Smart Spending: Cost Optimization Strategies for SaaS via Cloud Marketplaces

“More than a quarter of respondents spend over $12M per year on cloud (29%), and nearly a quarter (22%) spend that much on SaaS.”[1]

These figures highlight the growing role of Software as a Service (short SaaS) in organizational IT budgets. Cloud provider marketplaces - offered by platforms like Amazon Web Services, Microsoft Azure, and Google Cloud - present a practical way for organizations to acquire and manage software applications. By providing a centralized selection of pre-vetted, secure SaaS solutions that integrate with existing cloud infrastructures, these marketplaces help simplify processes such as billing consolidation. For organizations looking to enhance cost efficiency and streamline procurement, these platforms offer a straightforward approach to adopting the necessary SaaS tools.

This blog post outlines practical strategies for optimizing SaaS costs through cloud provider marketplaces, incorporating the dedicated FinOps framework capability “Licensing & SaaS”. By leveraging FinOps practices tailored specifically to SaaS, your organization can make more informed decisions that maximize the value of your cloud spend.

Benefits of using cloud marketplaces for SaaS

When purchasing SaaS through a cloud marketplace, organizations can unlock several advantages that streamline procurement and optimize costs. Here’s how:

Simplified Billing – Instead of managing multiple vendor contracts and invoices, cloud marketplaces consolidate all SaaS subscriptions into a single, predictable bill. This not only reduces administrative overhead but also makes cost tracking and forecasting easier. Vendors will not be needed to register with your organization through long-lasting procurement processes because they charge via the cloud provider.

(AI generated)

Easier Integration – Many SaaS solutions available through marketplaces are pre-configured to work seamlessly with the specific cloud environment. This reduces deployment time, minimizes compatibility issues, and ensures smoother workflows.For example, network solutions can include their required instances in their offering, so that after the purchase the product can be set up and deployed instantly.

Leverage Existing Purchasing Agreements – Organizations can use their existing cloud spend commitments (like AWS Enterprise Discount Program, Azure Commitments, or Google Cloud Commitments) to purchase SaaS, maximizing discounts and reducing procurement friction. In most cloud marketplaces the spend counts proportionally towards your commitment but is not discounted.

To fully realize these benefits using the cloud marketplace, organizations need to understand the pricing structure of SaaS as well as their own requirements when it comes to the purchase.

SaaS Pricing Models and Hidden Costs

SaaS pricing models generally fall into two main categories: subscription-based and usage-based.

• In a subscription-based model, customers pay a fixed recurring fee—typically monthly or annually—to access a predetermined set of features and services. This approach offers predictable budgeting and simplifies budget planning, although it might result in paying for more capacity than needed if actual usage is lower than anticipated.

• A usage-based model, also referred to as pay-as-you-go, charges organizations according to their actual consumption of services. This provides greater flexibility, especially for organizations with variable usage patterns, but it can lead to unexpected cost spikes during periods of high demand.

SaaS solutions can also incur hidden costs that impact both usage-based and subscription-based pricing models.

• In usage-based models, sudden spikes in activity can drive up expenses quickly, as charges directly reflect the amount of service consumed.

  
  

• Subscription-based models typically come with predefined usage limits, and exceeding these limits may trigger overage fees or force an upgrade to a more expensive plan.

  
  

• Both pricing structures can lead to unforeseen costs related to integrating SaaS applications with existing systems—whether due to custom development requirements or the need for specialized third-party tools.

  
  

• As the organization scales and adopts multiple SaaS solutions, managing licensing and ensuring smooth integration across platforms can further contribute to rising costs.

Optimization Strategies and Best Practices

1. Transparency

Before you can effectively optimize costs when purchasing SaaS through a cloud marketplace, you need clear visibility into your current usage patterns and demand. Without understanding what you are using, how frequently, and where waste occurs, cost-cutting efforts risk being misdirected or ineffective. A data-driven approach to usage patterns provides the foundation for identifying inefficiencies, eliminating unused licenses, and negotiating better terms with vendors.Gaining transparency into your usage is the first step to cost optimization. Utilize marketplace dashboards, cloud cost management tools, or third-party solutions to monitor usage patterns, identify underutilized services, and analyze spending trends.

SaaS Reporting: Monthly Trends by SKU

(FinOps Foundation 2024, https://www.youtube.com/watch?v=iIwpcQbBkmM)

This granular visibility allows for accurate allocation of costs based on actual usage. With visibility into their direct SaaS costs, organization units become more accountable for their consumption. This encourages cost-conscious behavior, such as reducing unused licenses or switching to more cost-efficient SaaS plans.

