7 Levers Every Team Should Be Pulling to Optimize Software Costs

If you really think about it, 70-75 percent of procurement work is related to managing renewals. And the average company? Handles 200-600 SaaS contracts per year, depending on size.

Between the proliferation of tools, artificial intelligence (AI), mergers and acquisitions, and ever-changing functionality, the need to get software costs under control becomes mission critical. 

Efficiency and profitability reign supreme right now, and as companies are trying to do more with less, saving money takes the top spot on everyone’s priority list. No place better to start than with your software spend, which is often a top 2-3 line item.

While most teams know how important cost optimization is, many don’t know where to start and how effective certain levers can be. 

At its core, improving your spend visibility is the first step in identifying savings opportunities that will allow you to optimize your software costs. 

Only then can you take action to consolidate your tooling and cut unnecessary costs. Let’s explore 10 levers - which I’ve used leading procurement teams - for better cost optimization, including the expected impact of each lever and the potential difficulty of implementation to help you make strategic decisions.

1. Create (or Use) a Great User Experience to Drive Compliance

This lever comes first because it’s the most powerful. However, it will also take the most time to enact.

Spend is like water. It follows the path of least resistance.

Your end users want to comply with your purchasing process, but if it’s not intuitive and easy to use, stakeholders will become frustrated and always seek an easier way. Often that means putting purchases on corporate credit cards and avoiding proper review. 

Purchases made without approvals lead to increased risk, purchases made without negotiation lead to higher prices, and contracts without review lead to sub-optimal terms. 

Improving the user experience is the best way to ensure procurement compliance. It can also be made easier with cost optimization tools that help stand up and automate processes and use AI to make benchmark data easily accessible. 

A process and experience that’s intuitive, simple, and helpful will drive adoption and increase stakeholder trust. The ideal, scalable scenario is one in which stakeholders work with you because they want to, not because they have to.  

2. Conduct a Utilization Audit

Billions are wasted on SaaS shelfware every year. Those billions could be saved by companies understanding their usage and becoming more efficient.

SaaS contract management tools report utilization data across all of your contracts, but if you don’t have a tool, you can request license usage data from your supplier rep directly. 

Many companies are tempted to cut down by simply determining whether a tool is used or not by using an SSO provider to determine the last login. While that’s a start, here’s a much better method (utilization audit):

1. Determine an acceptable ROI of that tool
2. Restrict licenses to users who are meeting that ROI

An example: if a license is used to create videos that are shared with clients and the acceptable ROI is 5 videos per quarter, you would remove licenses from those who are below that threshold (or at least won’t commit to getting above that threshold).

To elevate your utilization audit a step further, once you’ve identified tools that are being underused, look for duplicate and similar tools, and overutilization. From there, you have 3 options: use it, lose it, or consolidate it.

• Use it: If a tool is being overused, it may be time to negotiate a different plan so you can avoid overages. If you’re planning to migrate to one tool and get rid of another, factor that into budget planning.
• Lose it: If a tool is being underutilized, investigate the reason. Perhaps end users can live without this tool or use a different solution. The quickest path to cost reduction is getting rid of a tool altogether, so look for maverick spend as the first opportunity to rightsize.
• Consolidate it: Similar and duplicative tools reduce your ability to negotiate volume discounts and make tracking utilization difficult. If multiple teams are using the same tool, consider negotiating an enterprise contract. If you identify different tools performing similar functions, gather stakeholder feedback and propose a migration strategy.

3. Compare Actual Spend Against Contracted Spend

Spend comparison audits dovetail with utilization audits, but capture a different picture. Comparing actual and contracted spend gives you a clear view of 3 major leakages: overspend, rogue spend, utilization changes.

Overspend

There are several reasons for potential overspend:

• Automatic renewals: Without automated notifications of upcoming renewals, you may miss the window of opportunity to negotiate a lower price, or miss renewals altogether. Automatic renewals also often include an uplift.
• Upgraded packages: If departments upgrade their pricing tier or service without notifying the proper stakeholders or going through the right channels, these added costs may be missed.
• Overages: If you exceed contracted usage, you may be subject to additional charges. By comparing actual and contracted spend, you can get ahead of usage and negotiate the right thresholds.

Rogue Spend

Also referred to as shadow spend or maverick spend, rogue spend refers to any unauthorized spend. Employees may be purchasing tools with company credit cards or going around the proper procedures, resulting in higher expenditures than planned. 

