2024 SaaS Trends – Spend
SaaS spend per employee now averages $5,607, a 7% increase from 2023. Shadow IT spend, however, has decreased by an average of 35% YoY as a result of effective SaaS management strategies.
With uncertainty looming in the economy, IT spending is under inevitable scrutiny and organizations are facing new pressure to justify every application expense. IT leaders are fundamentally rethinking their approach to SaaS investments, demanding both cost efficiency and demonstrable business impact.
Rather than making long-term commitments upfront, companies are now prioritizing flexible contract terms as a way of mitigating risk while they work to validate ROI through real usage data.
The focus has shifted from simple cost-cutting to strategic value optimization — with the goal of ensuring that every dollar invested in software delivers measurable returns while maintaining the agility to adapt to changing business needs.
SaaS Spend Trends
SaaS spend per employee now averages $5,607, a 7% increase from 2023’s average spend of $5,237. Mid-market (MM) organizations out-spent Enterprise and Small and Medium-sized Businesses (SMB) on the average cost per employee.
Organizations continue to negotiate for shorter term contracts as SaaS ROI remains difficult to prove. One-year contracts now make up 61% of the average SaaS portfolio, a 2% increase from 2023, while 2+ year contracts showed little gain.
Once you gain full visibility into the SaaS apps departments are using, how they use them, and how much they cost, you can start to identify opportunities for optimizing your SaaS spend.
Reducing spend continues to be a high priority for IT, procurement, and finance leaders. Their desire for better SaaS management is reflected in the slashed costs from shadow IT in 2024, but room for growth can be seen in the increase in average managed spend per employee. The focus on risk mitigation — for financial and security purposes — can be seen in the overall preference for one-year contracts across all segments.
As seen in the other 2024 State of SaaS installments, implementation of strategic governance has resulted in smaller tech stacks, but the battle against unmitigated spend is still underway.
Let's dive into the data and discover the trends.
AVERAGE MANAGED SAAS SPEND:
Mid-Market surpasses SMB for total average employee spend, a large shift from 2023
KEY TAKEAWAYS
- Mid-Market (MM) companies surpassed Small and Medium-sized Businesses (SMB) spending .6% more on average cost per employee in 2024. Businesses of this size are often forced to operate like a large business while maintaining a startup attitude due to a lack of processes and a growth at all costs mentality.
- Between 2023-2024, average managed spend — spend on applications within IT’s purview — per employee increased in every segment except for SMB, which fell 23%. Coming off a rough couple of years, they’re wrapping up contracts that are no longer mission critical and consolidating capabilities under some larger applications, now offering additional features without added SKUs.
- Enterprise organizations continue to benefit from volume discounts — a data point that can easily be noted with benchmarking data from a SaaS Management Platform (SMP).
AVERAGE SHADOW IT SPEND:
Using a SaaS Management Platform, teams have been able to decrease shadow IT spend by an average of 35% YoY
KEY TAKEAWAYS
- Small and Medium-sized Businesses (SMB) see less regulation around their tech stack as they grow and develop. Because of the lack of policy — and as they continue to discover what apps truly benefit the goals of their business — employees seek out alternative options to fill the gap, leading to more shadow IT than other segments.
- Due to the higher level of governance at an Enterprise (ENT) level, it’s no surprise that shadow IT spend was 89% lower per employee in comparison to SMB. They have access to more tooling and resources to further monitor risk — whether it’s restricting downloads, CASB, or more applications behind SSO.
- It’s clear IT teams know that shadow IT is a serious issue and are prioritizing minimizing risk and bringing applications under policy.
ALL SEGMENTS — CHANGE IN CONTRACT COMPOSITION
Favoring flexibility, one-year contracts make up the majority of portfolios for all segments
- One-year contract lengths reign supreme across all segments. The shorter term length allows businesses to lean into flexibility and validate the ROI of their SaaS investments through real usage data. As financial uncertainty continues, this trend is likely to continue YoY.
- 2-year and 3-year contract lengths have decreased (3+ year remaining the same), demonstrating a preference for low commitment during economic turmoil.
ENTERPRISE SEGMENT — CHANGE IN CONTRACT COMPOSITION
Seeking negotiation leverage, three-year contracts continue to grow for Enterprise more than any other segment
- Despite one-year contracts making up the most of the portfolio for Enterprise (ENT) businesses, 21% of their tech stack includes three-year contracts, more than any other segment.
- Industry benchmark data validates that optimizing for more licenses and longer contract lengths creates opportunities for higher bulk discounts. At their maturity level, ENT organizations have an idea of what SaaS apps are driving value, so longer commitments include less risk.
- While two-year contracts dropped across the board, one-year contracts offer the opportunity to try new SaaS applications — within policy — and with a SaaS management platform, teams can utilize usage data to convince stakeholders that they’re worth a longer term investment.
MID-MARKET SEGMENT — CHANGE IN CONTRACT COMPOSITION
Limited visibility results in a hesitancy to commit. One-year contracts grow for Mid-Market
- As Mid-Market companies continue to grow, the problems they faced as an SMB remain the same — now they’re just bigger. Over-purchasing and limited visibility frequently result in duplicative or unnecessary applications.
- As MM works to figure out their governance strategy and utilize a newfound visibility into their tech stacks with a SaaS Management Platform (SMP), opting for lower-commitment contracts allows them more flexibility — albeit a higher cost per employee — within their SaaS strategy.
SMALL AND MEDIUM-SIZED BUSINESS SEGMENT — CHANGE IN CONTRACT COMPOSITION
Did someone say commitment issues? One-year contracts up YoY for SMB, representing a considerable size of their portfolio
- While favored across segments, one-year contracts make up the majority of portfolio for Small and Medium-sized Businesses (SMB), more than any other segment.
- After a rough couple of years, two year contracts are starting to see a decline as companies continue to evaluate and prioritize SaaS in alignment with business goals.
- Three-year contracts continue to decline as the volume discounts benefit Enterprise organizations more than SMB.
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