Challenges in SaaS Procurement
In the rapidly evolving digital landscape, Software as a Service (SaaS) has become a cornerstone for many businesses. However, selecting the right SaaS tool is far from straightforward.
This post aims to walk you through the complex journey of SaaS product procurement, addressing common challenges and offering effective strategies to overcome them.
Software as a Service, or SaaS, is a software distribution model where a service provider hosts applications over the internet, making them readily available to customers on a subscription basis.
SaaS solutions offer significant advantages such as cost efficiency, scalability, and ease of use. They’re becoming integral for businesses to stay competitive and agile in today’s volatile market.
Challenges in SaaS Product Procurement
1. Identifying the Right Tools
Selecting the appropriate SaaS tool can indeed be a daunting task given the proliferation of SaaS vendors in the market.
In 2023 alone, over 18,000 SaaS companies were operating in the marketing segment, according to Scott Brinker’s Martech 5000.
A SaaS solution like Salesforce provides CRM capabilities while Zoom specializes in video conferencing, each having its unique features, capabilities, and pricing structures.
For instance, Salesforce offers a 360-degree view of customers with a blend of AI and analytics while Zoom provides high-definition video quality with features like recording and transcripts.
Thus, a SaaS buyer must identify the right tool based on its unique needs and requirements.
2. Evaluating Vendor Credibility
Vendor credibility is a crucial factor that can significantly impact the quality of the software and the user experience.
According to a survey by Statista in 2022, 89% of respondents agreed that they trust companies that keep their software systems updated.
Vendors like Microsoft and Google have earned their reputation not just by the quality of their software solutions, but also through their robust customer support, regular updates, and upholding user trust.
Therefore, SaaS buyers should assess factors such as the vendor’s history, customer reviews, and support services before settling for a solution.
3. Assessing Cost-Effectiveness
While SaaS solutions are generally more cost-effective compared to traditional software deployment methods, it’s essential to analyze the total cost of ownership (TCO).
According to a 2018 report by Computer Economics, SaaS solutions can offer a 15-25% saving over five years when compared to equivalent on-premise solutions.
However, the TCO includes not just the subscription cost, but also the initial setup, training costs, any additional costs for premium features, and potential hidden costs.
Thus, a low-cost solution might turn out to be expensive in the long run if not thoroughly assessed.
4. Ensuring Data Security and Privacy
SaaS solutions often require access to sensitive business data, increasing the risk of data breaches.
A report by Risk Based Security revealed that data breaches exposed 36 billion records in the first half of 2020.
Therefore, the buyers should ensure that the chosen SaaS solution provides robust security measures like encryption, multi-factor authentication, and complies with relevant privacy regulations such as GDPR or CCPA.
5. Understanding the Complexity of Integrations
The ability to integrate with other software in your business stack is crucial for the seamless functioning of business processes. For example, a CRM tool should ideally integrate with the email marketing software and customer support tools.
A survey by Dell Boomi reveals that businesses with fully integrated software ecosystems are 20% more likely to have better financial performance.
However, integrating different software solutions can often be complex and may require technical expertise. Therefore, as a SaaS buyer, understanding the compatibility of SaaS solutions with existing systems is vital during the procurement process.
6. Deciphering Product Scalability
One of the challenges in SaaS procurement is identifying a tool that can scale as your business grows. SaaS tools need to accommodate increased data, more users, and new features.
For instance, a small company might start with a basic CRM like HubSpot for managing customer relationships. As it grows, the business may need more advanced features like marketing automation, sales forecasting, or customer service integration.
In 2022, Amazon’s AWS saw an increase of 18% in revenue, indicating that many businesses were scaling their operations and requiring more cloud-based services.
7. Ensuring Regulatory Compliance
Companies often operate across different regions and countries, each having its own regulatory landscape. Compliance with these regulations is a significant challenge when procuring SaaS tools.
For example, the European Union’s GDPR and California’s CCPA require companies to uphold strict data privacy standards. Non-compliance can result in hefty fines – in 2020, British Airways was fined $230 million for a GDPR breach.
Thus, it’s crucial that the SaaS tools comply with relevant regulations.
8. Dealing with Vendor Lock-in
Vendor lock-in is another issue to consider when procuring SaaS tools. This occurs when a company becomes overly dependent on a vendor and finds it challenging to switch to another provider due to technical incompatibilities, high switching costs, or contractual constraints.
A Gartner report suggests that through 2023, 80% of software vendors will change their business model from traditional license and maintenance to subscription, potentially increasing the instances of vendor lock-in.
9. Addressing Training and Adoption Challenges
Implementing a new SaaS tool often requires training for employees to understand and use the software effectively.
A study by Prosci found that projects with excellent change management effectiveness are six times more likely to meet objectives than those with poor change management.
