Firms slash software spend by up to 30% amid economic travails

Image from CloudEagle 2023 SaaS Spend Trends and Insights

The current economic downturn, funding crunch facing businesses and the race to be cash flow positive are forcing firms to re-evaluate budgets and spending patterns, with CFOs deciding to cut software spend between 10% to 30%, according to CloudEagle.

This is from the EagleEye SaaS Spend report, which analyzed $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,” which 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.

On average, companies spend $1,000-$3,500 on software tools per employee annually. Digging a bit deeper, a company with 10-100 employees has a total SaaS spend between $250,000 to $1 million spread over 50-70 apps. 

On the other extreme, a company with 2,500-5,000 employees has a total SaaS spend between $40 million-$100 million spread across 300-400 apps. 

Also, 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. 

“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.,” said Nidhi Jain, CEO and founder of CloudEagle. 

“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 Jain.

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 ROI and total cost of ownership analysis, vendor consolidation, the growing power of Citizen SaaS buyers, the influence of AI, and buyer-centric pricing models.

Jain said 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,” she said. S”pend analysis, streamlining procurement and building a cost-conscious culture will enable companies to make informed choices and reduce overall software spend.