What is SaaS License Management?
Software as a Service (SaaS) licensing can be complicated to manage, and its complexity can quickly increase as an organization grows. At some organizations, License Management can look a lot like the discipline of software asset management (SAM), where the IT team attempts to balance the number of software licenses purchased with those actually consumed or used. The key difference is that modern SaaS management is centered around people, whereas an old-school SAM approach focuses on managing the assets themselves. As we all know, people can be unpredictable!
In the SaaS world, it can be tougher for IT teams to wrangle licensing and usage, since the nature of software purchasing has fundamentally become distributed across the entire organization. In the past, the role of IT has been highly centralized, and has controlled all of the decision-making around software purchasing and licensing. Today’s SaaS-forward organization looks dramatically different; team leaders are buying and allocating licenses across their teams themselves. Without the proper visibility, IT teams are often left at a loss trying to track all of these decisions across the organization, which is where License Management can get tricky.
A subset of SaaS Vendor Management, which focuses on both License Management and the financial and compliance relationships of third-party vendors, SaaS License Management is very specific to how people control and use apps within an organization. Before we get into the specific challenges, let’s look at the two main areas of License Management: Tiers and Utilization.
SaaS Licensing: Tiers
If you’ve ever signed up for a SaaS subscription, you probably know that there are usually several tiers you can choose from, depending on your organization’s needs. These tiers typically fall into the following categories:
- Users: Some licenses may segment billing based on the number of users of the tool, or the total number of employees, if it’s something that will be used by the entire organization. This can also be referred to as the number of “seats.” Users can also have different levels of access to an application, which we’ll get into later.
- Categories: More often than not, SaaS apps will segment their licenses into specific buckets or category divisions, which can vary significantly. A few examples of pricing models could be based on overall usage or usage of certain features (e.g. a video conferencing tool), number of contacts (e.g. a CRM or marketing tool), or the number of integrations (e.g. a premium fee may apply to integrate Salesforce data).
- Longer-term Commitments: Every SaaS vendor wants a long-term commitment, and will often offer steeper and steeper discounts the longer you sign on. This can be beneficial if you know that the organization’s needs will not change, but also detrimental and costly to break contract if the opposite is true. Keep in mind: many SaaS vendors will offer a standard 20% discount on an annual vs. monthly contract. Multi-year contracts could see larger discounts.
SaaS Licensing: Utilization
Another dimension of SaaS licensing is utilization, or how much an app is used, and how many of those licenses are actually allocated across the organization. Without the proper visibility across SaaS accounts, the question of utilization can often be difficult for IT managers, or even the team leaders themselves, to answer.
When it comes to license allocation, licenses are either used or they’re unused. Taking it a step further, you’ll also want to know if licenses are allocated or unallocated altogether. If there’s an overabundance of unallocated or unused licenses, your organization may be spending significantly more than it needs to on SaaS.
How Companies Spend on SaaS
There are many flavors of SaaS licenses out there, but some of the most common pricing models include:
- ➡️ Flat Rate
An annual flat fee can be offered at a discount to a monthly subscription fee.
- 📊 Pay-Per-Use
Like a utility, users spend based on the amount they use the application.
- 👩🏽💻 Pay-Per-User
Some apps charge by the user/seat, or monthly active user.
- 💎 Tiered
The higher the fee, the more features that become available to the user.
Implications of SaaS License Management
The relationship between apps and people is far more complex than most organizations realize, which can have major, hidden business implications. Much like Facebook’s “Social Graph” for people-to-people relationships, the SaaS Graph illustrates people-to-app relationships and the complexity they can introduce into the organization. SaaS licenses are one dimension of the SaaS Graph, which you can read more about here.
Data from Blissfully’s Blissfully’s 2019 SaaS Trends report shows that the typical 200-500 person company uses 123 apps, which doesn’t sound too out of control. But, when you consider the SaaS Graph relationships, it gets much more complicated: the same sized company has an average of 2,700 SaaS Graph relationships. The number of relationships get deeper and more complex as the organization grows: companies with 500-1,000 employees have an astounding 5,671 app-to-people relationships!
