications to you accordingly. They might even send their customer success team to encourage renewals directly.
As more companies move toward cloud-based software contracts, managing those renewals becomes more challenging. What if you don’t need that software package anymore but don’t realize it before the renewal deadline? Are parts of your budget wasted on unused applications? The first step to fixing this problem is recognizing that you need a SaaS renewal strategy.
Why Does SaaS Renewal Management Matter?
The primary issue here is visibility. Employees and teams often purchase their own SaaS applications with the company’s money to meet their temporary needs. While the regular fees seem low now, they add up as more software purchases roll in. Upper management is often unaware and can’t manage renewals on every product.
A formal renewal management process provides that visibility and allows businesses to take control of regular spending, review renewal terms, and take action before renewal deadlines. The ultimate result is obtaining more value from SaaS software, giving the business a competitive advantage in a cutthroat market.
What Happens When You Have Poor Renewal Management?
Software is expensive. According to Gartner, the average enterprise spends over $15 million on it annually, but the cost goes beyond the subscription fee.
Inefficient renewal management results in excessive time and resources dumped into analyzing contracts and deciding on SaaS renewals. Every hour your teams spend considering renewals is time they could be spending actually using the software.
But a rushed renewal process means you aren’t negotiating terms and inspecting SaaS contracts properly; you’ll usually end up spending more than necessary or not getting the essential features you need.
Renewal management is all about striking that balance between efficiency and comprehensiveness. Other consequences of an underdeveloped renewal management division include the following.
Getting Caught Off Guard by Renewal Deadlines
A budget management team’s worst nightmare is not knowing about a software subscription until the invoice lands on their desk. There’s no time to do anything but pay the fee at that point. Even worse, many contracts are on auto-renewal, so money might be trickling out of the budget without your knowing.
And what if you want to cancel, but it’s too late? Most SaaS agreements have a cancellation policy that mandates a few days’ notice beforehand. Missing that window means you’ve lost an opportunity to reanalyze a contract.
Falling for Hidden Contract Terms
Other times, it makes sense to continue a contract, but you might want to negotiate the terms or pricing model when new options are available. There’s no time to look at new plans when the renewal deadline is already up.
Rushing renewals also prevents you from adequately inspecting contracts and managing SaaS supplier relationships. Some terms are easy to overlook or weren’t relevant when you initially purchased the package. Problems like overage fees and scalability constraints deserve your attention at every renewal period.
Paying for Software You Aren’t Using
“Shelfware” refers to the software you pay for that goes unused or duplicates functionality for which you already have solutions.
Shelfware is a common phenomenon in larger organizations, where multiple SaaS programs are at play and overlap each other. Studies show that a quarter of software goes unused on average, and some companies have shelfware rates as high as 75%.
No Time for Smart Business Decisions
No formal renewal process results in your teams rushing through renewals at the last minute. From finance to IT, every department wants to avoid a lapse in service, particularly for mission-critical SaaS applications.
If renewals take too long, that lapse in service prevents internal teams from using the software, leading to operational holdups and a revenue loss.
How Do I Set Up My Organization for Renewal Management?
Renewal management isn’t something you can establish overnight. Start with the right preparations.
What do you intend to accomplish with renewal management? Are you trying to…
- Stop missing renewal deadlines?
- Raise the value you’re getting from SaaS?
- Empower your teams with better tools?
- Stop wasting the budget on unused software?
The answer to this question will direct your efforts when building an impactful renewal strategy.
Build SaaS Visibility
Awareness is your best defense against accidental auto-renewals. Generate complete visibility into your SaaS arsenal, and ensure no tool employees use is out of your vision.
Once you’ve uncovered not only what software licenses are active but also their usage numbers, you can tell which ones are pulling their weight and which deserve to be removed from the budget.
Create a Renewal Calendar
A similar strategy is to set up a renewal calendar with the deadlines for all your renewals. Set up notifications so that you’ll never be caught off-guard and always have time to schedule negotiations.
Confirm all renewal windows with each vendor. Subscription-based software often expects you to renew after the first cycle, though you can cancel or switch to another service tier within that window. A calendar stops you from missing that window and falling into the auto-renewal trap.
Don’t forget to prioritize renewals so that high-cost or mission-critical SaaS programs get the attention they deserve.
Turn Off Automatic Renewals
One of the first steps to take is disabling automatic renewals whenever possible. This step often involves disabling software spending for corporate credit cards. While this payment method is fast and convenient, it’s easy to forget about automatic payments through them.
Always give yourself time to reconsider or renegotiate the terms of a SaaS contract, and don’t let the auto-renewal speak for you.
Hold Employees Accountable
The business sector uses a term called “app ownership.” Who originally requested this software package, and what purpose did that person hope to achieve through the software?
