Managing Business Software Costs: A Guide to Tracking and Managing Company Software Spend

Welcome to this guide on managing business software costs. Whether it’s agile project management software, customer relationship management (CRM) software, team collaboration, time tracking, accounting systems, marketing automation, or Enterprise Resource Management (ERP) software, businesses rely on a wide range of software applications to streamline operations and boost productivity.

But with the increasing number of software options available in the market, managing software costs has become a significant challenge for companies. The cost of software licences, maintenance, and upgrades can quickly add up, impacting the overall budget and profitability of a business.

In this guide, we will explore the best practices for tracking and managing company software spend. From assessing current software inventory to optimising licences and contracts, we will provide you with actionable steps to gain control over software expenses and improve cost efficiency.

Why is software cost management important?

Managing software costs goes beyond just keeping track of your expenses. It involves assessing your current software inventory, tracking software expenses effectively, analysing software usage and return on investment (ROI), optimising licences and contracts, implementing cost-saving measures, ensuring compliance and security, and creating a software cost management strategy. 

Let’s take a closer look at why each of these aspects is important:

1. Cost control: Software cost management allows you to gain better control over your financial resources by eliminating unnecessary spending on redundant software licences.
2. Budget management: By understanding your software expenditure, you can allocate budgetary resources more effectively, ensuring that you invest in the software that brings the most value to your company.
3. Cost reduction: Proper software cost management helps identify opportunities for cost reduction by renegotiating contracts, downsizing licences, exploring open-source alternatives, or transitioning to an all-in-one business management software solution, like NetSuite.
4. Improved decision-making: With a comprehensive overview of your software expenses and utilisation, you can make data-driven decisions about which software to keep, upgrade, or discontinue, based on their impact on your business processes.

Overall, effective software cost management is essential for maintaining financial stability, optimising digital resources and aligning software investments with business objectives.

In the next section, we will explore how to assess your current software inventory, which is the first step towards effective software cost management.

The Shelfware Epidemic

Shelfware is a term used in the information technology industry to describe software or hardware that is purchased but never used, or underused. It’s as if the purchased product just sits on the shelf, hence the name.

Shelfware represents a waste of resources and is a common issue for many businesses, large and small. Companies often purchase software with the best intentions, expecting it to help improve their operations or productivity. However, they may not have the resources or training in place to effectively implement and use the software, leading to it becoming shelfware. In fact, a 2021 study by Gartner concluded that on average, 25% of all software costs are going towards unused licences, and up to 45% can be considered “effectively unutilised or unnecessary”.

There are several common reasons why software becomes shelfware:

1. Lack of Training: Employees may not be adequately trained on how to use the software. This can result in the software being neglected or underused.
2. Complexity of Software: If the software is too complex or unintuitive, users may become frustrated and stop using it.
3. Poor Implementation: Without a proper implementation strategy, the software may never be fully integrated into a company’s operations.
4. Misjudged Needs: Companies might buy software believing it will meet their needs, only to find out later that it doesn’t align with their operational requirements or business goals.

To avoid the issue of shelfware, it’s crucial for businesses to thoroughly research and test software before purchasing. They should also ensure they have a solid implementation plan in place, and that employees receive the necessary training to effectively use the software. Moreover, purchasing decisions should always be driven by actual business needs rather than trends or aggressive sales pitches.

Assessing Current Software Inventory

Before you can effectively manage your company’s software costs, it’s crucial to have a clear understanding of your current software inventory. This involves identifying and categorising the existing software within your organisation and determining which software is actively being used and which are not being used. 

Identifying and Categorising Existing Software

Start by creating a comprehensive list of all the software applications used across your organisation. This includes both commercial software and custom-built applications. Begin to categorise the software based on its purpose or functionality. 

Some common business management tools include: 

• Customer Management Software
• Project Management Tools
• Time Management
• Task Management Tools
• Finance Management 
• Collaboration Tools
• Artificial Intelligence Tools
• Email Marketing
• Instant Messaging
• Digital Collaboration Tools
• Marketing Hub
• File Storage
• Sales Automation Tools
• Business Management Tools
• Enterprise Management Software (Cloud ERP)

Based on this information, prioritise the software applications that are actively used and make note of the ones that are rarely or never used. Having a clear understanding of your software inventory allows you to make informed decisions about optimising your software costs. It helps you identify opportunities for cost savings, such as eliminating unused or redundant software licences, negotiating better pricing with vendors, and reallocating resources to a more unified platform, like NetSuite’s all-in-one solution.

Tracking Software Expenses

Tracking software expenses is a crucial step in managing your company’s software costs. By keeping a close eye on the money you spend on software, you can identify areas of opportunity to reduce unnecessary software costs, and ensure that you are getting the most value out of your software investments. In this section, we will explore some effective ways to track your software expenses.

