Whether you’re kitting out your HR, sales, marketing or DevOps teams, software equips your organization with the tools it needs to thrive. But in spite of the best efforts from finance and procurement leaders across the globe, SaaS costs continue to climb to unaffordable levels. The average company is now deploying a budget-squeezing total of 177 different tools, proliferating costs as software prices outpace market rates of inflation.
In fact, it’s estimated that a whole $1 in every $8 spent by an organization can be accounted for by SaaS. A figure that’s likely to increase in the coming years, at least until companies are fully in control of their spend – analysts predict that by 2028, more than half of all organizations using multiple applications will be using a SaaS Procurement Management Platform to centralize them and identify cost-saving opportunities.
At present, however, as much as 31% of SaaS spend is going to waste within the average company. In other words, close to a third of what’s currently being spent on software could easily be avoided.
The question is, how?
In this article, we’ve detailed some of the common software management pitfalls that are quietly driving up your software spend.
Common sources of hidden SaaS costs
Beyond the upfront fee that you agree to when you sign upon for a SaaS contract, there are a number of hidden costs that are likely costing your company substantially more than it should be. And we’re not talking about onboarding fees or support charges. We’re talking about the costs that are in your control.
Here’s what you need to know.
Maverick buying
When it comes to SaaS procurement, one of the biggest challenges for many organizations is maverick buying – also referred to as rogue spending. In other words, the process of individuals or departments purchasing software outside of established procurement channels – assuming they exist to begin with – and unbeknownst to the finance, IT and procurement teams.
But while it can give employees the flexibility to purchase their preferred tools, it can come at an excessive cost to your organization.
How?
Well, given that these SaaS tools are often purchased under the radar, chances are you won’t have visibility of them within your SaaS stack. Which means you won’t have visibility of their renewal dates or contract terms – and given that 89% of SaaS contracts include auto-renewal clauses, could mean you end up resubscribing to a platform you no longer need down the line, and often at a higher price.
It’s not the only issue though.
The occurrence of maverick spending can also weaken your purchasing power, as higher levels of usage can be used as leverage to negotiate volume discounts from software providers. If employees are purchasing their own software, you lose this advantage.
Finally, maverick spending opens your organization up to security risks, as it’s usually associated with the use of unapproved tools, also known as shadow IT systems. These unvetted tools may fail to meet security and compliance standards, making your proprietary data, business logic and customer information vulnerable to leaking — which could in turn have expensive legal implications.
So, if the stakes are so high, why’s it happening?
In short, for a number of reasons, including:
- Unmet software needs
- No clear procurement process
- An urgent or short-term requirement for a tool
Having a solid SaaS procurement process in place is one of the best ways to tackle this challenge head on.
Redundant software applications
Something else that could well be driving up your SaaS spend are redundant apps. In other words, the SaaS tools being subscribed to that overlap in functionality with other apps in your stack.
While this typically occurs as a result of different departments using their own choice of software applications, it can also happen within the same team, particularly when individuals each have separate preferences in the apps they use to carry out a certain business function.
One of the biggest culprits of this is in fact project collaboration software. After all, it’s not unusual to find a department such as the development team using Jira or Wrike, while the marketing team uses Notion or Asana.
A similar trend also emerged during the Covid-19 pandemic, as teams rushed to adopt video conferencing tools like Zoom and Skype for Business, resulting in an uptick in redundant apps.
The issue is, what might on the surface appear to be multiple separate contracts for well-utilized tools, could easily be condensed into one subscription for the entire organization. This is more than likely to be the cheaper solution.
So, when subscribing to multiple tools that each fulfill the same business function, your organization is inadvertently increasing its SaaS costs.
Duplicate tools
Redundant tools aren’t the only source of unnecessary SaaS licensing though. Many companies also have active subscriptions to duplicate tools within their portfolio. As tools are rapidly adopted and deployed by department heads and individual employees across an organization, we see many instances of multiple licenses being purchased for the same tool.
In fact, it’s not uncommon to find two separate departments paying for two subscriptions of project collaboration software, Monday.com, for example.
And if an organization is accidentally purchasing several subscriptions rather than just adding to its existing seat count, it could be racking up unnecessary charges.
However, the problem isn’t just that the company is paying multiple recurring fees to the vendor, but also that it’s having to pay repeated onboarding or overage fees, as well as losing out on volume discounts.
Instead, organizations could save money by auditing their stack and condensing any SaaS usage split across multiple subscriptions to the same tool. Even if it means upgrading their subscription tier, this could yield significant savings over time compared to having multiple licenses being used by different branches of the organization.
Underutilized SaaS licenses
If your organization lacks oversight of its SaaS stack, there may be low rates of usage or engagement with certain tools that have been licensed, presenting opportunities for cost savings. Your portfolio could quickly become bloated by unapproved, redundant, or duplicate apps — but also by those which have been approved and purchased, but are going underused and failing to provide a healthy return on investment.
This is a common problem faced by organizations of all sizes — in fact, our data shows that 31% of total SaaS spend is wasted every single year. At the average company, this figure translates to an astounding $2.5 million — or for companies with more than 2,000 employees, it’s around $4.5 million.
There are several prevalent causes of underutilized applications. The first is simply that a tool has been purchased or renewed for a specific purpose that it is no longer required for, leaving the contract to tick over and cost the organization money despite not being used.
Another common challenge is overprovisioning. Companies will often end up paying for a larger seat count or higher subscription tier than what is actually required for their level of usage, especially when scaling. Concerningly, our data shows that an average of 33% of SaaS licenses are barely used or not used at all by the intended employees. In sales departments, it’s even higher at 49%.
Lastly, there may be abandoned licenses in your stack due to the incomplete termination of a subscription. This typically occurs when the user or member of staff who manages the subscription moves away from the company without canceling the license to a product, which may be left to auto-renew in their absence.
The problem is, with 89% of vendors including auto-renewal clauses in their contracts, many companies continue paying for a plan they have no knowledge of.
Manage your growing SaaS portfolio with Vertice
As we’ve discussed, there is a complex set of factors that influence the gross cost of your SaaS contracts. As software prices continue to rise, you could be doing more to consolidate your stack into a lean suite of valuable, cost-effective tools. But how can you start to crack down on hidden SaaS costs?
In short, with Vertice.
As part of our SaaS management services, we can help you to conduct a full and comprehensive audit of your existing tech stack, assessing your rates of usage to help uncover any instances of hidden, unnecessary or underutilized SaaS. We’ll put the power back in your hands to monitor your tech stack from one single point and get the best deals on new software procurement to ensure that you stop overspending on your tools.
Learn more about the benefits of working with a SaaS procurement partner here, or alternatively browser through our vendor pricing database for exclusive discounting insights for thousands of global software providers.
