SaaS Purchasing Insights

As news and data around the SaaS and cloud industries move at an increasingly electric pace, we are now releasing our in-depth and leading insights every month.

Key intel for April

1. SaaS inflation is dropping. Lower inflation will eventually make prices more competitive, putting customers in a more advantageous buying position.

2. But now is not the time. The majority of SaaS vendors, across multiple sectors, are still increasing their prices (though by smaller margins than before).

3. Instead, look at your renewals for the short term. Vendors are maximizing returns by increasing prices. They will not want to lose current customers either, and this offers big discount opportunities when renewing.

The state of SaaS spending

In our last report, we highlighted that the percentage of new software purchases as a proportion of total spend dropped from 20% in Q4 2023 to 8% in Q1 2024. We’ve also discovered that SaaS spend in total has actually increased by 8% during the same time.

What does this mean?

After a year of consolidation and belt tightening, and improving external economic conditions, there is more budget available that is being spent on SaaS products. We can also tell companies are concentrating on renewing their current tech stacks, rather than procuring new software. Perhaps market conditions still aren’t on solid enough ground to encourage businesses to be more bullish with their spend?

Maybe, although we do see that economic factors are starting to play in favor of the customer and not the vendor — a change from 2023.

Does this mean that the rampant SaaS inflation of 2023 is coming down? A drop of 2.1% in three months is worth taking note of.

It could be worthwhile to continue monitoring this, because if you time it right, you could negotiate a more advantageous price on your next purchase or renewal.

After all, falling inflation typically means better pricing options — although not at the moment.

Between Q1 2023 and Q1 2024, 74% of SaaS companies have increased their prices, with an average increase of 13% — still well above the overall rate of inflation for SaaS and also outstripping the total spend increase.

This total increase in spend isn’t being artificially boosted by increases in one sector. Many major SaaS categories have hiked their prices, meaning it’s an industry-wide phenomenon.

Does this mean vendors are continuing to increase prices as a means to maximize their returns — despite economic market conditions that indicate they should be more competitive with their prices? Or are they continuing to struggle with large overhead costs stemming from the past few years?

What does this mean for you?

We can see that market conditions are improving — more budget available for SaaS and sector inflation on the way down. But vendors continue to increase prices, though by smaller amounts than previously. It’s all about timing now.

With prices still high, it might be worth holding onto what you have as much as you can until the downward trend pushes prices to a more competitive rate. Then you have a more palatable marketplace to explore your options, if you want to switch or renegotiate.

Use the time to really dig into your current tech stack and look at what you need to purchase when the market opens up again. You can use this information to make more informed purchasing decisions that should help prevent overspending.

Plus, vendors could be keeping their prices high to make up for higher overheads — meaning they are much less likely to want to churn customers too. This opens up the opportunity for larger discount opportunities for you when renewing, use this to your advantage.

Consolidating your tech stack in 2024

In 2023 we predicted that more CFOs will focus on consolidating their tech stacks to get better value for money. Has this happened so far in 2024?

The quick increase towards multi-feature platforms between Q4 2023 and Q1 2024 indicates that consolidating and streamlining tech stacks is beginning to gain a foothold.

All-in-one platforms are, by nature, able to bring multiple features and departments together under one roof — eliminating the need for numerous single-feature technologies that are function-specific.

What does this mean for you?

It’s no surprise that the big players dominate this sector — as they have the capacity to offer not just great features in a single place, but they can also offer better tiered pricing structures.

But if you want all of the features, they tend to be a more expensive option initially. Considering the average cost of SaaS per employee is highest for SMBs and lowest for enterprise, does this mean that you need a lot of users to get the most value out of them?

It could be a good idea to do an audit of your current tech stack, your business needs and your growth projections, and benchmark it against what these multi-feature platforms offer in terms of products and tiered pricing. Can you make it work for you?

It would certainly make managing your tech contracts a lot more streamlined. We’ve talked a lot recently about how contract management is a drain on business productivity and these all-in-one platforms could help.

