Mastering SaaS Spending: How to stay lean and maximize ROI
Diario del capitán, fecha estelar d178.y41/AB
Diario del capitán, fecha estelar d178.y41/AB
As a bootstrapped company, we have to be very conscious of our annual spend. Most of what we spend in as a company is salaries, but we also dedicate part of our budget to SaaS.
In this blog post, I will explain how we keep our costs under control.
Bootstrapped companies like us (read: self-financed) have to be more cautious with our spending on SaaS (Software as a Service) compared to VC-backed startups because we typically rely on limited, self-generated revenue rather than external funding. At MarsBased, we have never taken any external funding. Every penny we spend, we have had to work hard for it.
Without the cushion of venture capital, bootstrapped companies need to carefully manage cash flow to ensure sustainability and growth. Every dollar spent on SaaS tools impacts our bottom line directly, so we must prioritize cost-effective solutions that provide immediate value.
Moreover, every extra dollar we spend that we shouldn't have is a dollar less in our pockets at the end of the year. It goest against our dividends.
In contrast, VC-backed startups often have more flexibility to experiment with various SaaS products since they have the financial runway to absorb higher expenses and invest in future scalability. This dynamic forces bootstrapped companies to be more selective, negotiating better deals and ensuring a clear ROI for every software investment.
Put simply: if you raise 5 million in a round, you have to deploy them to ensure either that the next round is at a significantly higher valuation (so your investors will want to re-invest in you) or to reach profitability. The latter might go against the incentives of most VCs, one can argue, but this is a topic for another blog post.
Jordi, our COO, compiles an annual report with the financials of the company. Part of that report is our expenses categorised by salaries, services, providers, and everything we pay for.
Let's focus on SaaS in this blog post. I might mention certain softwares that are not exactly SaaS, but I'll lump them together for the sake of simplicity.
This is the breakdown of our SaaS spend for 2023:
Now, let's dive into the process we follow every year. Buckle up!
We take this list and carefully review each piece of software, irrespective of its status.
Nothing is sacred. Things change over time. What was essential five or eight years ago might not be as important nowadays.
We, as humans, tend to accumulate belongings because of emotional value, which end up cluttering our wardrobes. Same happens with software and digital services. "Oh, we can't get rid of Notion. We have the documentation of the first projects of the company there. It's just a few bucks every year, so we'll keep it".
In fact, I'll write further about this later on, but we got rid of Basecamp, which was our first software and the main reason why MarsBased exists as a company.
Some softwares are essential to what we do and it'll be difficult to replace them. Nowadays, I can't see us moving off the Google suite, for instance. Our email and calendars run there, and we store all of our stuff on Google Drive. Also, I don't think we're replacing 1password anytime soon, but who knows what we will use in five years from now to manage our security.
We have never had to cut down expenses because we didn't have money in the bank, but if you're really short on money, stick only to the core software you need and make do with them. Away with the rest.
Some SaaS charge you per seat. For instance, Slack or Github do. Forgetting to deactivate old users will result in hundreds or thousands of dollars per year in useless avoidable spend.
Don't forget to review whether that freelancer is still using this service, or to remove former employees (for security reasons too!).
Equally important is to discern whether you need to implement this tool for the whole company right off the bat or whether you want to leave it as an opt-in. You might save thousands of dollars per year, choosing the latter.
For instance, about a year ago, we decided to give all of our team a Raycast subscription so they could use AI in their day to day work. Later on, we found that we were paying for about 20 licences but only a fraction of those were being actively used. In this case, we failed to see that this was a clear opt-in instead of an opt-out, and we squandered a few hundred dollars.
One of the tricks of SaaS is that most come with a subscription. What you gain in convenience you lose in financial optimisation.
They'll say that they give you a 30% discount if you pay for the annual subscription for your convenience, but it's their convenience you pay for. We know that SaaS lives on heavy margins, as their costs are spread out across thousands of customers. Therefore, a couple of considerations here.
First off, pause subscriptions of things you don't use right now. For instance, we used to pay for Parallels when we had to deal with Windows-based projects. Luckily, that happens seldom at MarsBased, so we pause and resume this license to our convenience.
Normally, we do this for project-specific tools/licenses. It's a bit of overhead to save some bucks. Five minutes of admin tasks to save hundreds, if not thousands, of dollars at the end of the year. Well worth it.
Second, the annual discount is actually helpful in some cases. We gladly pay for the annual option for company-wide software that will be used by many people, provided we have been using it for a good while.
For instance, the aforementioned 1password or Slack, two SaaS that have been with us for years. We pay the annual tiers to save a significant amount of money per year.
As companies grow, they tend to accumulate more software solutions than they need. As teams grow, they will have different needs and might not be aware of everyone else's tools, especially if they're siloed.
A tool you initially used only for technical documentation, you start using it for meeting minutes tracking for one project, despite the fact that there's a tool for that. Eventually, you will have many software solutions overlapping with one another.
Let me circle back to the Basecamp vs. Linear situation I mentioned above.
We founded the company on Basecamp, which was our single source of truth for many many years. From 2014 to 2021, all of the company important information was there: discussions, technical documentation, project management, hiring processes, sales proposals, important documents and more.
In 2021, we adopted Linear for project management at MarsBased. Linear had taken the software development world by storm, providing us with a gorgeous tool to keep track of tasks within projects.
As Linear progressed, it added more functionalities: discussions, planning, project templates, integrations and more. Suddenly, and organically, we started creating more Linear projects to track stuff better. The board view seemed better for things like hiring or sales processes, so we started moving things there from Basecamp.
This caused, more often than not, the internal debate of "where does this conversation belong? Linear or Basecamp?". Having reached that point, we knew that they were overlapping, so we closed Basecamp with a heavy heart, and moved pretty much everything else to Linear.
Another example: because Linear didn't have a documentation module, we used Craft for a good couple of years. Craft is a beautiful piece of software that has been undergoing too many changes, as it's still in its early stages, so it hasn't been the most stable nor performant software we used. That, and an excessive pricing for their capabilities, made us rethink the situation: why weren't we using Google Docs?
Google Docs had been subpar for many years when it comes to creating beautiful documents, but in the last two years it added AI capabilities, more collaboration, tasks, reminders and some nice improvements to how do the documents look and feel. We lost a bit on the beauty of the documents, but we saved over $2500 per year.
To sum up, we prefer fewer SaaS's with more responsibilities, which is a more loyal approach to our company culture pillar simpler is better.
I am not a numbers guy, but off the top of my head, we replaced a lot of SaaS in the last 12-18 months. Here's a non-comprehensive list of them and the reason why we moved off them:
I'm sure I'm forgetting a few more. Those, and optimising costs in AWS and other cloud providers, helped us to save a few thousand dollars per year, which will be better spent in company retreats or better swag for our team, or to pay team bonuses.
All in all, a good exercise in frugality and a reminder that small leaks can cause big losses if they go unnoticed for too long.
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