When it comes time to renew, turn to the app owner to help decide whether renewal is worth the money. It’s the best way to gain context into the SaaS package and collect information to assist in your decision.
If an app owner ever leaves the company, reassign ownership immediately so you can always turn to someone for reference.
Integrate Renewal Management into Your Workflow
The best way to transition your organization into a renewal management-focused workflow is to integrate renewals into your existing spend, contract, or vendor management platform.
All these tasks are easier to complete when the same team works on them at the same time. You’re optimizing operations this way since you’re using the same financial data for all of them.
How Do I Know When to Renew a Contract?
Not all contracts are clear-cut, and it’s not always apparent whether to renew a software package. These thought processes can get you in the right direction.
Think About How Employees Use the Software
You need to gather the internal stakeholders and decide whether the value offered is worth the cost paid. Ask yourself questions like:
- Are you getting enough “mileage” out of the SaaS application?
- Are there better terms and conditions to negotiate?
- Should we switch to a new pricing model or tier of service? And would the budget support that change?
- How important is the application? Are our operations heavily reliant on it, or is it just a “nice to have”?
- Do any other applications we use duplicate or overlap the functionality of this one?
- Does the application integrate well with the rest of our technical stack?
- Have any new concerns come up, such as cybersecurity threats or issues with the vendor?
- Do we already have too many active contracts at once?
Contact a Sales Representative from the Vendor
For high-priority renewals, get in touch with someone at the vendor. Sales representatives are often the best source of information to help you decide among renewal, renegotiation, or cancellation. Do research beforehand and bring enough data to the meeting to prepare yourself.
For example, look at the license types on offer and cross-check them with your needs. Maybe a higher cost is worth the extra functionality if your teams need to scale up. Or you find that you’re paying for a larger package you don’t need.
Remember that SaaS vendors often change their pricing models and licensing agreements over time. What was a great deal during the last renewal cycle might not be ideal now, so do your research at each renewal meeting.
Sometimes, you can negotiate special pricing even when it’s not explicitly available. The SaaS market is rather competitive, and some vendors might be willing to cut you a deal.
Approach Negotiations from the Vendor’s Perspective
Gain more leverage when speaking with vendors by looking at the deal from their perspective. What are they trying to achieve themselves?
The primary customer success metrics they often focus on are customer lifetime value (CLV) and churn rate, or the proportion of customers who choose not to renew and opt out of the contract.
Both point to the same trend: acquiring and onboarding new customers is much more costly than keeping existing customers. Two out of every three companies aim to retain customers rather than generate new ones. Use this information to your advantage to negotiate better terms, as it’s in the vendor’s best interest to keep you on board.
Decide What To Do
The ultimate decision, based on application usage data and feedback from stakeholders, comes down to the following:
- Renewing the application and possibly expanding the license
- Renegotiating the pricing or service tier before renewal
- Requesting support from the vendor, such as training resources, so that you can obtain more value from the same SaaS platform
- Eliminating the application from your technical stack entirely to save on costs
How to Make the Most of Software-Assisted Renewal Management
Businesses rarely look forward to the SaaS renewal process because it is time-consuming and inefficient when done manually. Most companies dealing with SaaS renewals turn to software to get the job done faster and more comprehensively.
Renewals are heavily data-focused, requiring visibility and analytics to dig out the savings opportunities. And as organizations use more cloud software than ever, renewal management becomes more complex. Renewal software helps by:
- Centralizing everything into one place. From vendor to contract management, one software platform can help you with renewals and other parts of spend management. A single, centralized platform is the Holy Grail of business budgeting.
- Enabling SaaS visibility. Keep track of app ownership through audit logs to see who purchased what and when. Having all this data accessible accelerates your decision-making when the renewal window arrives.
- Stretching the budget. More effective renewal management means optimized spending by consolidating redundant or overlapping software. You’re leveraging negotiations and usage data to get more value while spending less.
- Keeping you on track. Set up renewal timelines that you can regularly review with your budgeting team. Smart notifications also prevent you from missing renewal windows.
- Being easy to use. It can be challenging to get internal stakeholders on board with renewal management. Many might be unwilling to change the tools and software they rely on. But having an easy-to-use renewal platform raises the chance they will adopt an efficient renewal strategy and understand the savings they’ll receive from it.
- Staying organized. Managing procurement from a single software platform cuts down on excessive emails and spreadsheets.
- Integrating cohesively within your workflow. If you run HR software, enterprise resource planning, or any other applications, a procurement platform can work closely with them through integration support.
If you use a procurement platform already, add renewals to the workflow to alleviate the heavy lifting of SaaS renewal management. You get more chances to save, and your teams can spend less time budgeting and more time drawing value out of the SaaS applications.