6 Reasons You Might Be Overpaying for Software (And How to Pay Less)

Wondering if you’re overpaying your software and service vendors? Read this guide to learn how you can identify excessive vendor spend.

For small businesses — especially those in their early stages of growth — margins can be slim. Often, the difference between operating in the black and the red is separated by a razor’s edge. When that’s the case, every penny counts.

When resources are limited, software plays a critical part in ensuring your business is running optimally. From HR systems that help you manage payroll to marketing automation software that helps you reach new audiences, the software is the growth vehicle for any small business. But according to Everest Group, businesses are overpaying their software and service vendors by up to 10% on an annual basis.

Without dedicated resources to establish a vendor management strategy, it’s easy to see why founders and finance teams are often left scrambling as they try to track spend across all dozens of vendors. Mismanaging vendor spend can have dire consequences — shrinking profit margins, a decrease in employee productivity, and a forfeited competitive advantage.

For businesses looking to get a grip on their software and services spend, here are 6 ways you may be overpaying your vendors without realizing it:

1. Duplicative spend
2. Decentralized procurement
3. Lack of data and success metrics
4. Failure to regularly review contracts
5. Trusting vendor data
6. Not investing resources into vendor management

#1 Duplicative spend

When budgets are tight, the last thing you want to be doing is paying the same vendor twice or paying for two services that perform the same task.

When it comes to invoicing, duplicate payments are a much larger concern than you might think. According to CFO Daily News, “The typical small or midsize business (SMB) processes 450 invoices a month and has a 1.29% duplication rate…SMBs are looking at about $12,000 lost per month if each duplicate invoice is paid. And the larger the company, the larger the loss.”

One common reason for duplicative spend is that vendors often send invoices across multiple payment channels. To prevent this, your head of purchasing should work with vendors to narrow down just a single method for invoice submissions as well as payment.

#2 Decentralized procurement

With so many SaaS vendors out there, it’s common for businesses to find themselves using multiple tools with overlapping capabilities. Project management software is a common example — your sales team might use Airtable to track the sales pipeline while your marketing team might use Asana to manage content production timelines.

As companies grow and business units become more siloed, it’s easy to see how decentralized procurement can cost you. To prevent this, small businesses should create a centralized yet streamlined approval process for choosing new software vendors.

#3 Lack of data and success metrics

When procurement and vendor management are done without measurement, it’s easy for costs to creep higher. It’s important to have a detailed view of how much you’re paying each vendor along with license utilization and business justification for each vendor relationship.

As Harvard Business Review notes: “Determine what success looks like upfront and hold vendors to that. Whether it’s new widgets or new customers signed, agree on the metrics from the start and resist the urge to make this a moving target.”

Sometimes the return on investment isn’t always apparent; sometimes, it’s intangible. Setting expectations and benchmarks early on makes it easier to measure success and gauge whether the vendor is providing fair value.

#4 Failure to regularly review contracts

Over time, the value a vendor provides you can change substantially. That can be because of new entrants to the market that provide better services at a lower price or simply evolving business objectives.

It’s important to regularly review and renegotiate contracts and align them to the current focus of your business. By taking the time to review your vendor subscriptions and explore alternative offerings, you get a more up-to-date view of the value each contract provides. Then you can decide to renegotiate with existing vendors or choose something else that fits your current business need at a price that works for you.

Perform annual price comparisons and be willing to haggle if the numbers aren’t favorable to the business. Loyalty involves affording your vendor the opportunity to match prices, not overpaying for the same services.

#5 Trusting the Quality of Vendor Data

Many businesses place too much trust in pricing data provided to them by vendors. Vendors aren’t required to tell you when you’re overpaying for services you don’t use and often lack the appropriate data to even surface these insights. And that’s not their job, it’s yours.

You should maintain your own accurate and sanitized view of pricing and utilization data to empower your team to make better decisions about vendors. Through careful analysis, you can identify what services you’re overpaying for.

Encourage your procurement team to create a set of vendor management best practices and review them on a monthly or quarterly basis.

#6 Not investing resources into vendor management

Hiring and dedicating resources to help you manage procurement offers you and your business numerous benefits. For founders, delegation can take the stress off cost-reduction off your plate and free up time for more strategic growth activities. For your company, dedicating resources to vendor oversight allows for specialization in costly vendor relationships that need the most attention.

According to Berlin Pacific, a key strategy is to put someone you trust in control of constantly evaluating your vendor relationships and let them help you execute on key decisions. researching vendor relationships, and then executing your decisions.

Through proper delegation, you can facilitate the entire vendor procurement and management process. This streamlines workflows and makes it easier to approve proposals regarding current and potential vendors.

What to Do if You Are Overpaying a Vendor

Let’s say you’ve determined that you are overpaying a vendor. What then?

First, you’ll need to understand the type of overpayment. If you’ve been double charged, you will need to contact the vendor and reconcile invoices. If you’re paying for services you don’t use or are redundant, you may need to negotiate with the vendor or cancel the contract.

Even after removing duplicative spend, it’s important to stay ahead of the next bill and monitor the change in price to ensure you’re no longer being charged. One way to do this is with an automated vendor management solution that helps you track payments, measure ROI, analyze contracts, and identify wasteful spend. With the right tool in place you can:

• Have full control over your software stack
• Create visibility on how each vendor benefits your enterprise
• Modify vendors and contracts using real-time data on spending and service licenses
• Maintain financial and legal compliance for your cloud-based services
• Scale and streamline vendors in accordance with your business growth

Ramp — Built-In Vendor Management

To ensure you’re not overpaying your vendors, Ramp can help.

Ramp is the only corporate card that comes packaged with vendor management software to give you oversight into vendor spend from a single dashboard.

Nick Greenfield, CEO at Candid had this to say, “Ramp found over $250,000 in savings right out of the gate. That, plus Ramp’s cashback is far more valuable than any points program.”

With Ramp’s automated accounting, expense management platform, and vendor management system you can:

• Plan your spend and predict recurring expenses
• Streamline procurement to eliminate wasted SaaS spend or duplicated subscriptions
• Save over $175,000 in exclusive deals and discounts via partner deals

Not to mention, Ramp offers unlimited flat cashback of 1.5% on all purchases.

Want to see for yourself? Sign up for Ramp today.