Budgeting for IT: Subscriptions and SaaS for SMBs

The business landscape has undergone a profound transformation in recent years, largely thanks to the rise of cloud-based solutions. SaaS, in particular, has emerged as a game-changer for SMBs. This model enables businesses to access software applications and services via the Internet, eliminating the need for costly on-premises installations. The benefits are numerous: reduced infrastructure costs, automatic updates, scalability, and accessibility from anywhere with an internet connection.

One of the defining characteristics of SaaS is its versatility. It spans every aspect of business operations, from workflow management to financial systems, collaboration tools, and communication platforms. Imagine having the power of Microsoft 365 at your fingertips, with its suite of productivity tools, or the convenience of QuickBooks Online streamlining your financial processes. These are just a few examples of how SaaS solutions have become indispensable to modern businesses.

Assessing Your SaaS Needs

Before you begin budgeting for your SaaS subscriptions, it’s crucial to assess your software needs thoroughly. Here are key steps to consider:

  • Understanding User Requirements: Start by understanding the specific software needs of your teams and departments. Just as you ensure every tool fits the job, your software must align with your needs. Speak with your teams to gain insights into their workflows and pain points.
  • Evaluating Current Subscriptions: Next, take a closer look at your existing SaaS subscriptions. Are they truly aligned with your business goals, or do they lead to excessive or redundant software usage? Streamlining your subscriptions can lead to cost savings and improved efficiency.
  • Managing SaaS Sprawl: SaaS sprawl, a phenomenon where businesses accumulate an excessive number of SaaS subscriptions, can lead to budget inefficiencies. Managing this sprawl involves periodically auditing your subscriptions, identifying unused or overlapping services, and optimizing your software stack.

When you take time to audit your SaaS needs, you can more closely align your budgeting to ensure proper integration. Not to mention, you’ll be certain your teams have the right tools to complete their tasks and maintain productivity.

Budgeting Strategies for SaaS

Now that you have a clear picture of your SaaS needs, let’s explore effective budgeting strategies. When budgeting for SaaS applications, it’s crucial to adopt a Total Cost of Ownership (TCO) approach. TCO goes beyond the subscription cost and encompasses factors like maintenance, updates, and potential scalability. It provides a holistic view of your expenses, ensuring you’re prepared for the complete cost picture.

SaaS providers offer various pricing models, and choosing the right one is essential. These models can include per-user, per-feature, or tiered pricing. Select the model that best aligns with your SMB’s needs and budget constraints. Businesses are dynamic entities that grow and evolve. Your budget should account for changes in user counts and usage. SaaS subscriptions should be flexible enough to adapt as your business expands.

If you’re really good, mastering the art of negotiating SaaS contracts with vendors can yield significant cost savings. Strategies include securing volume discounts, negotiating multi-year agreements, and ensuring favorable renewal terms. Regular contract reviews and renewals are crucial for cost-effectiveness—renewal negotiations with SaaS vendors present opportunities for cost savings. As your business evolves, your software needs may change. Use these negotiations to assess if your current subscriptions are still aligned with your objectives. Scaling down unused or underutilized services can free up budget space for investments in more critical areas.

How SaaS Expenses Are Classified

Understanding the distinction between CapEx and OpEx in terms of SaaS expenses is crucial. It involves recognizing when SaaS expenses are considered investments and when they are treated as operational costs. Most SaaS subscriptions, which involve regular monthly or annual payments for access to software services, fall under the category of Operating Expenditure (OpEx). Routine subscription renewals, where you pay to maintain access to software services, are also considered OpEx expenses, as well as regular licensing fees for software access without significant one-time costs. Ensuring that your expense classification aligns with accounting standards and your financial strategy is essential. This alignment ensures accurate financial reporting and compliance with regulatory requirements.

Managing User Changes and Scaling

As your business evolves, managing changes in user counts becomes crucial for cost control and efficiency. Effective management of changes in user counts involves optimizing the onboarding and offboarding processes for SaaS subscriptions. It’s essential to ensure that new users are quickly set up with the necessary software and that departing employees no longer incur subscription costs.

Optimizing user licenses is a cost-saving strategy that involves matching the number of licenses to actual usage. Don’t overpay by keeping those unused accounts open. Scaling SaaS subscriptions to accommodate business growth is a significant challenge. To control costs effectively, strategic planning is essential. Evaluating the necessity of each subscription and considering potential downgrades or consolidations can help manage expenses during periods of growth.

Let’s Get You Budgeting!

Budgeting for SaaS subscriptions is a vital aspect of managing your SMB’s digital ecosystem. This leads to effective budgeting and ensures that your business can harness the full potential of SaaS solutions while managing costs effectively. If you ever feel overwhelmed by the complexity of SaaS budgeting, remember that you don’t have to navigate this landscape alone. Managed service providers (MSPs), Virtual Chief Information Officers (vCIOs), and Technology Alignment Managers (TAMs) can assist you in strategizing, implementing, and maintaining your SaaS subscriptions. Want to talk to an IT professional about your SaaS needs? Get in touch today.

TL;DR
SaaS is transformative for small businesses, providing cost-effective access to software apps and services via the internet. Before subscribing, evaluate your software needs, streamline existing subscriptions, and negotiate contracts to save on costs. Match user licenses to actual usage and optimize onboarding and offboarding processes to minimize expenses.

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