The economic downturn, coupled with a growing focus on cash flow, has led organisations to scrutinise their budgets, with CFOs mandating significant reductions in software spending ranging from 10 per cent to 30 per cent.
A report released by CloudEagle, a SaaS procurement and management platform, offers insights into the shifting landscape of software expenditure.
The EagleEye SaaS Spend Report 2023 analysed $400million in transactions conducted through the CloudEagle platform. It reveals that software spending has become the third-largest expense for organisations, following employee and office costs.
The report indicates that the departments with the highest software spending are engineering (IT, security, data) at 45 per cent, followed by marketing at 19 per cent, sales at 17 per cent, finance at seven per cent, customer success at seven per cent, and HR at five per cent. In terms of the number of applications used, marketing leads with 76, followed by engineering with 56, sales with 42, finance with 35, HR with 31, and customer success with 22.
Cloud providers, CRM, project management and data analytics are the top software categories in terms of expenditure. Notably, the report highlights the rise of ‘Citizen SaaS,’ where individual buyers or small teams within organisations purchase SaaS tools tailored to their specific needs, contributing to more than 40 per cent of SaaS spending.
Marketing, sales, and customer success departments are found to have the highest number of unused apps within a year of purchase, often due to changing needs and the adoption of new tools.
Companies spend an average of $1,000 to $3,500 per employee annually on software tools. For instance, companies with 10 to 100 employees allocate between $250,000 to $1million across 50 to 70 apps, while larger organisations with 2,500 to 5,000 employees spend between $40million to $100million on 300 to 400 apps.
SaaS vendors in categories like video conferencing, testing, collaboration, storage, helpdesk, payroll management and mail automation are more open to price negotiations due to the abundance of options available. Conversely, vendors in categories like CRM, enterprise workflow, and business intelligence are less flexible in negotiating due to their entrenched roles in companies’ daily operations.
Nidhi Jain, CEO and founder of CloudEagle, stressed the importance of scrutinising software budgets to ensure value for every dollar spent.
“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.
“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. 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.”
Getting the right approach
According to CloudEagle, 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.