Imagine how complicated this gets from a SaaS licensing perspective, as people move between roles, shuffle responsibilities, and new employees come and go. The one thing constant about the SaaS Graph is change, so here are a few key implications you should be aware of for License Management.
Employee Lifecycle Management
In simple terms, Employee Lifecycle Management refers to the steps HR, IT, team leaders and other stakeholders take as an employee joins, progresses within an organization, or as an employee leaves an organization. From a pure SaaS licensing perspective, there are a few key phases of the employee lifecycle that organizations should focus on mastering:
- Onboarding: As new employees join the organization, they must be effectively onboarded onto the right tools. Often, the onboarding process can be ad-hoc and difficult to manage, where it should be streamlined and automated as much as possible. New employees should receive access to the applications they need to be productive from day one and prevent unnecessary downtime. The Blissfully Guide to Employee Onboarding covers this process in detail.
- Changes in role or admin status: As employees progress through an organization, they may change departments or roles, which may mean they require access to an entirely different set of applications (and no longer need access to previous ones). Or, they may have increased responsibility on their team, which means they should have privileged access or an administrative role within the application. Conversely, some people may no longer need admin status, and should have it revoked accordingly.
- Offboarding: When an employee leaves an organization or is terminated, it’s equally important to turn off access to all SaaS licenses effective immediately. Often SaaS access opens up access to sensitive company data, which should be terminated when an employee walks out the door for security and compliance purposes. In addition, if licenses are going unused by employees who have left, that could add up to major wasted spend. The Blissfully Guide to Employee Offboarding details an efficient SaaS offboarding process.
Not all SaaS users look alike. As new team members are on- and offboarded throughout the year, the role of each user can get especially complicated. Without a clear understanding of these roles, organizations could be wasting time on inefficient processes, wasting money, or worse, granting permissions to the wrong people (which could be a big security concern). Here is a suggested list of internal roles to assign to one or more team members, to effectively manage each SaaS subscription.
- 🔑 IT Admin
Think of this person as the one who holds the “keys to the kingdom.” Admins can add or remove users, or change permissions for anyone across the organization.
- 📄 Contract Owner
Usually the contract owner is the initial buyer or decision maker who selected the SaaS app. In many organizations, this could be a team leader.
- 💸 Billing Recipient
This person may sometimes be the same as the contract owner, but could be different (for example, billing recipients could be on a finance team vs. a team leader).
- 👨🏼💻 User
This role includes any team member using the software, and user types are defined by each individual app. Licenses are assigned usually by the admin, and are either granted at onboarding, or when a change in employee status takes place (e.g. a promotion or team change).
In 2018, the average company spent $343,000 on SaaS, a whopping 78 percent increase over 2017. In fact, companies spend more per employee on SaaS than on laptops. The average midsized company has 32 different billing owners for SaaS apps, effectively distributing the task of IT budgeting across the entire organization.
Top 3 Issues with SaaS Spend
- 🕸 1. Unused licenses or forgotten subscriptions
Usually, this issue tends to happen when there is a lack of communication between the admin of the app (typically a team leader) and the billing owner (finance department). . For example, the team leader may buy an app in 2018, discover a better tool in 2019, but the finance dept is unaware and continues to pay for the 2018 app. When an organization uses hundreds of apps, this can happen more often than you might think. Or, in some cases a team leader may sign up for a free trial with a credit card and decide not to subscribe. Meanwhile, the free trial converts automatically to a paid subscription, with the app going unused in the process.
- 📉 2. Underused licenses or apps
Many teams could be spending hundreds or thousands of dollars a month on apps that aren’t used to their fullest potential. Maybe there are one or two power-users on the team, and the rest of the team isn’t using the app at all. Or, only a third of the app’s functionality is being used, meaning that the team could drop down a subscription tier or two. In some cases, a better app altogether could be found to meet more team members’ needs.
- 👯♀️ 3. Redundant Apps
Sometimes, teams are using multiple paid apps that have overlapping functionality. In other cases, teams are using both free, unsanctioned apps and paid, sanctioned apps that accomplish the exact same purpose. For example, a sales manager purchases videoconferencing licenses, but the individual reps are using free apps because they’re simpler or better. As each individual app’s functionality is growing over time, and it’s common to see large SaaS suites acquire smaller competitors, it’s important to regularly evaluate your team’s SaaS stack to see if it makes sense to consolidate or move to lower cost tools.
