The financial state of business technologies and software finds itself in a strange position at the beginning of 2024. Whilst almost every other sector battled against a general economic recovery that moved slower than a snail in treacle, investment in SaaS and cloud products jumped. SaaS spend per employee grew by 27%, and cloud spend had a YoY increase of 35%.
All good so far, right? Well, dig a little deeper and you uncover the real picture. Our research shows that, in 2023, almost a third of all cloud spend goes to waste. And SaaS vendors have not only increased their prices by a rate that outstrips inflation, but have also adopted shrinkflation tactics – you’re paying more for less. This indicates that 2023 was a year of inefficiency when it came to SaaS and cloud spending.
And that’s before we get to 2024 budgets. IDC predicts a 6.8% growth in IT budgets, Gartner is more optimistic at 8%. But the SaaS market is predicted to grow by 18%, indicating that – off the back of a trend-defying 2023 – investment will outstrip any budget rises. Coupled with the spend inefficiencies seen in 2023, we can deduce that the cash burn rate will increase – potentially creating an impending scenario of cutbacks and fiscal unsustainability faster than anticipated.
Are rising SaaS and cloud costs and investment drawing money from other business areas? Are the costs truly justified? If you could release inefficient spend from these areas, think about the financial boost you’d get over your competition!
The answer is simple: don’t spend more in 2024, spend better.
Create lean and efficient tech stacks
The concept of focused and streamlined working practices with little fluff is nothing new. The trouble is, spend management has struggled to holistically adopt this mindset, hiding significant cost and budget benefits as a result. It’s understandable; the holistic and in-depth data needed to make key decisions to create efficiency is rarely readily available.
What’s more, SaaS vendors typically obscure best prices and discounts. With business competition insanely high, and SaaS tech seen as a way to keep pace, it means they can sell at a premium. In challenging and somewhat unpredictable economic times, this is a bitter pill to swallow for many buyers , and it can seem as though there’s no other option.
But if you can make it happen, a lean and efficient tech stack reaps serious rewards. Not just from the obvious cost-savings, but Product ROI, usage and even feedback becomes easier to track, fewer contracts results in time to renegotiate them, and you get more capital to redeploy in business-critical areas.
But how do you achieve this with SaaS and cloud spend? Let’s take a look at some key points:
Re-negotiate upcoming contracts with discounts top-of-mind
The truth is that 90% of companies overpay for their SaaS contracts by between 20 and 30%.
Shocking, right? Knowing this, it’s evident that a primary avenue for spending better is to look at upcoming contracts with a focus on achieving discounted rates. But how?
- Negotiating early pays dividends, as you have more time to discuss pricing options and aren’t backed into a corner by cut-off limits (vendors know this).
- Consider multi-year agreements. These offer significant discounts over single-year contracts.
- Can you be flexible with payment options? Smaller vendors typically want immediate cash flow, so paying upfront could give you a discount over an installment plan.
- Don’t be afraid to push back and question the figures you’re quoted. If working with a multi-feature platform, what are the cost breakdowns per feature? Get granular with the quotes, and you can fine-tune them for more savings.
Above all though, it’s crucial to fully understand the needs of your business when it comes to tech. This stops you accidentally including features and options in your contracts that you don’t, and won’t, need.
Know the usage statistics of each product
If people aren’t using the tech, what are you paying for? Getting to the answer requires some deeper investigation.
- Which team uses which product, and how much do they use it? This is a good indicator of how integral any piece of tech is to their work, and if any are underutilized.
- Has there been a significant drop-off in usage since initial onboarding? You might see that all the ‘seats’ have been taken, but are they being regularly used?
- If teams aren’t using a company-mandated tool, why? Are they using Shadow IT / AI instead?
- If it’s a multi-feature product, like a CRM, which features are used the most? And which are largely ignored?
- Are you paying for the same features across different pieces of software? For example, you might be paying for a specialist social media scheduling tool like Buffr, when there is one included in your HubSpot instance.
- Is the tech being used across your regional/global offices, or are you paying for software with duplicate instances or that serve the same business need? For example, your US team uses TeamViewer, but your UK team uses Zoom. Can you consolidate these?
Discovering the usage stats generally comes from either team/department feedback, or from the product itself (though this can show these data points in ways that don’t give you the full picture – like seats taken opposed to daily usage per seat). So having clear, definitive usage data can be difficult to obtain – it requires a lot of time, effort and communication, things you may not have in abundance.
Are you utilizing your cloud commitments efficiently?
Cloud computing is an area of serious investment, but also serious wastage. Efficient and diligent spend monitoring is key here to avoid it getting out of control.
- Are you using On-Demand Instances, or Reserved Instances? RI’s offer significant discounts compared to On-Demand, but require more of a commitment, a longer-term strategy of what you need, and can’t be canceled.
- RI’s that are going unused can be a financial drain (you’re paying for nothing after all), and can be hard to identify. Minimizing these (in terms of committing to them in the first place, or trading/selling any unused ones) can benefit your bottom line.
- Do you have a holistic overview of your entire cloud spend, including individual product breakdowns? As your cloud requirements grow, the chance of superfluous products and un-optimized spend increases thanks to a more complex map of your cloud requirements. Keeping on top of your oversight here will help minimize this outcome.
Can you adopt different usage models?
A subscription payment system is the go-to model for SaaS tech. But have you considered alternatives that could be cheaper at the cost of some usage restrictions?
- Is a blanket subscription model best for your business? Does your vendor offer alternatives, like a tier system, or a pick-and-choose subscription system?
- Can you limit users to drive down any costs?
- Is it possible to adopt a usage-based pricing model? For tech that is integral but used less regularly than others, this could create serious savings.
Vendors tend to openly advertise subscription models, but many also have different usage models available to discuss. It’s worth asking your vendor about other options during negotiations.
Obtaining discounted rates requires a lot of information and expertise
If you can distill these ideas, you will be able to optimize your SaaS and cloud spend for 2024 far more effectively than your competitors. But the fact of the matter is, it’s much easier said than done. You need:
- Complete visibility over all your onboarded tech, and which teams are using them.
- Transparent and in-depth usage stats, including up-to-date numbers.
- A tighter grip on your procurement strategy.
- The time and commitment to enter longer-term negotiation periods.
- Good working knowledge of your vendor’s price plans, and also what others are paying to help benchmark.
Even with a dedicated FinOps or procurement team, the information they need is likely as murky as driving through pea-soup fog with the lights off. Not ideal when trying to make informed purchasing decisions.
If only there was something placed for just this… (you know where this is going).
Optimize your SaaS and cloud spend with Vertice
The Vertice platform exists specifically to unlock serious savings from both your SaaS and cloud spend. Uniquely, both can be done from one platform – meaning that you can gain holistic control over your entire tech spend easily and with extreme clarity.
Take a quick look at our SaaS purchasing platform, and our Cloud Cost Optimization features.
Empowered by the Vertice platform, you can supercharge your business by unlocking significant savings from your tech that can be reinvested elsewhere. As SaaS prices rise and spending increases for 2024, we say don’t spend more – spend better.
