Mike Austin explains how to cut software and cloud costs during downturns. Keep a master list of all contracts and renewal dates, then work vendors months or years ahead on big deals. Track what you actually save versus what you planned, and use data to negotiate harder.
Chapters
One of the key things, and we saw this again I'm going to say talk about 2020 and I saw it in 2008 on the other side is that a lot of companies really didn't have a true handle on what, what I'm going to refer to as budget here, right? And the companies that do the best in a crisis are the ones that manage to the pain. So in 2020, the companies that knew their numbers, knew when all the renewals were up, had all the data, had it all in kind of like a master file or spreadsheet or you know, some sort of centralized system, those are the ones that did the best because they managed through the pain. But it was done with people. It wasn't an individual, it was done with people, teams of people. They had a strategic plan, they had their goals, they had stakeholders that owned those goals. They had prioritization of their expectations. So they knew what their gives and gets were. They knew what things had the biggest impact and the lowest impact on what they were trying to do. They understood their annual budget, what was renewal, what was net new, what was needed for operations, capital versus opex, and where they could move those things, what was necessary. They also understood that sometimes maybe they had to make trade offs, right? So could they consolidate a vendor? So for instance, if you had a security product that's coming up for renewal and you own something from say somebody like Microsoft that you're not using, can you just get away with using that to consolidate? But the big thing is they developed KPIs, key metrics that they were tracking. So they set goals and they measured against those and they monitored those and they talked about them frequently. You know, timely and accurate monthly reporting on the finances and on the KPIs. And so from the finances it was like, how are we doing against our budgets? How are we doing against our goals of savings or objectives to cut costs? How are we doing in our renewals? Where do those things sit? You know, all of that sort of thing. And so, you know, one of the keys to building that sort of budget is to build a plan for reduction. And you're going to do that by determining all your renewal dates. And so you might want to, you know, look at your biggest ones and your smallest ones and understand, you know, when are the renewals and start working on these things. You know, a lot of the times, you know, the big contracts like Microsoft renewals and things like that, most organizations plan to work on those, you know, large organizations are working on six and 12 months out. You May need to be working on those 24 months out and looking to see what you can do in cycle now. But they will leave a lot of the smaller sort of one off renewals and maybe just do those in month. And you want to be planning those for three to six months in advance, even those smaller ones, because you're going to have to go and get data if you're going to try and cut costs on those things and things like that. You want to make sure that you understand what your monthly, what your monthly fixed costs are on your cloud contract. So what are you spending on ews, what are you spending on Azure? And the one thing here is I put monthly, but monthly is not the right objective. We have a whole conversation going internally about this is if I'm looking at my AWS or Azure costs on a month to month month basis, that can fluctuate from 5 to 9% depending on the number of days in a month. Right. Or the number of weekdays in a month versus weekends. So if you got systems that are up during Monday to Friday but down on the weekends. So monthly may not be the best thing to be looking at here. And so you want to make sure that you're getting the right metric. Right? It could be daily, it might be hourly rates. You want to be looking at, you know, different ways to do this because like I said, if you're, if you know, we're talking about January, you go into January looking at your Azure bill and then you get your azure bill in February, 31 days, days to 28 days, it's going to look smaller in February and then you're going to be shocked in March with why did it get bigger again? And so we need to have the right metrics there. We want to understand what our largest costs are. You know, so what are those categories? Where are they? Is it storage, is a compute, what is that? And then you want to determine how short you're going to be on your budget. You know, so if it's getting reduced, how short it is, how are you going to make that up? Build a plan, where are you going to go for reductions? Can you know, is it a reduction? Can you maybe be. If you can't get a reduction in, you know, cost, can you negotiate a change of payments? So maybe if you're on a three year deal, maybe if it was a million, a million million, maybe you could work with the Vendor to do 700,000 1.1 and 1.3 and push it out where, you know, forecasting, when things get better, you know, so there's all kinds of things that you can do. It's not necessarily just a reduction of cost. It could be cash flow and things like that. And then obviously you want to create those KPIs. And so, you know, some of those KPI' will be things like, you know, how much savings have you identified and versus how much have you realized? Right? Because those are two different things. Like if I can go and show you that in your O365, you're wasting a million dollars. But you can't get those savings until your anniversary date. You will have identified them but not realize them. Right? And so realize savings are the key one, but you want to be tracking, tracking the identified ones to figure out when you can actually realize those. You know, can you measure changes in cash flow payments? Can you measure who's implement changes versus who hasn't? So for instance, in an Azure AWS environment, you may be able to go out and identify that certain engineers are oversizing all their workloads. And you can benchmark the engineers against each other to see who's making the recommended changes versus aren't, you know, and then benchmark those like teams. Right? So there's all kinds of different KPIs. The key is going to be to figure out which ones are best for your organization and developing a system to actually be able to measure and monitor those. And then, you know, the obvious thing is to keep the goal in mind. Right. The results aren't going to be easy. Right? We know, we know that in Covid. We know that in 2008, going to a vendor and saying times are tough, decrease my bill, none of them want to do it. In fact, if you're in renewal situations, they're all trying to increase your price. You know, increase prices, inflation, exchange rate, all that stuff that we talked about at the beginning. But it will take time. But you must know that you're going to have to make a lot of calls. You're gonna have to have a lot of meetings both with the vendor and your team. And you need to keep track of your, your ass, right? Because a lot of times you make ass, you send them to the vendor and then they go away for days and days or weeks and months and don't get back to you. You don't. You have to let them delay. You have to put them on the spot. You have to keep pressure on them. No different than when they're trying to close a deal for a month or quarter end. You're selling to them now and you have to put the pressure on them. You have to ask a lot of great questions internally and externally, right? Internal questions like why are we doing it this way? It's costing us X this month. This, you know, X a month. What if we did Y? We could save and it would cost us this. You know, a great example there might be using high cost disk in a desk and tab environment when maybe you don't need, you know, the higher end disk or storage. I'm trying to blank on the name of that right now, but you get the point, right? Asking those tough questions. Same with external. Why can't you do this? What can you do if you can't do that? How do we do this? How do we work together? Right? You want to educate yourself on all your inventory, on all the data, how much you know, what's deployed, what's in use, what's not in use, what licenses do we have? And we want to use those stats. So for instance, if I could show Microsoft that I'm only using 22% of a Microsoft 365 E5, what sort of position will that put me in to have a conversation with them? Right? Collecting that data is not easy. It's out there, you can do it. But you're going to have to do that in order to get them to move on these positions.
