Inflation dominates the financial news landscape in 2022. In many markets, the consumer price index (Consumer Price Index), reached the highest point of a generation. This increase in the cost of “things” also applies to software.
Almost every organization has come to rely on SaaS for business, from communication tools like Slack and Zoom, to productivity suites like Microsoft 365 and Google Workspace, and department-specific platforms like Atlassian, Workday, NetSuite, or Salesforce.
That’s according to a report on SaaS inflation pricing vertexa SaaS procurement and spend management platform.
Growth in spending on SaaS products more than ten times From $13b to $157b per year from 2010 to 2020. Investment accelerated even faster at the onset of the coronavirus pandemic as companies raced to support remote work. SaaS spending increased by 26% In the months after the initial lockdown in 2020, and only continued to grow in the years since.
Unlike many other significant overhead costs such as salaries and rent, SaaS selection, management, and updates are distributed across nearly every organization. This is for a number of reasons, but purchasing power plays the most important role. Buying power often belongs to multiple individuals and departments, with finance leaders managing budget requirements, IT teams evaluating systems and compliance considerations, and department heads making selections based on function. It’s a complex web of decisions, and even with the best intentions, it’s difficult to get a single view of all the SaaS products a company uses.
This “wild west” of cost centers is a significant problem when considering the share of total costs. An increasing amount of enterprise spending is on SaaS, with approximately 12.7% of total spending currently on software investments. This means that $1 in every $8 spent by modern organizations is spent on SaaS. Translating that into dollars – companies are spending about $3,112 per employee per year on SaaS through 2022. That figure rises to $4,552 for technology companies, which spend more than any other category of companies.
The average SaaS spend has doubled in just five years. According to the economic inflation rate of the same period, it will take 18 years for the cost of SaaS to double.This growth rate far exceeds the rate of inflation in the overall economy, even after accounting for the anomalous economic growth of recent periods High CPI.
Clearly, the impact of SaaS in terms of productivity, collaboration, and inclusion is huge—but the costs that come with it are also creeping up.
An analysis of more than 10,000 SaaS contracts shows that 74% of providers have increased their pricing since 2019. Almost all of the quarter of suppliers who did not increase their pricing reduced the average discount they offered to customers — effectively raising spending but not touching list price.
Comparing regional inflation rates to SaaS inflation rates by geography shows that SaaS costs for US organizations have grown 3.5 times faster than the general inflation rate over the past five years – even accounting for the unusually high national inflation rate in 2022.
Elsewhere, SaaS inflation outpaced general inflation even faster; UK and Australian corporate spending grew five times faster than regional economic inflation.
Joel Windels, VP of Marketing at Vertice, said: “It’s clear that not only is SaaS critical to modern businesses, but it represents a growing cost center that can quickly spiral out of control without strategic management. Even without investing in new tools or Adding licenses, data also shows that SaaS spending is exploding. With an uncertain economic outlook through 2023, finance leaders absolutely must start taking a more thoughtful approach to SaaS spending if they are to sustain growth and streamline their operations”