SaaS expenditure can lead to uncontrolled spending and budget overruns. As businesses adopt more cloud-based solutions, tracking these costs becomes more complex. Decentralised SaaS purchases often result in redundant subscriptions and underutilised licences across departments.

Without proper oversight, SaaS costs can increase rapidly, affecting bottom lines and technology investment decisions. This lack of visibility impacts both immediate finances and long-term IT planning.

Understanding SaaS spending helps with budget management and optimisation.

It allows companies to identify waste, negotiate contracts, and align software investments with business goals.

Today, we are going to explore SaaS spending trends across company sizes and industries, providing context for evaluating expenditures.

So, without further ado, let’s get to it.

SaaS Spending Trends

The Software as a Service (SaaS) market has experienced explosive growth in recent years. In a recent article, Forbes mentioned research by Gartner, projecting that global spending will reach $197 billion in 2023, an 18% increase from the previous year.

This surge reflects the increasing reliance of businesses on cloud-based solutions to drive innovation and efficiency.

As companies embrace digital transformation, SaaS has become a significant portion of their IT budgets.

According to research by CloudEagle, the average business now spends approximately $3,500 per employee annually on SaaS tools.

This figure may seem modest at first glance, but when multiplied across an entire workforce, it quickly becomes a substantial expense.

The ease of adoption and decentralised nature of SaaS purchasing have contributed to this spending boom.

Individual employees and departments can now easily subscribe to tools without going through traditional IT procurement processes. While this agility can boost productivity, it also makes it challenging for finance and IT teams to maintain visibility and control over software expenses.

More in Nexalab’s blog: Top 7 SaaS Spend Management Platforms to Help You Control Your SaaS Spending

Average SaaS Spending by Company Size

SaaS spending varies significantly based on company size, industry, and specific needs. However, cited from Forbes, here are some of the recent data on average SaaS spending by company size.

• Small Businesses (10-100 employees): According to CloudEagle, companies in this category typically spend between $250,000 and $1 million annually on 50 to 70 apps.
• Mid-sized Companies (100-1000 employees): These organisations often see their SaaS spend increase exponentially, potentially reaching several million dollars per year.
• Large Enterprises (1000+ employees): For larger corporations, annual SaaS expenses can easily surpass tens of millions of dollars, with some global enterprises spending hundreds of millions on their software stack.

It’s important to note that these figures are averages, and your company’s spending may differ based on various factors. However, they underscore the significant financial impact that SaaS can have on businesses of all sizes.

Factors Influencing SAP Spending

SaaS spending isn’t just about the sticker price of subscriptions; it’s influenced by a complex interplay of organisational, technological, and market factors. Recognising these elements can help businesses make more informed decisions about their software investments and identify areas for potential cost optimisation.

Several key factors contribute to the rising costs of SaaS within organisations:

• Decentralised Purchasing: The ability for individual employees or departments to subscribe to SaaS tools without central oversight often leads to redundant subscriptions and inefficient spending.
• Lack of Visibility: Many companies struggle to maintain an accurate inventory of their SaaS tools, making it difficult to identify unnecessary or underutilised subscriptions.
• Complex Pricing Models: SaaS providers often use tiered pricing structures or usage-based billing, which can lead to unexpected cost increases as usage grows.
• Feature Creep: As SaaS products evolve, they often add new features that may increase costs without providing proportional value to your specific use case.
• Integration Costs: While SaaS tools promise easy integration, the reality often involves additional expenses for custom integrations or third-party connectors.
• Compliance and Security Requirements: Meeting industry regulations and security standards may necessitate more expensive enterprise-grade SaaS solutions.

Being mindful of these factors can aid in developing approaches to manage and optimise SaaS spend effectively.

This may involve implementing centralised procurement processes, conducting regular audits of SaaS usage, negotiating contracts with vendors, or investing in tools to track and manage SaaS subscriptions across the organisation.

The Impact of SaaS on IT Budgets

The rise of SaaS has fundamentally altered the landscape of IT budgeting.

Traditionally, software expenses were largely capital expenditures, involving significant upfront costs for licences and infrastructure. SaaS has shifted this paradigm towards an operational expenditure model, with ongoing subscription fees replacing one-time purchases.

This shift has several implications for IT budgets:

• Increased Flexibility: SaaS allows for more agile scaling of software resources, potentially reducing waste from overprovisioning.
• Predictable Costs: Subscription-based models can provide more predictable monthly or annual expenses, aiding in financial planning.
• Reduced Infrastructure Costs: With SaaS, companies can often reduce spending on in-house hardware and maintenance.
• Hidden Costs: While individual SaaS subscriptions may seem affordable, the cumulative effect across an organisation can be substantial.
• Budget Reallocation: IT departments may find themselves allocating more resources to managing and integrating various SaaS tools rather than maintaining on-premises systems.

To effectively navigate this new budgetary landscape, companies need to adopt a holistic approach to SaaS management that encompasses both IT and finance perspectives.

Managing and Optimising SaaS Costs

As we’ve seen, the question of “how much do companies spend on SaaS” often reveals significant expenses. Implementing effective management and optimisation strategies becomes crucial. Here are some key approaches to consider:

• Centralise SaaS Management: Implement a system to track all SaaS subscriptions, usage, and costs across your organisation.
• Implement approval processes: Establish clear guidelines and approval workflows for SaaS purchases to prevent unnecessary or duplicate subscriptions.
• Regularly Audit Your SaaS Stack: Conduct periodic reviews of your SaaS inventory to identify underutilised or redundant tools.
• Optimise licence allocation: Make sure that you’re not overpaying for unused or underused licences.
• Use volume discounts: consolidate subscriptions across departments when possible to take advantage of volume pricing from vendors.
• Monitor Usage and ROI: Implement tools to track the usage and effectiveness of your SaaS tools.
• Negotiate Contracts: Armed with usage data and a clear understanding of your needs, you can negotiate more favourable terms with SaaS providers.
• Consider SaaS Spend Management Tools: Utilise specialised tools designed to help manage and optimise your SaaS ecosystem.

This is where Octobits by Nexalab comes into play.

As a comprehensive SaaS Management Platform (SMP), Octobits provides the visibility and control you need to effectively manage your software expenses.

With features like centralised dashboards, automated reporting, and custom alerts, Octobits empowers you to make data-driven decisions about your SaaS investments.

More in Nexalab’s blog: How SaaS Spend Management Systems Can Help You Cut Costs and Boost Efficiency.

Conclusion

Understanding how much companies spend on SaaS is crucial in today’s digital landscape. As we’ve explored, businesses of all sizes are investing significantly in cloud-based software solutions, with average spending reaching $3,500 per employee annually. This substantial investment highlights the need for effective SaaS management and cost optimisation strategies.

Octobits by Nexalab offers a powerful solution to these challenges. You can maximise your software investment, boost productivity throughout your company, and increase efficiency with Octobit’s centralised SaaS management platform.

Don’t let hidden SaaS costs impact your bottom line. Take the first step towards optimising your software spend today.

Contact Nexalab today and learn how Octobits can help your SaaS spend management strategy.