The true cost of SaaS wastage (and how to prevent it)
Aimee Manning | AUG 31, 2023
Following the rise of remote working and concurrent digital transformation efforts, organizations of all sizes have not only experienced exponential growth in their SaaS stacks, but also an overwhelming increase in the amount they’re spending on these tools.
The problem is, as your costs rise, so do the chances of wasting valuable IT budget on unnecessary software applications and licenses.
This is because a third of all software spending goes entirely to waste within the average organization – a figure that becomes all the more unsustainable as SaaS stacks continue to proliferate at a rate of 18% year-on-year.
Being in a position to identify and eliminate this SaaS wastage is therefore imperative. Now more than ever.
The question is, how?
To answer this, we’ve not only looked at the financial impact that SaaS wastage is likely having on your organization, but we’ve also detailed your options for mitigation.
Here’s everything you need to know.
What is SaaS wastage?
SaaS wastage refers to the unnecessary or inefficient purchasing of software. It typically occurs when organizations subscribe to applications that are either underutilized, over provisioned or are the result of shadow IT – in other words, the unapproved procurement of SaaS tools.
The financial implications of wasted SaaS
If you’re involved in SaaS procurement, particularly within a growing company, you may have seen some of the consequences of SaaS wastage take hold.
After all, our data shows that within the average company, 33% of SaaS licenses are either barely used or not used at all by the intended employees. While average underutilization rates can vary significantly across different tool types, those used within certain departments such as Sales and Product have particularly high rates of 49% and 45% respectively, representing a substantial loss in cost savings.
Sales and Product software aren’t the only offenders though, with underutilization rates across the following tool types also higher than average:
- Marketing software – 44%
- Customer success software – 34%
- Analytics software – 34%
But it’s not just the percentages that are the issue, it’s also the fact that these figures translate into real-world financial losses. On average, organizations spend around $10,000 per employee, per year, on these software applications, which means that the majority of companies are spending substantially more than they need to be on many of the tools within their SaaS stacks.
And generally speaking, the larger the company, the larger the waste.
Vertice’s own data shows that companies with between 100 and 399 employees are wasting half a million dollars each year on SaaS. In contrast, those with 400-749 employees waste $1.3 million.
From here, it escalates further, with organizations with a headcount of 750-2,000 wasting between $2.3- $2.8 million, and enterprises with more than 2,000 staff wasting as much as $4.5 million per annum.
Over time, these losses accumulate — placing unnecessary strain on your IT budget and ability to invest in business-critical areas of innovation.
Causes of SaaS wastage
So, what exactly is causing wasted SaaS send?
Here are some of the top culprits.
One challenge associated with SaaS procurement is maverick buying, also known as rogue spending. This occurs when individuals or departments within the organization purchase software outside of central and established procurement channels. Maverick buying is a driver of substantial levels of SaaS wastage as tools may be purchased that provide little to no business value.
For example, maverick spending may result in outlay for tools that:
- Lack integration capabilities
- Go underutilized across the organization
- Weaken the organization’s purchasing power
As a result, maverick buying is likely to lead to fragmented buying processes that consume resources and drive up SaaS wastage. Plus, with as many as 90% of organizations overpaying for SaaS tools by an average of 26% – often substantially more – maverick buying can also prevent organizations from negotiating the best possible deals.
Lack of employee training
As we’ve discussed, 33% of the software licenses within an organization’s SaaS stack go underutilized. One key factor behind this is the lack of proper training on how to effectively utilize these tools. When employees are unfamiliar with the features and functionalities of the software they’re provided with, they are less likely to fully embrace it.
As a result, subscriptions remain idle and the potential benefits of the tools go untapped, representing lost opportunities for revenue growth and productivity benefits.
This is all the more likely when organizations take on new staff that have used different systems for a given business function within their previous role. If they are not comprehensively onboarded with a new system they’re expected to use, they may subscribe to a tool they’re familiar with instead.
This can lead to instances of shadow IT, wherein an employee implements systems that are not approved or governed for work use by the organization. In fact, research from Gartner shows that actual cloud usage within organizations is anywhere up to 10x of known cloud usage.
