Do you know why you’re spending as much as you are?
It’s a simple question, but one which many companies can’t answer positively. Often the wild drive to scale up and boost growth rates takes attention away from the day-to-day operations, which can lead to costs skyrocketing without any good reason why.
That’s why you need spend transparency in your operations.
The post will teach you everything you need to know in order to easily track your costs, attribute them to their sources, see the value that you’re getting from your spending, and even predict cost spikes before they happen.
We’ll be covering:
- What is spend transparency in SaaS?
- Why spend transparency is important
- Aspects you need for spend transparency
- Challenges to overcome
- How to increase spend transparency (the easy way)
Let’s get started.
What is spend transparency in SaaS?
Losing track of your costs and spending is always a path to disaster. Whether you’re grabbing extra items at the grocery store or running a cloud-hosted app, it’s vital to stay on top of your spending in order to make sure that you’re getting value for money and that you’re not spending more than you’re earning.
That’s where spend transparency comes in.
Spend transparency is the concept and practice of tracking all of your spending so that you know exactly how much is being spent, and what it’s being spent on. From this you can assess whether the items or services you’ve purchased are worth their price and even get an idea of which items would be more beneficial to drop to save money.
The complex aspect of spend transparency comes with what you apply that practice to.
For example, The Digital Accountability and Transparency Act (DATA) of 2014 was designed to make federal spending more accessible, transparent, and reliable in order to show taxpayers what their money was being used on. This was done to increase oversight on budgeting and to verify and enable data-driven decisions to allow money to be spent on things that matter most to the public and government.
However, we’re interested in what spend transparency means for SaaS companies today.
Spend transparency in SaaS companies is designed to, along with the rest of your finances, show management and investors (existing and potential) that your spending is both necessary and based on solid decision-making. You need to be transparent about where your money is going in order to make sure that nothing is being wasted and that it’s being spent on the best options available which contribute towards the continuing growth of the company.
We’re not suggesting that you make your spending data public. On top of being irrelevant information for the vast majority of your audience, the people who will benefit most from learning your spending records are your competitors - you need to be able to keep an edge by holding some of your cards close to your chest, especially if that includes information on how you’ve achieved the success you’ve had so far.
However, it’s vital to have spend transparency measures in place even if you only use them internally, as this is the only way to be able to easily present what your money is being spent on, and thus be able to judge whether or not that spending should continue.
Why spend transparency is important
Imagine that you’re the CTO of a SaaS company. The product itself doesn’t matter for this example, only that it is cloud-hosted and that you’re using AWS to do so.
You know that you need to be tracking your costs and, thanks to our post on the topic, you know that it’s vital to separate your Cost of Goods Sold (COGS). Doing this will allow you to properly attribute all of your team’s spending to your financial department, who can in turn relay that information to upper management. It’s your duty to report your costs and expenses and to be able to attribute them to their respective sources in order to contextualize how your team is operating and generating value for the company.
This is why spend transparency is vital.
It’s not enough to have a monthly Cost and Usage Report (CUR) from your AWS organization and scramble to bring context to every item. You need to be getting daily reports on your spending in order to have the flexibility to adapt to price hikes and head off sudden surges in spending.
For example, let’s say that you’re using EC2 Spot Instances to take care of some of your workload. These are instances that are heavily discounted compared to paying On-Demand, but will be shut down if demand for those instances becomes high enough that Amazon can charge a higher price. It’s a team-wide policy that these are the instances to use in this situation.
However, someone makes a mistake. Instead of choosing your regular Spot Instance type, they set up one with much higher resource capabilities than usual. This will cost your team far more than usual, and it’s a cost that you’re not prepared or planning for in your budgeting.
With spend transparency measures, you’ll be able to immediately spot this anomaly and be able to immediately take action to correct it. You won’t be blindsided by spending hikes due to mistakes, pricing changes, or even deliberate decisions which weren’t fully planned out.
Spend transparency measures also massively help when it comes to contextualizing and assessing the value of what you’re spending money on.
Sticking with our SaaS AWS example, by combining your spending data with your usage statistics you’ll be able to see what value you’re getting for the money you’re spending, and even attribute specific value to different elements of your spending.
Let’s say that you’re paying for several instances or AWS products that hold a lot of potential, but you can also see that they’re barely being used if at all. This will give you the opportunity to judge whether these services need to be made better use of in order to draw out their value, or if they can be substituted for cheaper alternatives to reduce spending, or if they can be dropped altogether.
