Vertice, a SaaS purchasing and spend management platform, released the industry’s most complete guide to SaaS inflation pricing.
Inflation has dominated the financial news landscape in 2022. In many markets, the consumer price index (CPI), has reached its highest point in a generation. This growth in the cost of ‘things’ also applies to software. Almost every organization has come to rely on SaaS to conduct business, from communications tools like Slack and Zoom to productivity suites like Microsoft 365 and Google Workspace, as well as department-specific platforms like Atlassian, Workday, NetSuite or Salesforce.
Spending on SaaS products grew more than tenfold between 2010 and 2020, expanding from $13 billion to $157 billion annually. Investment accelerated even faster at the onset of the coronavirus pandemic, as companies raced to support remote working. SaaS spend increased by 26 percent in the months following the initial lockdown in 2020 and has continued to grow in the years since.
Unlike other significant overheads, like payroll and rent, the selection, management and renewal of SaaS is decentralized in nearly every organization. This is for a variety of reasons, but buying power plays the most important role. Buying power typically sits across several individuals and departments, with finance leaders managing budget requirements, IT teams assessing systems and compliance considerations and department heads selecting based on functionality. It’s a complex web of decision-making and, even with the best intentions, it can be a struggle to gain a single view of all the SaaS products a company uses.
This ‘wild west’ of a cost center is a significant problem when the share of total cost is considered. A growing percentage of all expenditures for businesses goes to SaaS, with around 12.7 percent of total spending now used on software investments. That means $1 in every $8 that modern organizations spend is now dedicated to SaaS. To translate that into dollars — as of 2022, companies spend around $3,112 per employee each year on SaaS. This figure rises to $4,552 for technology companies that spend more than firms in any other category.
It has taken only five years for average SaaS spending to double. Based on the economic inflation rate over the same period, it would take 18 years for the cost of SaaS to double. This growth has far outpaced the rate of general economic inflation, even after factoring in recent periods of an uncharacteristically high CPI.
Clearly, the impact of SaaS in terms of productivity, collaboration and inclusion has been significant — but the accompanying cost has also been quietly spiraling upwards.
Analysis of more than 10,000 SaaS contracts shows that 74 percent of vendors have increased their list pricing since 2019. Among the quarter of vendors that have not, almost all have reduced the size of the average discount afforded to customers — effectively raising the spend without touching the list price.
A comparison of regional inflation rates with the SaaS inflation rate by geography reveals that over the past five years the cost of SaaS for U.S. organizations has grown three-and-a-half times faster than the general inflation rate — even after accounting for an exceptionally high national inflation rate in 2022.
SaaS inflation has outstripped general inflation rates even more rapidly elsewhere; spending at British and Australian firms has risen at a rate five times greater than regional economic inflation.
“It’s become clear that not only is SaaS critical to modern businesses, but also that it represents a growing cost center that can rapidly spiral out of control without strategic management,” said Joel Windels, VP of Marketing at Vertice. “Even without investing in new tools or added licences, the data shows that spending on SaaS is exploding. With an uncertain economic outlook for 2023, finance leaders absolutely have to start taking a more considered approach to SaaS spend if they are to maintain growth and streamline their operations”
Read the report in full here.