Establishing a Centralised Tracking System

A centralised tracking system allows you to have a customisable view of all your software expenses in one place. This can be a spreadsheet or a dedicated software asset management (SAM) tool, which generally offers additional features like custom workflows, customisable views, collaboration features, custom fields. Here are some key steps to follow when setting up a tracking system:

1. Create a list: Start by listing all the software applications that your company uses. Include details such as the vendor, version, number of licences, differences between basic plans and professional plans and custom pricing options.
2. Record all expenses: Keep track of the costs associated with each software application, including purchase costs, annual maintenance fees, and any additional charges for upgrades or support. Is the cost of a user per month billed annually, or monthly. Are their opportunities for discounts if you move to an annual plan?
3. Track renewals: Monitor licence renewals to ensure that you are not overspending on licences that you no longer need. Consider setting up reminders or automated notifications for renewal dates.

Include important details for each software application such as the version number, licence type, renewal dates, pricing plans including cost per month per user, cost of an additional user per month, upgrade benefits eg. a premium plan vs a regular business plan offers advanced features, unlimited users or unlimited projects, and vendor information. This will help you keep track of the software and its associated costs

Analysing Software Usage and ROI

Analysing software usage and return on investment (ROI) is crucial in effectively managing your company’s software costs. By understanding how software is being used and the value it brings to your organisation, you can make informed decisions about optimising your software spend. Here, we’ll explore the key steps involved in analysing software usage and ROI.

Evaluating Software Utilisation

When collecting usage data, it’s important to evaluate the needs of your end user for each software application, and understand whether this functionality is available in other systems you may be using. An example of this might be that team members are using siloed tools like Google Tasks and Google Drive in the Google Workspace, when a more powerful project management software, like NetSuite is available with specialised project management features for time tracking, managing everyday tasks, storing project files, managing individual tasks, email tracking, milestone tracking and customisable project views.

This evaluation can help you identify which applications are frequently used and the key features that the software offers, and which are under-utilised, and may no longer be necessary. 

Here are some considerations when evaluating software utilisation:

• Frequency of use: Determine how often each software application is being used. Identify any applications that are rarely accessed or have low usage rates.
• User feedback: Gather feedback from employees, (including remote teams, who generally rely more heavily on collaboration solutions like team chat, and file sharing) on the effectiveness and usefulness of different apps. This qualitative data can provide insights into the value and impact of these tools on different roles and departments.
• Functionality overlap: Look for instances where multiple software applications have overlapping functionality. Consolidating these disparate systems into a more comprehensive suite. Consider implementing a software licence request form to track employee software costs and usage.

Optimising Software Licences and Contracts

When it comes to managing and reducing software costs, optimising software licences and contracts is a crucial step. By taking a strategic approach to licence management, businesses can not only save money but also ensure they have the right software in place to meet their needs. Here are some practical tips to help you optimise your software licences and contracts:

Negotiating with Vendors

When negotiating software licences, don’t be afraid to explore different options and negotiate the best terms and pricing that suit your business’ needs. Vendors are often open to negotiation, especially if you have a long-term partnership or can demonstrate the potential for increased usage or additional business opportunities. Consider area’s of pricing that you could benefit from being unrestricted, or usage based, such as unlimited projects, unlimited task creation, unlimited form submissions.  

Downsizing or Consolidating Licences

Conduct a thorough analysis of your software usage to identify any licences that are redundant. Consider downsizing or consolidating licences to a more intuitive platform or complete suite or solution, like NetSuite’s cloud solution. By streamlining your software inventory, you can reduce costs and simplify licence management.

Conclusion

Managing business software costs is crucial for the financial health and success of any organisation. By implementing effective strategies for tracking and managing software spend, businesses can streamline their software usage, reduce unnecessary expenses, and ensure compliance with licensing regulations.

Here are some key takeaways to keep in mind:

Assess your current software inventory: Take stock of all the software applications being used in your organisation and categorise them based on their importance and usefulness. Identify any unused software that can be eliminated to save costs.

Establish a centralised tracking system: Implement a system to track software expenses, including licence renewals and upgrades. This will help you stay on top of your software costs and avoid unnecessary expenditures.

Analyse software usage and ROI: Collect usage data to evaluate how software is being utilised within your business. This will help you identify opportunities for cost minimisation and calculate the return on investment for each software application.

Optimise software licences and contracts: Negotiate with vendors to get the best deals and consider downsizing or consolidating licences

By following these guidelines, businesses can effectively manage their software costs and optimise their software usage, resulting in significant cost savings and improved financial performance. Remember, software cost management is an ongoing process that requires regular monitoring and adjustment to ensure long-term success. So start implementing these strategies today and take control of your company’s software expenses.

Frequently Asked Questions