However, resistance from employees, lack of efficient training programs, and complexity of the tool can pose challenges to successful adoption.
10. Managing Multi-vendor Environments
In many instances, businesses use multiple SaaS applications from different vendors to meet their varied needs.
For example, a company might use Salesforce for CRM, Slack for communication, and Asana for project management.
According to a Blissfully SaaS Trends report, mid-sized companies use 185 different SaaS apps on average.
Managing these multi-vendor environments, ensuring smooth integrations, and handling different contract terms is a complex task.
11. Analyzing Long-Term Value and ROI
While SaaS tools often seem cost-effective due to their low upfront costs, understanding their long-term value and return on investment (ROI) can be challenging. It’s essential to consider factors beyond just the cost, like the time saved, efficiency improved, or the revenue generated.
A survey by Nucleus Research found that cloud applications deliver 2.1 times the relative ROI of on-premise ones, but businesses must still conduct a thorough analysis to ensure the SaaS tool’s value proposition aligns with their business goals.
12. Managing Vendor Relationships and Support
Establishing and maintaining a strong vendor relationship is crucial for successful SaaS procurement. It’s essential to ensure that the vendor provides reliable and responsive support throughout the implementation and usage of the software.
A study by Gartner found that poor vendor support was the top reason for dissatisfaction among SaaS customers.
Therefore, SaaS buyers should assess the vendor’s support capabilities, response times, and availability of resources such as documentation, knowledge base, or user forums.
13. Dealing with Customization Limitations
SaaS solutions are typically designed to cater to a broad range of customers, which can limit the extent of customization available. While the flexibility of customization varies across vendors and solutions, businesses should assess their specific customization needs and evaluate the available options.
For example, a marketing team might require customized reporting dashboards within their marketing automation tool to track specific metrics.
Ass a SaaS buyer, it’s crucial to ensure that the chosen SaaS tool can accommodate such customization requirements.
14. Addressing Data Migration Challenges
Data migration from existing systems to a new SaaS tool can be a complex and time-consuming process. It’s important to plan and execute the data migration strategy carefully to minimize disruptions and data loss.
For instance, a company transitioning from an on-premise accounting software to a cloud-based SaaS solution needs to ensure a smooth transfer of financial data without compromising its integrity.
Effective data mapping, cleansing, and validation processes should be implemented to ensure a successful migration.
15. Managing Service Level Agreements (SLAs)
Service Level Agreements (SLAs) define the terms and conditions of the service provided by the SaaS vendor, including uptime, response times, and support availability. It’s crucial for businesses to review and negotiate SLAs to align them with their specific needs and expectations.
According to a survey by LogicMonitor, organizations estimate that they lose an average of $300,000 per hour of IT system downtime.
Therefore, AssA buyers should carefully consider the SLAs offered by vendors to ensure that they meet their requirements and mitigate potential risks.
16. Overcoming Existing Integration Complexity
Integrating a new SaaS tool with existing systems and applications can present technical challenges. Businesses often have a diverse ecosystem of software tools, and ensuring seamless integration is crucial for data flow and process automation.
For example, integrating a customer support ticketing system with a CRM platform allows for efficient customer service management.
As a SaaS buyer, you should assess the compatibility and integration capabilities of the SaaS tool, considering factors like API availability, pre-built integrations, and the need for custom development.
17. Managing Subscription Costs and Contract Negotiations
While SaaS tools offer a subscription-based pricing model, managing the costs and negotiating favorable contract terms can be challenging.
SaaS Buyers should carefully evaluate pricing structures, including any additional fees for extra users or premium features. Furthermore, negotiating contract terms, such as contract duration, renewal options, and price lock-ins, can help ensure favorable long-term arrangements.
A report by Flexera found that 76% of organizations spend more on cloud services than they actually need due to improper planning and management.
18. Ensuring Business Continuity and Disaster Recovery
SaaS solutions rely on the vendor’s infrastructure, which means that businesses must consider business continuity and disaster recovery measures. As a SaaS buyer, it’s essential to assess the vendor’s data backup policies, redundancy mechanisms, and disaster recovery plans to ensure that critical business operations can be restored swiftly in the event of a disruption.
According to a survey by the Disaster Recovery Preparedness Council, 73% of organizations worldwide are failing in terms of disaster readiness, highlighting the importance of considering these factors in SaaS procurement.
Choosing the right SaaS tool requires a thorough understanding of own business needs, careful consideration of potential vendors, and strategic planning for long-term use.
While the process may be complex, overcoming these challenges can lead to significant benefits for your business.
For SaaS Buyers:
Sprout24 platform has developed an unique approach to solve these challenges for finance, procurement, software asset managers, CIOs, IT an Security teams at the buyer end. Before starting the hunt for a SaaS vendor, you should analyze the contextual data of SaaS tools and products provided by Sprout24.