How much does your company spend each year on all of your various software subscriptions? If you’re like the average business, you’re probably spending somewhere between $1,000 to $3,500 on software tools per employee annually. For most companies, this ranks as their third-biggest annual expense, behind employee and office costs. And lately, prices on SaaS packages have been creeping upwards.
Across the country, many company leaders and CFOs are looking for ways to dial back their software spending significantly – by some metrics up to 30%.
This data comes to use from a SaaS spending trends and insights report from CloudEagle, a SaaS procurement and management platform. The company reviewed $400 million worth of software transactions to develop its findings and has identified several key areas that companies should consider for savings.
Extreme Expense
That figure about the average company software spending ($1,000 to $3,500 per employee annually) is really only the tip of the iceberg. Larger companies experience vastly greater software expenses due to a much wider range of platforms in use.
For example, CloudEagle’s data showed that a company with 10-100 employees has a total software cost between $250k to $1 million spread over 50-70 apps. Similarly, a company with 2,500-5,000 employees spends between $40 million to $100 million spread across 300-400 apps.
“In today's business world, every dollar counts for more than ever before. Given that software spending ranks as the third-largest expense in organizations it has become vital for CFOs and CIOs to scrutinize 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 of CloudEagle.
What Departments Spend the Most on Software?
In evaluating the spending patterns found throughout organizations, the data provided an interesting look at which types of corporate departments typically spend the most on software.
Ranked by dollars spent, the study found that:
These three departments also had the highest number of apps used. But it’s important to note that marketing, while ranked second for spending, actually ranked first in the number of apps used annually by a large margin.
Marketing and sales also ranked as the top two departments that had the most instances of “abandoned” software or redundant software – providing an opportunity for savings of these unused apps are identified and reduced.
The report said, “Companies often have duplicate tools with overlapping functionality. It is very common for companies to have 3-4 project management tools, 2-3 meeting recording tools, etc. CFOs and CIO’s can collaborate with department heads, analyze the usage patterns on these apps to identify instances for cost optimization. When new employees join the company, they should be exposed to a directory of all the apps in use so they do not go out and subscribe to duplicate apps.”
Categories for Potential Savings
Some categories of SaaS platforms and apps have a greater potential for flexibility and savings than others. The authors of the report said that software in categories like video conferencing (Examples include Zoom, Go To Meeting), testing (Browserstack), collaboration (Monday.com), storage (Dropbox, OneDrive), helpdesk (Zendesk), payroll management (Gusto), and mail automation (Mailchip) may be the most open to negotiating pricing.
The reason for that savings potential is because buyers have a lot of options in these categories and vendors may be willing to work with customers on pricing.
Conversely, several other software platforms offer much less in the way of price flexibility and may even be increasing their prices in the near future. Those would include categories such as CRM (Examples include Salesforce and HubSpot), enterprise workflow (Atlassian, Coupa), and business intelligence (LinkedIn Sales Navigator, Adobe).
The report described these categories as “sticky,” because they are deeply entrenched in the company’s everyday functioning and changing vendors would be complex for many organizations.
$1 Saved is a $1 towards Growth
Taking a proactive approach to managing software subscriptions is crucial for maximizing value and achieving long-term financial sustainability. By analyzing usage patterns, identifying underutilized and redundant subscriptions, and leveraging negotiating power for specific software categories, companies can achieve significant cost savings. Remember, every dollar saved on software is a dollar that can be reinvested in your business's growth and success.