For more information, check out this video: YouTube

2. Usage optimization

First of all, all licenses which are not allocated can be eliminated. Furthermore, many SaaS vendors offer both bundled (license-based) and pay-per-use (usage-based) pricing models for the same product. As an example, Datadog or Splunk Cloud have offers for both. This flexibility allows you to choose the pricing structure that best fits your operational requirements—whether you prefer the predictable costs of a bundled model or the scalability of a pay-per-use approach.

3. Rate optimization

After carefully analyzing your organization’s usage trends and needs, you can negotiate contracts that leverage volume discounts. For example, if your SaaS consumption is predictable or expected to grow, negotiating multi-year contracts may lock in favorable rates and provide long-term cost stability.

Use Case: Private Marketplace

While public marketplaces offer a broad selection of products and ease of use, they can become complex and hard to overlook. Users can buy marketplace products without any governance and considering consequences. After struggling with the public marketplaces and its governance, we opted for more control and transparency.

Definition: “A private marketplace controls which products users in your cloud environment, such as business users and engineering teams, can procure from the public marketplace. It is built on top of the public marketplace, and enables your administrators to create and customize curated digital catalogs of approved independent software vendors (ISVs) and products that conform to their in-house policies. Users in your cloud environment can find, buy, and deploy approved products from your private marketplace, and ensure that all available products comply with your organization’s policies and standards.”

By leveraging a private marketplace, we gained control over SaaS procurement while ensuring efficiency, compliance, and governance. Here’s how:

Company-Branded Experience – The private marketplace provides a curated catalog of pre-approved SaaS solutions. Employees interact with a company-branded interface, ensuring a seamless and tailored procurement experience.

Governance & Control – Instead of employees purchasing SaaS independently, our private marketplace centralizes governance, ensuring that all subscribed or approved products meet security, compliance, and budgetary requirements. This reduces shadow IT and unexpected costs. This also ensures that marketplace offers will not be bought without approval.

Streamlined Approval Process – Previously cloud marketplace offers could be bought independently, now only approved products are available. Employees can still discover all marketplace products and request approval. This ensures that every SaaS purchase aligns with policies, eliminating unauthorized spending and optimizing budget allocation.

Procurement Alignment – With a private marketplace, we integrated SaaS purchases into our existing procurement workflows. Instead of ad-hoc purchases, procurement teams can efficiently review, approve, and track all subscriptions, ensuring cost control and compliance.

By using a private marketplace (AWS, Azure or GCP), our company enhances operational efficiency and enforces governance without minimizing user experience.

 

Food for thought

-        Multi-cloud impact on SaaS management

Managing SaaS solutions across multiple cloud providers brings both complexity and opportunity. On one hand, it introduces significant challenges in operations and cost management. Different clouds come with unique pricing models, billing structures, and discount programs, making it difficult to track and optimize spending consistently.However, a multi-cloud approach offers distinct advantages that can outweigh these challenges when managed effectively. The most significant benefit is avoiding vendor lock-in, giving organizations the freedom to shift workloads or negotiate better terms without being tied to a single provider. It also allows organizations to adopt a best-of-breed strategy, selecting the most suitable SaaS solutions from different providers based on their strengths.

-        Impact of AI-driven cost optimization

By leveraging machine learning algorithms and predictive analytics, AI can analyze vast amounts of usage data in real time, identifying patterns and anomalies that might be missed through manual monitoring. This enables more precise forecasting of SaaS consumption, helping organizations adjust their subscriptions proactively to avoid over-provisioning or unexpected cost spikes. Additionally, AI can recommend optimal pricing models based on usage trends, automatically suggest cost-saving opportunities, and even trigger automated actions, such as scaling down unused licenses. As AI technologies continue to evolve, they have the potential to transform SaaS cost management from a reactive process into a dynamic, data-driven strategy.

Conclusion

Maintaining cost efficiency in the evolving landscape of SaaS investments requires a proactive, ongoing approach. The following steps are recommended:

1. Establish a robust cost governance framework that continuously monitors SaaS usage and spending, with automated alerts set up to flag when thresholds are exceeded.

2. Regular audits can help identify redundant or underutilized services, ensuring you’re not paying for resources you don’t need.

3. Fostering cross-departmental collaboration and providing training on cost awareness can help align teams on best practices for efficient SaaS consumption.

4. Revisit and renegotiate contracts based on current usage trends to ensure your organization remains agile and financially optimized, consistently creating the maximum business value from your SaaS spend.

By following this approach, the value of the SaaS investment can be maximized according to the FinOps principles.

[1] Flexera State of the Cloud Survey 2024