Adopting AI in SaaS

After a 2023 of hype, excitement and overall sector growth, has the rate of AI-powered SaaS tools integrated into companies reflected this?

SaaS AI is well and truly aboard the hype train.

And, given that Jasper AI (an LLM aimed at enterprise marketing teams) is in the top 5 fastest selling AI tools overall, it suggests that SaaS is embracing AI in a big way, and users are too.

However, the top 5 is dominated by LLMs (Chat GPT, Claude etc), so we can take this with a pinch of salt.

But what AI tools are being adopted by finance leaders?

Finance leaders seem to be focusing on automating the processing of invoices and receipts (Booke AI, Vic.Ai and Trullion), as well as getting support on financial planning and analysis, budgeting and forecasting (Datarails). We can see that AI in finance is therefore seen as ideal to take on more administrative tasks, and as a facilitator to better understand and forecast numbers.

However, 65% of AI tools purchased are done so as “Shadow AI” — software integrated without going through set approval processes. We will talk about maverick spending later, but perhaps this indicates that AI is still in a “testing” phase – people taking out cheaper personal subscriptions to test capabilities before committing to full company-wide contracts.

It does come with a more sinister warning though. Shadow AI means it’s unvetted by the company, putting customer information and proprietary data potentially at risk. It also means that, being bought away from official procurement processes, businesses are unable to forecast properly and are exposed to sudden price hikes.

What can you do? Double down internal efforts to get a grip with your Shadow AI spend, even if it is for testing. Even if personal subscriptions means you don’t fit the bill as a company, you’re still unknowingly integrating untested software into your tech ecosystem – and that’s not worth the risk at all.

Maverick Spending and Shadow IT: Growing in 2024?

Despite the growth in Shadow AI spend, Shadow IT (non-AI SaaS products) spend per employee has stayed at 35% from 2023.

Worldwide, the spend on Shadow IT in 2023 was $81.6b. This has grown at the same rate as overall SaaS spending has, confirming a steady upward trend. While it isn’t taking up more of total SaaS spend, it does indicate that companies are still struggling to get to grips with Shadow IT. And it might be because the most popular products are used primarily on an individual basis rather than a team one — see Calendly and Miro. This makes them easier to ‘hide’ from the wider business.

What does this mean for you?

It could be that visibility into tech stacks, or at least awareness of the importance of this, is more important than ever. If $81.6b is being spent worldwide unknowingly and outside of official procurement processes, that’s an eye-watering amount of money missing from budgeting and forecasting.

Getting a handle on this is key to tightening control of your finances. 2024 could be the wake-up call the industry needs to re-double efforts on stamping out Shadow IT and maverick spending.

Are buyers turning to third-party marketplaces for SaaS purchasing decisions?

The role of cloud marketplaces will become even more important in the SaaS buying cycle, as cloud marketplaces like AWS and Google Cloud continue to disrupt the traditional SaaS purchasing model. With cloud marketplaces, potential customers don’t need to engage in a lengthy back-and-forth with multiple stakeholders and this can result in a much faster route to market for vendors.

As buying behavior evolves, business leaders will need to adapt their GTM strategies to avoid being left behind. Account management teams at companies like AWS are incentivized to sell third-party solutions through their marketplaces, which means that SaaS companies can take advantage of a bigger sales team — without having to make extra hires.

However, third-party marketplaces that are incentivized to sell software will inevitably lead to paid incentives for the sellers themselves. This creates a skewed market where the product most pushed are the ones paying to be so. Will this mean you are getting products most suited to your business? Being vendor-agnostic may become more important than ever.

Next month

Cloud Spend Insights

Be sure to check back here, or your inbox if you’ve signed up, at the same time next month for our insights into the state of cloud spending, and what it means for you going forward in 2024. We’ll then alternate between SaaS and cloud insights every month to ensure you’re fully covered throughout the year.