What is tail spend management in software?
Tail spend, the long tail of small software subscriptions, costs organisations millions without anyone noticing. What it is, why it’s so difficult to manage, and how to tackle it.
- 1 September 2024
- 5 min
Tail spend is a term often used in procurement circles, but in practice it is rarely well managed. It refers to the long tail of small and medium-sized expenses that fall outside the formal procurement process, which together make up a surprisingly large proportion of the total budget.
What is tail spend?
The Pareto principle applies in procurement as well: on average, 20% of suppliers account for 80% of the expenditure. The remaining 80% of suppliers, the tail, are responsible for only 20% of the budget. But that 20% is fragmented across hundreds of small contracts, subscriptions and one-off purchases that are barely monitored.
This effect is particularly pronounced in software. Consider:
A Zoom subscription that has been renewing automatically for three years
Ten different project management tools used by different teams
Adobe licences for employees who have long since left the company
Niche tools purchased for a one-off project that were never cancelled
Why is tail spend difficult to manage?
There are three structural reasons why tail spend tends to get out of hand in most organisations:
1. No central overview. Software is purchased by various departments, often via credit card or direct invoice, without IT or procurement being aware. Shadow IT grows unnoticed.
2. Automatic renewals. Most SaaS subscriptions renew automatically. Without active oversight, you pay year after year for the same package, even if users have not used it for a long time.
3. Lack of leverage. Small contracts are not actively negotiated. The supplier sets the price and the customer tacitly accepts it.
How do you approach tail spend management?
Effective tail spend management in software starts with three steps:
Step 1: Inventory. Map all software: which tools are used, by whom, how many licences, what are the costs and when do contracts expire? This is the foundation for everything that follows.
Step 2: Analyse and consolidate. Identify overlap. How many different project management tools are there? How many video conferencing tools? Consolidate to one or two per category and build leverage with the remaining suppliers.
Step 3: Negotiate actively. Use the consolidation as leverage. Approach suppliers with concrete data: this is what we use, this is what we are willing to pay. An independent party like SoftVaro also has market transparency that internal buyers rarely possess.
Frequently Asked Questions
The most commonly asked questions on this topic.
What exactly is tail spend?
Tail spend refers to the long tail of small and medium-sized purchases that fall outside the formal procurement process. It often accounts for 20% of expenditure spread across 80% of suppliers. In software, this is particularly visible: dozens of tools with small subscriptions that together make up a sizeable bill.
How do I approach tail spend management?
Start with a complete software inventory. Group tools by category and identify overlaps. Consolidate to fewer suppliers and negotiate bundle prices. SoftVaro supports this process.
How much can I save with tail spend management?
On average, organisations save 15-30% on their tail spend by actively consolidating and negotiating. The exact savings depend on the number of tools, contract structure, and negotiation room per supplier.
Ready to save on software?
SoftVaro negotiates the best deal for you with over 4,000 suppliers. Independent, transparent, within 24 hours.