The best CFOs use a simple test for checking whether a SaaS subscription is snake oil or a real remedy. They use their authority and ask the business owner to cancel the subscription. If the doom and gloom is convincingly argued, the cost of this subscription cannot be avoided. But if the business owner stumbles while trying to provide a reasonable justification for the subscription, the CFO has just identified a cost optimization opportunity.
At Cleanshelf we call this a “cancellation test”.
There’s no need to perform a “cancellation test” on each of the 100 SaaS subscriptions that a typical 200 person high-growth company uses. To capture most of the cost optimization opportunity, it’s sufficient to consider just the 20 most expensive subscriptions that constitute 80% of total SaaS costs.
Half of the 20 most expensive subscriptions will really turn up to be indispensable. But among the other half there will be 5 or 6 that can be cancelled or scaled down without much disruption to the process or the team.
Doing so, a 200 person high-growth company can realize $100,000 in annual savings.
Not bad for a day’s worth of your time, isn’t it?
Why do companies get hooked on non-essential services in the first place?
You might wonder why companies get hooked on non-essential services in the first place.
The answer is simple. Psychology.
Let’s look at your CMO. He has this grand vision of marketing automation. Where every marketing campaign has clear ROAS and marketing dollars are allocated based on data instead of intuition.
A clever SaaS salesperson takes advantage of CMO’s automation ambition and sells him an expensive campaign attribution service. Now every customer interaction is stored somewhere. The sad truth is that it has no effect on revenue growth without proper integration with CRM and hiring an additional data analyst.
And this might be your CTO. She has this urge for a complete control. Where every datum is stored for potential future analysis and every outcome can be traced back to its origins.
A clever SaaS salesperson takes advantage of CTO’s OCD and sells her application performance monitoring service. Now every aspect of the application is instrumented and huge amount of data is collected. But without adequate training of engineers, the company is spending $60,000 per year to collect and store data that nobody knows how to use.
SaaS vendors have a long list of psychological tricks up their sleeves. Fighting them is David vs. Goliath type of a battle. They’re selling their products every day, while you’re shopping for new tools and solutions just a few times per year.
Applying “cancellation test” on your 20 most expensive subscriptions is a great way to fight back SaaS salespeople’s psychological tricks and save yourself tens of thousands of dollars in cost of non-essential services.