With SaaS budgets and the cost-per-employee quickly rising, organizations need to implement an effective License Management strategy. In SaaS-first businesses, it’s difficult, if not impossible, to use a centralized decision making approach to budgeting and License Management, since team leaders often become billing owners themselves.
The most effective way to meet these budgeting challenges is for IT and finance leadership to gain further visibility into the SaaS stack and collaborate directly with team leaders to determine the organization’s needs (an approach we call Collaborative IT). There may be some cases, for example, where longer-term contracts can save the organization money over more flexible licensing options, if teams are going to use a guaranteed number of licenses.
Tracking SaaS renewals can get tricky, especially since they happen at different points throughout the year. While some vendors are great about reminding you about subscription renewals, others just come and go with little fanfare. As a result, many organizations overlook renewals as an opportunity to negotiate pricing and terms, or re-evaluate the team’s needs.
A Collaborative IT approach can help teams keep renewals in check. Consider following this checklist for SaaS vendor renewals:
- Keep renewal records
- Establish a timeline for the renewal
- Confirm app is still active and needed
- Evaluate overlapping feature sets in your tech stack
- Evaluate alternative vendors
- Revisit pricing and terms
- Renew security assessment and documents
- Record key metadata on vendor, such as contract info and billing owner
Data privacy is a crucial consideration, especially for organizations that are beholden to certain compliance regulations like GDPR or HIPAA. However, many organizations that sell to the enterprise also need to be aware of their vendors’ data privacy practices, especially if they’re pursuing compliance certifications like SOC2.
Typically, data within apps exists in three different states:
- Created: Users create data within their apps on a daily, if not hourly or by-the-minute basis. Often this data can be sensitive intellectual property or customer information.
- Generated: Many apps themselves generate their own data after analyzing inputs from users, or other information.
- Delegated: Some apps delegate permissions to other apps, and feed data between them. For example, a Salesforce account may have access to a Gmail or G Suite account.
Without the proper protections in place from both a user and vendor security perspective, sensitive data could be at risk. For example, each user’s connection to an app presents a possible vulnerability, in the absence of strong passwords and/or multi-factor authentication. And in most cases, organizations will want to get documentation into each vendor’s security processes, certifications, and/or attestations during the initial contract or renewal process.
License Management Challenges
Considering all of the implications described above, it’s easy to understand why SaaS License Management is so difficult for many organizations to wrangle. Between the sheer volume of apps, the number of license types and the amount of decision makers in an organization, many IT teams struggle to gain visibility into exactly what’s in use in the organization, when, and why.
Often, organizations track SaaS licenses in a very ad-hoc or disorganized way. Some individual teams may keep their own spreadsheets, which can be difficult to maintain or gain a collective view across the entire organization. Still others may have no system in place at all. Even if your organization does use spreadsheets, it can still be impossible to get data on the number of licenses available, usage of key subscriptions, and other important information that could determine the course of your budgeting strategy.
Luckily, there are solutions available to serve as a single pane of glass for visibility purposes, and help teams effectively collaborate across all key SaaS stakeholders.
Solutions: SaaS Visibility and Collaboration
Having the right systems and automation in place will help make some of these SaaS License Management challenges much easier. Instead of depending on ad-hoc processes, automating many rote tasks—such as checking renewals, configuring accounts, or tracking team changes—can save a lot of time and allow the IT team to focus on more strategic tasks.
Solutions like Blissfully provide IT, HR, finance, and team leaders with a single pane of glass to gain visibility across all of your SaaS vendors. Blissfully can help manage key License Management workflows including employee on- and off-boarding, team changes, vendor approvals, renewals, app usage, and more.
Blissfully’s system of record provides consistency within ever-changing SaaS organizations, and empower simpler collaboration across stakeholders.
Blissfully allows teams to input new SaaS licenses or import existing ones, and integrates with vendors such as Salesforce and Zendesk to sync key license and user metadata into the system.
When a license is up for renewal, or an employee is onboarded or offboarded, Blissfully notifies key stakeholders about required changes or approvals. With Blissfully, teams can easily track apps, people, and spend in one place.