Redundant and duplicate tools
In large organizations, multiple departments may independently procure tools that offer similar features and functionality to others already in the portfolio. This can even happen within the same team, when individuals have preferences in the apps they use to perform a certain task. Redundant apps are especially common within project collaboration. For example, one employee may like to use Asana to manage their projects, while another uses Monday.com or Wrike.
The problem is, even if each tool is well-utilized, the contracts could easily be condensed into one subscription for the entire organization. This is likely to be cheaper as you’ll only be paying out for one software contract and you could even secure volume-based discounts with the higher user base active on just one tool. So, when subscribing to multiple tools that each fulfill the same business function, your organization is inadvertently contributing to SaaS wastage.
But redundant tools aren’t the only instance of unnecessary SaaS licensing.
Many businesses also have active subscriptions to duplicate tools in their portfolio, due to multiple members of staff purchasing licenses for the same app. This could be increasing SaaS wastage through multiple contracts and repeated onboarding or overage fees.
Even if an organization keenly manages SaaS subscriptions for its employees while they’re working at the company, SaaS accounts often go inadequately managed once the employee leaves. As a result, licenses may remain active and continue to consume resources even though they are no longer needed or could be transferred to other members of staff. This oversight can accumulate over time, leading to a substantial amount of wasted software spend.
This usually occurs due to auto-renewing SaaS contracts. Our data shows that 89% of SaaS contracts include clauses that will continue to charge subscribers indefinitely if not terminated with due notification. While these can be helpful for those core tools that you want to keep on your books, it can mean that licenses go unterminated — and could also remove the opportunity for software negotiation and further savings.
How to prevent wasted SaaS spending
Addressing SaaS wastage requires a proactive approach that focuses on streamlined processes, informed decision-making and optimized tool usage. Here are some key prevention solutions.
Centralized procurement process
By implementing a centralized procurement process, you can maintain oversight not only of your existing software, but also the acquisition of any new tools, putting your organization on the path to complete SaaS governance.
By centralizing the entire approval and procurement process, you can specifically prevent instances of maverick spending and ensure that any new tool aligns with business goals, in turn ensuring minimal SaaS wastage.
Having an automated solution in place is, however, key. In fact, with a platform such as Vertice, you can obtain total visibility into your entire SaaS stack and spending from a single source, easily identify opportunities to reduce spending, and even streamline the approvals process.
This way, your SaaS procurement process becomes a seamless workflow that requires minimum input, maximizes your SaaS’ business value, and frees up valuable time to focus on more strategic priorities.
Find out more about Vertice’s automated SaaS procurement solution here.
While a centralized SaaS purchasing process can ensure that all future software applications have been approved, are compliant and have been purchased at the best price possible, there will still be potentially hundreds of existing tools in your SaaS stack that could be contributing to wasted spend.
Rationalizing these apps is therefore a crucial step in identifying redundancies and underutilized subscriptions.
Application rationalization, also known as software or tool rationalization, specifically involves assessing the necessity, efficiency, and integration capabilities of each tool in your portfolio. Off the back of this in-depth audit, organizations can then make informed actions to cancel or condense subscriptions that provide little value, and retain those that are associated with the best business outcomes.
Application rationalization cuts SaaS wastage by eliminating any instances of unnecessary spending. It does so by:
- Reducing overprovisioning
- Highlighting redundant and duplicate tools
- Identifying instances of shadow IT and maverick buying
However, as the process is comprehensive, it can be significantly time-consuming — even if the time and money that is recouped makes it a worthwhile investment. For that reason, many businesses choose to partner with a SaaS management platform to help them to perform audits on their stack and manage new procurement and renewals.
Partner with Vertice as your SaaS management platform of choice
It goes without saying that identifying and reducing every instance of SaaS wastage within your organization is a challenge. Though it can be an arduous process, all organizations need to do more to get ahead of their costs and bring wasted SaaS back under control. And that’s where Vertice comes in.
Our SaaS management platform provides total one-stop visibility of your entire portfolio, helping you monitor and address any cost-saving opportunities that you might have missed. But that’s not all. Our experienced SaaS purchasing team are also on-hand to help you to negotiate best-in-class terms and pricing for any new software you procure, ensuring that your SaaS costs never spiral out of control again.
When you partner with Vertice, we optimize your business’ approach to SaaS from procurement to renewal. Learn more about our platform, or see for yourself how much you could be saving with a cost-savings analysis.