The SaaS software distribution model has revolutionized the global software market.
You type a URL in the web browser, press the enter button, and your software is ready to use.
It is magical!
No need to install heavy software on every desktop, set up a dedicated hardware system to manage servers, and hire an IT team for server maintenance and software updates.
According to Fortune Business Insights, “The global SaaS market is projected to reach $908.21 billion by 2030.” And by 2025, 85% of business apps will be SaaS-based.
It is time you invest in the future too. And for that, it is extremely important you should know about how SaaS procurement exactly works so you can make the right decision when choosing the SaaS solution for your organization.
Having worked in the SaaS industry for over 15 years and being a CMO of a SaaS-based company, I can provide you with insights on SaaS procurement that can help you make an informed decision.
In this post, I will talk about the typical SaaS procurement process, its benefits, challenges you face, mistakes to avoid, and best practices.
Check out: 32 Must-have SaaS tools for businesses (2024 List)
What is SaaS procurement?
SaaS procurement is the process of acquiring cloud-based software. It involves all the aspects of the typical procurement process: gathering requirements, sourcing suppliers, making assessments & requesting quotes, negotiating pricing & terms of the contract, implementing the solution & making payments, and renewal of contracts.
Unlike traditional software procurement, SaaS is delivered and made available to end users over the Internet. There is no need to install the software on the local computer or server.
Users pay monthly or annual subscription fees to access the software rather than purchasing a license outright.
The need for SaaS procurement
SaaS procurement is all about the shift in power from vendor to buyer.
Just a few years ago, it was hard to imagine a free trial for the software or vendors disclosing the price of the software on the website to the public. There was limited visibility into supplier options and performance. I came from that era!
Procurement teams were the major decision-makers when buying software. They collect the requirements, source suppliers, make negotiations, communicate the results to internal stakeholders, purchase the software, and renew the subscription after monitoring the software performance.
This entire process was highly inefficient, time-consuming, vendor-driven, fragmented, lengthy, and siloed.
But today, with SaaS solutions, the power comes into the hands of buyers. Now, users can actually experience the SaaS tools with free trials, make better comparisons by gathering information from websites, check reviews, and compare the prices from different vendors to get the best value for money. Also, the procurement process has become more end users inclusive. The entire team can use the software in a free trial and share their inputs.
This has made the software buying process transparent, highly efficient, short, buyer-friendly, collaborative, and scalable.
Gartner’s study has shown that more than 60% of the buying process occurs before engaging a vendor.
Key SaaS procurement benefits
SaaS procurement offers numerous benefits over traditional software procurement. Here are some of the key advantages of SaaS procurement:
- Low upfront costs: You do not have to pay the entire amount for software licensing upfront. SaaS is based on the recurring expense subscription model which makes it easy for the users to purchase the SaaS solution. Also, SaaS subscriptions are renewed monthly, quarterly, or yearly. You have better control over contract management. You can cancel your contract at any time.
- Cost benefits: SaaS is delivered and used over the internet. This saves you a lot of money on buying the software and installing it on the system, building up hardware systems to support software functioning, and hiring an IT team to manage the updates and server maintenance.
- Scalability and flexibility: You can upgrade or downgrade your service plan at any time without much fuss. Just upgrade to the premium plan and access more features. There is no need to buy new software and install the updated version on every system like traditional software.
- Accessibility and updates: SaaS offers you the flexibility to use it anywhere. All you need is a supporting device, an internet connection, and credentials to log in to your account. Your software is ready to use. Making software updates in SaaS is a breeze. SaaS solution providers release new updates and you just have to install them. No need for your IT team to invest hours in making software upgrades.
- Customization and versatility: SaaS applications are low-code or no-code apps that provide a great degree of customization to the users. You can easily customize them to your preferences. With API access, you can integrate your SaaS app or its particular feature with other business applications. This makes your SaaS solution highly versatile.
Top 19 SaaS (Software as a Service) Applications to Help Businesses Grow
What is the typical SaaS procurement process?
A typical SaaS procurement process starts with identifying the business needs and ends with the implementation of the software. It is a long process that requires cross-collaboration among the procurement team, internal stakeholders, SMEs, finance department, legal team, and end users.
I have explained the step-by-step procurement lifecycle of SaaS.
1. Identifying business needs
It all starts with knowing your business needs. What are the areas you need help with — work management, project planning, team collaboration, time tracking, invoicing and billing, client relationship management, or employee engagement?
What are the specific problems you want to solve?
Analyze your current processes to identify the areas of improvement, conduct employee surveys for the insights, and use the date-driven research-backed insights to determine the features and capabilities you need in the software.
You can even ask the internal stakeholders to provide you with a list of specific features, must-haves, and good-to-haves to clearly understand the needs.
2. Evaluate the available options
Once you have identified the needs, the procurement team performs market research to evaluate the potential SaaS options. The market research primarily revolves around factors like features and functionality, ease of use and learning, customer support, security and compliance, user reviews, and pricing. Based on the research, the procurement team creates a list of potential SaaS vendors. This gives you a brief idea of the potential options that can fulfill your organization’s needs within the budget.
3. Choosing the vendor
Request for proposal (RFP) is a key step in the procurement process where you fill out the form outlining your requirements and solicit bids from potential vendors. This business document includes the technical requirements of the software, the specific needs of your organization, and the project scope.
The procurement team sends out the RFP to the list of shortlisted vendors and receives the responses. Based on the responses received, the procurement team scores the potential candidates and shortlists the top three to five vendors.
