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The Need for SaaS License Management

Apr 14, 2024
10 Minutes

It is no surprise that SaaS adoption has grown significantly, especially for modern businesses of all sizes. It is estimated that organizations having 1-00 employees use an average of 25-50 SaaS apps. This number increases to about 185 for companies having 100-1000 employees and an average of 275 apps for organizations having 1000+ employees.

While this growth trend is likely to continue and brings in a lot of opportunities for new-age businesses, such rapid SaaS proliferation also brings along with it its own set of challenges.

In businesses powered by cloud services and SaaS applications, SaaS license management (SLM) becomes increasingly challenging. For most businesses, tracking a whole bunch of licenses is an operational challenge that keeps increasing owing to the rapid rate of SaaS adoption.

The regular service routine of new-age IT managers includes Tracking SaaS license compliance, managing SaaS licenses for users within the organizations, and detecting unauthorized and illegal SaaS usage. The following section helps understand all about SaaS license management.

What Is SaaS License Management?

A component of SaaS Vendor Management, SaaS license management involves controlling, reviewing, and documenting all SaaS licenses to ensure legal, optimal, compliant, and secure use of SaaS subscriptions. It applies to all SaaS subscriptions being accessed and used by employees of the organization.

Types of SaaS Licenses

With increased SaaS proliferation, most applications are now available in the software-as-a-service subscription-based model. Most companies account subscription costs as a part of operating expenses, paid either annually or monthly. It does not involve the purchase of the software as an upfront capital expense, as was the case earlier.

There are four major types of licensing in SaaS:

  • User-based licences are issued per user, where the SaaS service provider charges a fee for every user who has access to the application. This is the most common SaaS licensing type.
  • Consumption-based licenses allow companies to pay only for what they consume. Users are typically charged for the usage of an application or feature. This is usually a fixed charge even if the application or feature is not used.
  • Fixed-rate for SaaS subscriptions is usually offered by most SaaS players, where an annual flat fee is charged at a discount of a monthly subscription fee.
  • Tiered refers to a fee where the seller segments his offerings in a way that features increase with each segment along with the price.

The Need for SaaS License Management

The following are the reasons SaaS license management is becoming increasingly important owing to the rapid rate of SaaS proliferation.

  1. Extra Licenses
  2. Most often, companies end up with extra SaaS licenses due to unplanned ad hoc purchases that may not have been tracked for installation and use. Most such licenses remain unused for extended periods, leading to recurring spending leaks.
  3. Sometimes, extra licenses are acquired due to a lack of communication within departments that may have bought duplicate licenses of the same or similar SaaS product.  
  4. Un-optimized Licenses
  5. Some licenses cost more than others, as they offer access to more advanced features. However, more often than not, everyone within the organization may not need access to all features.
    provided under premium license plans.
  6. There is sufficient scope for reducing cost by optimizing licenses and purchasing premium plans only for people who actually need them.
  7. Inactive Licenses
  8. In some cases, employees never use the license purchased. Also, at times, business IT teams do not manage these applications and as a result, the employees do not get de-provisioned when they leave the organization. Sometimes, companies continue to pay for these licences perpetually long after an employee has departed the organization months or years ago.
  9. Disorganized SaaS Renewal Management
  10. SaaS license renewals come up throughout the year at different time intervals. Since these renewals are mostly unanticipated, tracking them can be extremely tricky. While some SaaS vendors send timely reminder notifications for subscription renewals, others may just come and go with little fanfare. As a result, many businesses are unable to plan and overlook renewals to negotiate pricing and terms or re-evaluate the team’s needs.

The Benefits of SaaS License Management

SaaS License Management provides businesses with the opportunity to save on the waste mentioned above. In order to guarantee availability, businesses often overbuy SaaS licenses. These “extra” licenses, intended to guarantee availability, often go unused. Reducing this extra cost can save the business a considerable amount of money. That’s not all with advance renewal notifications and rich usage insights businesses can review the contract in greater detail and compare it against organizational usage. Also, this allows businesses to gather employee feedback around the application to avoid unwanted renewals and suboptimal negotiations.

Also, some SaaS license management tools use the power of artificial intelligence to allow businesses to forecast future budget changes based on accurate data.