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Cutting software costs

Software Cost Optimization: The Four Levers That Deliver Real Savings

Software cost optimization explained: how reclaiming, right-sizing, consolidating and renegotiating reduce spend, which lever to pull first, and how to sustain results.

By the MI Solutions SAM team11 min read4 exhibits

Software is now one of the largest and fastest-growing lines in most IT budgets. Zylo's 2025 SaaS Management Index put average SaaS spend at $4,830 per employee, up 21.9% in a year. Yet a large share of that spend buys nothing: licenses nobody uses, premium tiers nobody needs, and tools that duplicate each other.

Software cost optimization is the discipline of removing that waste without hurting the people who rely on the software. It works through four levers. This article explains each one, how to sequence them, and how to keep the savings once you have them.

The four levers

01Reclaim unused licenses

Remove licenses from people who have not used a product for a set period, typically 90 days. Quickest lever, low risk when users are told in advance. See license reclamation.

02Right-size plans and tiers

Match each persona to the edition it actually needs, cutting cost per user without cutting headcount. See right-sizing.

03Consolidate overlapping tools

Standardize on fewer products for the same job: video, project management, file sharing, diagramming. See application rationalization.

04Renegotiate renewals

Usage evidence, timing and term strategy improve price and flexibility. Often the largest saving, if preparation starts months ahead. See negotiating a renewal.

Each lever behaves differently. Reclaim and right-sizing reduce volume; consolidation removes whole contracts; renegotiation changes price and terms. The levers also reinforce each other: the volume you reclaim before a renewal is the evidence that makes the negotiation work.

Exhibit 1
The lever mix depends on the type of softwareShare of savings by lever, by software category, illustrative first-year programReclaimRight-sizeConsolidateRenegotiateProductivity suites30%40%25%Departmental SaaS35%10%35%20%CRM and ERP30%25%40%Design and engineering45%15%10%30%Data center software10%20%15%55%Illustrative. Data center software is licensed by capacity, so price and terms matter more than idle seats.

Which lever to pull first

Exhibit 2
Start with fast, low-effort levers; prepare the large ones earlyTypical effort and impact of each savings leverQUICK, SMALLERQUICK WINSSLOW, SMALLERPLAN AHEADSavings impact →Speed and ease →Reclaim inactive seatsRemove leaversRight-size tiersConsolidate toolsRenegotiate renewalsCancel unused appsPositions are indicative and vary by vendor and contract.

A practical sequence for most organizations:

  1. Weeks 1–4: reclaim and remove leavers

    Across the top vendors. These savings show up at the next true-up, renewal or monthly bill.

  2. Weeks 4–8: right-size editions

    Start with the largest per-user products, where a tier change affects thousands of seats.

  3. Ongoing: prepare every renewal 90 to 120 days ahead

    Combine the reclaim and right-sizing results with price and term negotiation.

  4. Quarterly: consolidate

    Review overlapping categories and consolidate where the business case is clear.

How big are the savings?

Gartner reported that organizations applying three software license optimization best practices could cut software spending by as much as 30%, with mature, tool-supported organizations averaging 30% in the first year of using SAM tools. Results vary with vendor mix and how long the estate has gone without review. A conservative planning range for a first program is often well below that ceiling, rising as renewals come round.

Exhibit 3
Where SAM savings come from Illustrative waterfall: a $1,000K baseline is reduced by reclaiming unused licenses ($96K), right-sizing tiers ($58K), consolidating tools ($64K) and renegotiating renewals ($42K), to $740K, a 26% saving. Where the savings come from Illustrative estate with $1M in annual software spend, in $K 1,000 −96 −58 −64 −42 740 Baseline Reclaimunused licenses Right-sizeplans and tiers Consolidateoverlapping tools Renegotiaterenewals Optimized Annual saving $260K · 26% Illustrative. Results depend on vendor mix, usage and contract terms.
How the four levers add up in an illustrative estate with $1 million in annual software spend.

Keeping the savings

Savings decay. New hires receive licenses by default, projects end without their tools being cancelled, and teams buy new subscriptions. Without a routine, a typical estate drifts back toward its old level of waste within a year or two.

Exhibit 4
Without governance, waste returns within two yearsIdle licenses as a share of paid seats after a one-off cleanup, illustrative0%10%20%30%StartQ1Q2Q3Q4Q5Q6Q7Q8One-off cleanup 22%Quarterly routine 7%Illustrative. The quarterly routine includes reclaim cycles, renewal reviews and an approval step for newsoftware.

Four routines that protect the gains

How MI One helps

Frequently asked questions

Is software cost optimization the same as cutting tools?

No. Most savings come from paying for what is used and on the right terms, not from removing software people need.

How quickly can we see savings?

Reclaiming inactive seats can affect the next monthly or annual bill. Larger savings arrive with renewals.

Does optimization require a SAM tool?

For a few vendors, spreadsheets can work. Across dozens of vendors and hundreds of renewals, a tool keeps the data current and the routine running.


Sources

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