The procurement team works in cross-collaboration with internal stakeholders, SMEs, the legal team, and the finance team for vendor selection. The procurement team collects the responses on every aspect of the software and chooses the vendor after discussion with all the stakeholders that is the most suitable fit for the organization.
4. Negotiating the price and contract terms
After approval, the procurement team proceeds with the negotiation of the pricing and terms of the contract for SaaS buying. Many professionals think of negotiations as securing discounts on price or exclusive customer support, but it can go beyond that in terms of upgrades, minimum lock-in period, and data ownership rights. The purpose of contract negotiation always is to secure favorable contract terms that deliver the maximum business value.
5. Implementing the software
It is as important as other steps. Successfully implementing a SaaS app at the organizational level requires onboarding support, setting up employees’ accounts, integrating with the existing system, migrating the data, employee training, and fine-tuning the software. It is the responsibility of the procurement team to ensure the software is successfully implemented.
6. Review the performance
The implementation process is often accompanied by the monitoring of the software performance for evaluation. It involves evaluating the software’s actual performance based on predefined criteria, taking users’ feedback to find areas of improvement, and evaluating the vendor’s service level commitment.
7. Vendor management and contract renewal
Renewal of contracts is an integral part of the procurement lifecycle, especially in the SaaS, which is based on the subscription model. You need an efficient SaaS vendor management process to ensure you manage SaaS spending effectively.
Based on the software performance review, you have to decide whether to continue with the vendor, switch to the other option, or renegotiate the price with the existing vendor.
This is the complete process of SaaS procurement. Now, talk about the SaaS procurement challenges and their solutions.
Common SaaS procurement challenges
One can make a range of mistakes while choosing a SaaS solution which can pose huge challenges. It is very important to avoid those mistakes so that you can make the right decision.
Here are some common Saas procurement challenges:
- Lack of alignment among teams: The biggest challenge is the siloed procurement process. This results in choosing software that is not capable of delivering the business needs or overpaying for the services. Either scenario leads you to look for other options.
- Absence of standard evaluation process: Lack of standard workflow or checklist for SaaS procurement results in poor vendor evaluation and selection. You may miss the important features or contract terms which can cause trouble later.
- Not evaluating all the options: Settling for the first SaaS vendor that comes along is not a great idea. You may miss out on the opportunities that can provide you with better business value.
- Not taking scaling costs into account: Many businesses make this mistake. They tend to fall for cheaper solutions. Basic plans and free trials look attractive, but when you scale and add more users and features, you realize they are actually expensive.
- Settling for the first quote: There is always some space for negotiation. So, it is great to negotiate when adapting the software at an organizational level. Many companies offer geography-based discounts also.
- Not reviewing the contract: Always rely on what is documented, not what is verbally communicated. Many business owners make the basic mistake of not reviewing the contract.
- Rushing the procurement process: Making decisions in a rush without proper research and evaluation can lead to selecting a tool that doesn’t align with your organization’s long-term goals.
Best practices for SaaS procurement
I firmly believe one can cover the lapses in any process by adopting the right measures. Here are some of the best SaaS procurement practices that you can follow:
- Create a standard workflow: The first step is to develop a standard and robust procurement process using the best procurement strategies so that you evaluate the software in every aspect. You can use workflow management software to create a procurement workflow and automate the approval process.
- Ensure cross-collaboration: Choosing the right software requires efficient collaboration between the procurement team, SMEs, finance team, and other stakeholders. Make sure they have the right tools and workflow so that they can properly evaluate the tool.
- Define needs: Clearly define what you need, how much you want to spend, and what features you are looking for to help you choose the right tools for your business needs.
- Take a free trial: Do not make the SaaS purchase prior to organization-wide testing of the software. A free trial gives you the opportunity to test software at your set benchmarks and the solutions promised.
- Compare options: Ideally, it is suggested to pick the top three SaaS vendors, send RFP forms, receive quotes, use free trials, and make an in-depth evaluation. It will help you get the deal with the best business value. It is a long process but worth the organization’s data security, team productivity, and work efficiency.
Streamline your SaaS procurement process with ProofHub
ProofHub is an amazing project management and team collaboration tool that helps you streamline SaaS procurement for your organization. You can use custom workflows to create, streamline, and standardize the SaaS procurement process.
Along with that, ProofHub helps you address the biggest challenge of the SaaS procurement i.e. lack of cross-collaboration.
With ProofHub, you can create a centralized communication hub for teams to facilitate inter-departmental communication. It also allows you to share documents in one centralized place.
ProofHub connects your entire SaaS procurement process, eliminates lapses, and streamlines operations.
FAQs
What are SaaS procurement software?
SaaS procurement software provides a platform for businesses to facilitate the SaaS procurement process. It helps you create workflows to streamline the procurement process, manage vendors, create documents, facilitate collaboration, and manage contracts and payments.
What is the difference between SaaS, IaaS, and PaaS?
SaaS, IaaS, and PaaS are the three branches of cloud computing. SaaS is defined as Software as a Service where software is provided on the cloud, IaaS is defined as the Infrastructure as a service where business resources such as network and servers are managed on the cloud, and PaaS is defined as Platform as a Service where developer create software and apps for consumer use on the cloud.
What are examples of some popular SaaS vendors?
There are thousands of SaaS-based apps in every industry. Popular SaaS vendors include Salesforce, Google Workspace Apps, HubSpot, ProofHub, and Mailchimp.
