Control Your SaaS Spend: What Has Companies Wasting up to $40M Annually

Control Your SaaS Spend: What Has Companies Wasting up to $40M Annually

By Alec Woodward and Todd Idler

Executive Summary

Today, cloud technologies make up 58% of application software spend, a number that’s only growing. And IT’s lack of visibility is increasing as well, with 56% of apps owned outside of a company’s IT department in 2021. As a result, IT teams struggle to identify unused and underutilized licenses across their company’s SaaS portfolio. This can lead to up to $40M in wasted spend annually — a huge issue for IT in today’s uncertain financial environment in which controlling SaaS spend is paramount.

Effective SaaS management provides the insights IT leaders need to identify and remedy this wasted spend. And with the right tools, SaaS management is straightforward and easy to implement. By gaining visibility into spend per app, the number of licenses used, and employee app engagement, IT leaders are already controlling SaaS spend to reduce costs up to 55%.

Introduction: SaaS will account for 66% of app software spend by 2025

Today, cloud technologies make up 58% of software spend. And that number is set to jump to 66% by 2025. This trend is driven by how easy it is for these software-as-a-service (SaaS) apps to be purchased, deployed, and used.

While the increased productivity is a boon, the ease of acquisition has created a number of problems for IT. In 2021, business units outside of IT owned 56% of a company’s apps. That’s up from 52% the previous year. As a result, controlling SaaS spend is difficult as IT leaders can’t easily identify where to optimize costs.

Bar chart showing that Shadow IT has increased an average of 4 percentage points from 2020 to 2021
Figure 1: The rise in Shadow IT from 2020 to 2021

How you could be losing up to $40M annually

IT’s lack of visibility and insight has huge implications for businesses of all sizes. To understand the impact, we looked at an anonymized subset of data in our platform across tens of thousands of SaaS apps. We found that the average organization used less than half of its app licenses on a regular basis.

Table that shows the percentage of SaaS app license usage by company size
Figure 2: The percentage of app licenses used by company size

With the average annual spend per employee on apps being $13K, the potential waste from unused and underutilized licenses alone can range from $7M–40M annually for organizations of 1,000–5,000 employees.

This is a huge issue for IT in today’s uncertain financial environment. CFOs surveyed by Deloitte this year said they use a cost/revenue ratio as one of the two top metrics for measuring the effectiveness of the IT function. If revenue goes down, they’ll look for ways to reduce costs to ensure the ratio doesn’t increase. And since SaaS is such a high portion of software spend, CFOs will be calling on IT to reduce SaaS spend.

If you don’t know where this spend is happening in the organization or how employees are using apps, you aren’t able to have effective conversations with procurement and business leaders about where spend can be optimized. As a result, you’ll need to cut based on hunches, not data. This not only reduces your effectiveness as an IT leader, it also has a negative impact on your company’s performance.

Solution: Increase insight to control SaaS costs using data-driven SaaS management

IT needs a system of record that tracks all SaaS apps across the organization. That visibility is the first step in implementing a data-driven approach to optimize your app portfolio and reduce wasted SaaS spend. Here are ways to help you control SaaS costs:

1. Align around a unified view

A unified view of all SaaS apps becomes a shared truth between IT, Procurement, and line of business leaders. And when the entire business can easily access trustworthy data, collaborating on governance and decisions about app consolidation and license assignments comes naturally.

You’ll know how much you’re spending per app and per team. And with access to benchmarks, you can quickly see how your costs match up with similar purchases by other companies. From there, you can have data-driven conversations about which tools are most essential and where you might be overspending.

2. Learn from app usage

By understanding how one team uses an app and its features, then comparing it to how another team uses a different app, you can get insights into whether the app is used for the same reasons.

If the usage is similar, you might have a candidate for rationalization. If the features used are different, you could consider another app that can satisfy both business needs.

3. Rightsize accordingly

Knowing what apps teams are using and how they are using them gives you actionable intelligence for license rightsizing. You can confidently reduce the number of unused and underused licenses, so you’re only paying for what you actually use.

In addition to being useful at renewals, these insights can help you reharvest licenses on the fly for assignment to employees who need access to the app or specific features. Increasing the adoption of the licenses you currently own is another way to reduce wasted SaaS spend.

Also, for apps with license tiers, employee who aren’t using the features only available in their current license tier can be downgraded to a lower tier with the subset of features they do use. This frees up the higher cost licenses for other employees.

IT Leaders are already reducing app costs up to 55%

Gartner estimates that as much as 55% of SaaS spend is wasted or heavily underutilized. Effective SaaS management helps you actively — and continuously — manage your app portfolio and spend to reduce that waste. All the more, you can use these SaaS insights to align with Finance and other business areas for larger spend management initiatives. This will help keep costs in line with revenue while making sure your business keeps performing well.

Databricks optimized licenses across a number of apps with the help of employee usage insights. It avoided a 35% increase in Zoom costs by moving employees who were not using paid features down to the free version. It then reclaimed the higher tier licenses for assignment to new employees. Also, with the help of granular usage data, Databricks reduced the number of licenses needed for Asana by 35%. Learn more about how Databricks cut app costs.

United Talent Agency (UTA) used feature-level insights to understand where the adoption team needed to focus their efforts. They identified which critical app features were being underutilized and created specific training to drive the adoption of those features. Through this method, they increased Zoom screen sharing by 113% in 30 days and increased Box user engagement by 59%. Additionally, training for the file sharing feature in Box resulted in a 422% rise in Box files shared externally. Read the full case study to learn more.

What’s next?

See how to start reducing SaaS waste today with the SaaS Intelligence™ Cost Optimization Framework.

Get more tips on how to improve ROI across your SaaS investments.

Schedule a demo of Productiv SaaS Intelligence™ Platform, the data-driven approach to SaaS management.

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