Rogue spend often leads to duplicative tools. Identifying these creates an opportunity to consolidate, negotiate a larger license, or migrate tools. 

Utilization Changes

Whether you’re facing underutilization or unexpected growth, utilization changes can reveal inefficiency and opportunities for re-negotiations. If you’re using less than what you paid for, consider downgrading your plan to eliminate unnecessary spending. If the demand for certain tools is increasing, you can adjust the contracts to match the demand, protecting you from potential overage charges in the future. 

Understanding your usage also puts you in a stronger position to negotiate better pricing or terms when you’re up for renewal. 

It’s recommended to run this audit annually, if not more often. This audit becomes much easier when automated so you can track key data points for every single supplier in real time and set up alerts to flag overages or discrepancies.

4. Beware of Usage-Based Contracts

Usage-based contracts can creep up on you, especially as AI functionality expands and suppliers are leaning towards consumption-based pricing models. While these contracts provide buyers with much needed flexibility, they also present predictably unpredictable exercises in spend variance management.

Since they don’t use fixed fees, usage-based contracts can make financial planning difficult and the costs can get quickly out of hand. 

As usage spikes, so do your costs, so strategically negotiating usage-based contracts is critical. Analyze your current usage and spend for these tools and if you decide to renew, use that data to better forecast future spend and hold an open conversation with suppliers. Alternatively, resellers can offer better discounts and additional support for the same tools.

5. Benchmark Large or Critical Contracts

Pricing benchmarks give you the confidence of knowing you’re not overpaying and helps protect your bottom line.

Any deal over a certain threshold should require a benchmark to help budget, understand your target price, and gain negotiation leverage.

There are 2 ways you can benchmark software pricing:

1. Unbiased third party data through a tool like Tropic: Trusted data that doesn’t allow for pay-to-play supplier bias is the surest way to check the fairness of your price with an apples to apples comparison based on your plan, add-ons, billing terms, contract size, company size, and more. 

2. Request for Quotation (RFQ): This will give you a detailed cost breakdown including subscription fees, implementation fees, additional charges, and more. By collecting multiple RFQs you can directly compare pricing and services. Plus, with other detailed quotes, you’ll have stronger leverage in negotiations.

6. Help Budget Owners Think Like a CFO

It’s impossible to keep an eye on every single employee and hold their hand through the purchasing process. Creating a sustainable culture of accountability is a much more scalable approach to responsible spending.

How can finance leaders hold budget owners accountable? Require them to submit a business case for renewals (and new purchases). This helps to:

• Align cross-functionally on the problem and solution
• Ensure budget adherence
• Apply critical rationalization to every dollar of spend
• Support decision-making
• Mitigate risk
• Effectively resource plan

You can make this lever much easier by using an intelligent intake form for budget owners to record their business case for new purchases and renewal upgrades. Remember, an easy user experience is key. 

7. Be Proactive (Seriously)

You might be thinking this isn’t a “lever.” I beg to differ. Time is leverage. Being proactive with your stakeholders ahead of renewals saves you money in the short- and long-term. 

Tropic data shows a 39% savings improvement if you kick off your renewal process at least 6 months before the renewal date. Comparatively, at 30 days the savings are 14% and at 60 days the savings are 22%.

In other words, being to engage with stakeholders well before your renewal is up. The earlier you do, the more money you save. Being proactive gives you the ultimate leverage against suppliers to minimize costs.

Another great way to be proactive is by tracking renewal dates and understanding budgeted spend. 

For example: a great metric to track is how many days prior to the need a request is submitted. If a stakeholder needs something purchased by July 1st and the request was submitted June 1st, that would be 30 days.) But rather than track the average days, which may be misleading, try tracking the percentage of requests created at least 120 days out (some organizations do 30-90 days). If a stakeholder submits the request prior to 120 days, you have ample time to source, look at competition, perhaps run an RFP, etc. It also dramatically increases leverage. If you’re tracking a renewal and it’s getting close to that 120 day mark, proactively reach out to get the process started.

Bringing It All Together‍

Cost optimization isn’t about cutting for the sake of cutting - it’s about creating a smarter, more intentional relationship with your software spend. 

When you improve visibility, drive compliance, and empower budget owners, you unlock a level of control that compounds over time. Layer in thoughtful utilization audits and proactive planning, and you’re not just reducing waste but building a procurement engine that fuels efficiency and profitability.

The levers in this guide are designed to meet you where you are, whether you're wrangling your first renewal calendar or refining a mature procurement function. Start small, stay consistent, and let data guide your decisions.