None of this is possible without having some spend transparency measures in place.
Aspects you need for spend transparency
Let’s get into the details of how to achieve spend transparency, because it’s certainly no mean feat.
Ideally, you should already be utilizing unit economics to predict your margins and provide insight into your primary business focuses relative to your spending on each unit. Doing this will naturally lead you to have a tighter grip on your financial situation and let you see roughly how profitable your efforts to secure customers are.
This will give you the context that you need in order to assess the financial health of your company, and can even highlight rough areas where you need to cut costs or otherwise improve profitability.
You should also be using some kind of invoice management software in order to keep track of what’s being spent and what those costs are for. This will go a long way to improving your spend transparency, as it will increase the reliability of your reports in attributing costs and expenses accurately.
If you aren’t already and you’re using AWS, try using Aimably’s AWS Invoice Management Software to do just that. We can provide all of the information you need to easily assess and approve invoices without having to guess what each cost involves and whether it’s worth the money.
Once you’ve attributed your costs to their sources and contextualized those costs by comparing them with their relative revenue gained, you can start to see what line items are worth your time and which need more work. This could mean cutting costs by reducing investment in those items, or you may need to figure out how to use them more effectively to increase your margins.
Above all else, your findings need to be presented in a way that makes them easy to share with the rest of your team. This is a key element to being transparent with your spending.
Having a singular dashboard or report where you can easily overview what you’re spending, how much use you’re getting out of your purchases, and thereby justify the former, is the best way to do this. Beyond presenting to others, it will also help you in identifying costs that are too high and predicting the effect of any changes that you make (eg, buying new EC2 instances).
Speaking of which, you need to be able to predict how your spending will change in the near future. This can be due to changes in your circumstances, new business decisions, expansion, or the price of your resources/items/materials changing. By knowing what’s coming you can act before disaster strikes and keep your spending under control.
Challenges to overcome
As we’ve mentioned already, achieving spend transparency is no easy feat. You have to both have access to all of the cost, usage, and value data that’s required to contextualize your spending and have the insight to be able to make connections between those aspects.
This can be especially challenging when your costs are volatile, so one of the biggest problems you’ll face is to regulate your spending to make your output relatively consistent. If your product is pivoting to address a new market there’s little chance that you’ll be able to accurately predict how your financial situation will look in a few months' time. Yet, this is also when you’re most vulnerable to hiking costs and your spending getting out of control in pursuit of future growth. In other words, you need to be tracking and contextualizing your spending even if you can’t predict what any changes to your spending will bring beyond the costs themselves.
Another issue is your team’s efficiency.
Once your spend transparency guidelines and system are set up, there should be next to no interference with your team’s regular operations. However, setting everything up will take time, and will thus take attention away from other tasks while it’s done.
Remember, all of your costs need to be recorded, attributed, and contextualized in order to be fully transparent with your spending. Unless you’ve had experience with such a system before it will take time to learn the ropes and set up a system that works for your team without bloating your task list.
The last main problem with spend transparency is that of accountability. Everyone in your team needs to know what they’re responsible for recording, how to do so, and who they’re recording it for. If you have an employee dedicated to managing your spending and verifying the worth of your costs against the value they generate, they need to have access to all of the data sources that they might need to draw from (if they don’t already).
However, once set up, you’ll have a system that runs like clockwork. There are even many tools that can drastically reduce the workload involved with spend transparency!
How to increase spend transparency (the easy way)
The best way to easily increase your spend transparency is to use software that gathers your costs, attributes them, and from that data allows you to predict your future costs too.
That’s exactly what our AWS Spend Transparency Software does.
With it, you can easily compare all of the cost and usage data from your CURs without having to analyze a single thing yourself. No more trawling through cost logs to see what’s being spent on which AWS resources. Our software gathers all of it into one place so that you can easily see exactly where your money is going.
We’ll even send you a warning when your cost spikes to prevent any nasty surprises come the end of the month. You’ll know exactly what’s being spent on a day-to-day basis with our Daily Spend Tracking, see projections of future costs in the same dashboard as your current CUR data, and even have access to detailed time-series analysis of every individual charge.
What are you waiting for? Get started with our AWS Spend Transparency Software today!