Companies cut software spend up to 30% as it hits $3500 per employee
The current economic downturn, funding crunch facing businesses and the race to be cash flow positive are forcing organisations to re-evaluate budgets and spending patterns.
This has pushed CFOs to issue mandates - cut software spend between 10% to 30%. SaaS procurement and management platform CloudEagle has today published a report with insights and trends that shed light on what's been happening in 2023. The "EagleEye SaaS Spend report" analysed $400 million in transactions (via the CloudEagle platform) and understands that spending on software is now the third-biggest expense for organisations, right after employee and office costs.
According to the report, departments with the highest software spending are Engineering (IT, Security, Data) (45%), Marketing (19%), Sales (17%), Finance (7%), Customer Success (7%), and HR (5%). However, when it comes to the number of apps, marketing (76) tops the list, followed by Engineering (56), Sales (42), Finance (35), HR (31) and Customer Success (22). When it comes to the top software categories purchased, cloud providers, CRM, project management, and data analytics, in that order, are at the top of the table. The report spotlights the emergence of 'Citizen SaaS', these are individual buyers or small teams buying SaaS tools that they need to do their jobs. Over 40% of SaaS spending across companies is originating from them.
The Marketing, Sales and Customer Success teams also have the dubious distinction of being the departments with the most unused apps within a year of buying. They often acquire various tools to address their immediate requirements but frequently switch to new tools when these needs change..
A big revelation in the report is that, on average, companies spend $1000-$3500 on software tools per employee annually. Digging a bit deeper, a company with 10-100 employees has a total SaaS spend between $250k to $1 million spread over 50-70 apps. On the other extreme, a company with 2500-5000 employees has a total SaaS spend between $40 million-$100 million spread across 300-400 apps.
Another interesting highlight of the report is that SaaS vendors in categories like video conferencing, testing, collaboration, storage, helpdesk, payroll management and mail automation are most open to negotiating pricing due to the plethora of options available in these categories for customers. On the flip side, vendors in categories like CRM, enterprise workflow, and business intelligence are least likely to negotiate as they are deeply entrenched in the company's everyday functioning and changing these vendors would mean a change in processes and by extension, the working culture of the company. In fact, these vendors might steadily increase their pricing in the coming few quarters thanks to their stickiness.
"In today's business world, every dollar counts for more than ever before. Given that software spend ranks as the third-largest expense in organisations it has become vital for CFOs and CIOs to scrutinise how they allocate their software budgets to ensure that every dollar spent returns a significant value. And it's unsurprising that companies are looking at SaaS spend per employee as an important metric and accounting for that cost in addition to employee salaries and benefits," said Nidhi Jain, CEO and founder, CloudEagle.
The main emerging trends observed by the report include the increasing power of the CFO when it comes to SaaS buying, a renewed emphasis on Return on Investment & Total Cost of Ownership analysis, vendor consolidation, the growing power of 'Citizen SaaS' buyers, the influence of AI, and buyer-centric pricing models.
Nidhi Jain added: "CFOs must work closely with CIOs and department heads to devise smart plans to cut their SaaS spend and get more bang for their buck. At the same time, reducing software spend should not negatively impact company growth or inhibit innovation. The primary objective for CFOs should be to identify where they're spending, recognise departments with the highest costs, identify instances of low utilisation and application redundancies and establish a well-defined procurement process
"The right approach to cutting SaaS spend involves a data and metric-driven strategy. Understanding the ROI for each vendor and evaluating the SaaS spend per employee will enable the CFOs and CIOs to identify the software's true value and how quickly it will add to the company's top and bottom line. Spend analysis, streamlining procurement and building a cost-conscious culture will enable companies to make informed choices and reduce overall software spend.