HomeComputingSaaS price inflation is growing 4x faster than market inflation

SaaS price inflation is growing 4x faster than market inflation

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Inflation dominates the financial news for 2022. In many markets, the consumer price index (CPI), reached an all-time high. This increase in the cost of “things” also applies to software.

From communication tools like Slack and Zoom to productivity suites like Microsoft 365 and Google Workspace, as well as departmental platforms like Atlassian, Workday, NetSuite or Salesforce, almost every organization relies on SaaS to run their business.

This is according to SaaS Inflationary Pricing Report EveningSaaS procurement and spend management platform.

SaaS product costs have increased ten times more From $13 billion to $157 billion annually between 2010 and 2020. At the start of the coronavirus pandemic, investment accelerated as companies raced to support remote work. SaaS spending increased by 26% In 2020, it only continued to grow in the months after the first lockdown and in the years after that.

Unlike many other significant overhead costs, such as salaries and rent, choosing, managing, and upgrading SaaS is decentralized for almost every organization. There are various reasons for this, but purchasing power plays the most important role. Purchasing authority is often shared by several individuals and departments, with finance leaders managing budget requirements, IT teams evaluating systems and compliance issues, and department heads making selections based on functionality. It’s a complex web of decision-making, and even with the best intentions, it can be a struggle to get a single understanding of all the SaaS products a company uses.

This “wild west” of the cost center creates significant challenges when considering the share of total costs. A growing percentage of total business spending is being spent on SaaS, with software investment now accounting for around 12.7% of total spending. That means $1 out of every $8 spent by today’s organizations is dedicated to SaaS. Converting this to dollars, by 2022 companies will spend $3,112 per employee annually on SaaS. For technology companies, which spend more than other categories of firms, that figure rises to $4,552.

It only took five years for the average SaaS spend to double. Based on the current economic inflation rate, it would take 18 years for the cost of SaaS to double. This increase has far exceeded the general rate of inflation in the economy, even after taking into account recent atypical growth. high CPI.

While the impact of SaaS on productivity, collaboration, and engagement has been clear, the accompanying costs have also been quietly rising.

An analysis of over 10,000 SaaS contracts shows that 74% of vendors have increased their list prices since 2019. Almost all of the remaining one-quarter of vendors have reduced the average discount they offer to customers, effectively raising costs without affecting costs. list price.

Comparing regional inflation rates to SaaS inflation rates by geography shows that over the past five years, SaaS spending by US organizations has grown 3.5 times faster than the general inflation rate – even if the national inflation rate in 2022 is exceptionally high. .

SaaS inflation has outpaced general inflation elsewhere; Costs for UK and Australian firms have risen five times faster than regional economic inflation.

Joel Windels, vice president of marketing at Vertice, said: “SaaS is not only critical to modern businesses, but it’s becoming clear that it’s a growing cost center that can quickly spiral out of control without strategic management. Even without investing in new tools or additional licenses, SaaS data shows that spending is increasing. With the economic outlook for 2023 uncertain, finance leaders need to pay more attention to SaaS spending to maintain growth and optimize operations.”

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