SaaS Inaction Is Costing You – Here’s Why & What To Do about It

In the world of business, we focus a lot on the benefits of taking a specific action. Negotiate this contract and save 10%. Combine these two contracts into one and pay less per license. Switch from this vendor to that one and trim $10K from monthly operating expenses. The list goes on. 

It’s easy to forget that non-action is a form of action. And indecision is, indeed, a type of decision.

Taking action can lead to cost savings or cost avoidance. On the other hand, failing to take any action can end up costing you. This is especially true in the world of SaaS Management. The longer you maintain the status quo, the greater the cost. 

Let’s explore the cost of non-action – and how you can take action to start avoiding those unnecessary costs. 

SaaS Inaction is Costing You More Than You Think

Chances are, SaaS is growing rapidly at your organization. If you’re like most companies, this growth is probably primarily driven by purchases made by business units and individuals. Now, let’s say you’re not doing a whole lot to control it. 

What’s this costing you? The answer may surprise you – and not in a good way. Watch the video to see what’s at stake for your business, or continue reading.

Note: With the release of our 2024 SaaS Management Index report, the cost of inaction has only gone up since this video was produced.

Depending on the size of your organization and annual spend, the cost of inaction is somewhere between $1.9M and $127M per year. Today, on average, companies waste $18M a year.

Did we catch you with your jaw on the floor? We agree, that’s a ton of money. Let’s break down the math with today’s numbers so you can see how we got there.

First, a couple assumptions to take into account:

• Today, an average of 51% of software licenses sit unused within a 30 day time period. 
• The average organization spends $50M on SaaS annually.
• Experts recommend – and we agree – you should aim for 90% utilization.

Now, let’s use a mid-size company with 2,501-5,000 employees as an example. For a company this size, the average annual spend is $55.2M and unused licenses sit at 40%. If we factor in the ideal utilization rate, we subtract that 10% buffer to get a 30% waste figure. Next, we multiply spend and waste – $855.2M x 30% – to get $16.6M.

$216.6M is the cost of inaction for companies with 2,501-5,000 employees. However, this cost varies drastically as company size increases. 

As you can see from the chart below, this cost varies drastically as the company size increases. But even at the low end, that’s a staggering amount of wasted cash that’s going down the drain.

The Growth of SaaS Will Increase the Cost of Inaction

SaaS will only continue to grow. As it does, so too will the cost of inaction. 

Today, organizations are increasingly moving the majority of their software assets from traditional on-premises data centers to the cloud. Oftentimes, this is by choice. The many benefits of SaaS – including convenience, flexibility, and affordability, among others – are attractive to businesses. 

In other cases, vendors are moving away from on-premise offerings – and businesses don’t have much say in the matter. In fact, Gartner predicts that by 2026, a majority of the top 20 software vendors will sunset sales of new perpetual software, requiring customers to shift to SaaS or subscription offerings. This will have a big impact on businesses, as it’s expected to increase costs by at least 35% 

Gartner also predicts that by 2024, more than 45% of IT spending on system infrastructure, infrastructure software, application software, and business process outsourcing will shift from traditional solutions to cloud. 

Clearly, the cloud is the future. All across the globe, SaaS will continue to grow – both in terms of portfolio sizes and dollars spent. The longer you wait to take action to optimize it, the higher the cost. 

It’s Time to Optimize Your SaaS Portfolio

When it comes to SaaS Management, there’s no denying the high cost of inaction. But the reality is, taking action to optimize your SaaS portfolio is often easier said than done. 

Today, cost optimization methods tend to be manually intensive and time-consuming. This is largely because SaaS isn’t purchased, delivered, accessed or used like traditional software. 

For now, let’s zero in on the way SaaS is purchased. On-premises software purchases are typically funneled through the IT team. On the other hand, Saas is relatively easy to buy. Oftentimes, it simply requires an employee to input their credit card number – and then submit the purchase for reimbursement later on.

This ease of purchase means that SaaS is often bought by teams and individuals across the organization. In fact, business units now account for 69% of SaaS spend and 48% of application quantity. 

More often than not, this decentralized purchasing leads to costly inefficiencies. You’re paying for licenses you don’t need. You have duplicative or redundant software. Or you’re not negotiating as much as you could be at initial signing or renewal. 

Clearly, SaaS presents some significant challenges. But it also presents massive opportunities for optimization. Identifying and taking action on those opportunities requires a solid SaaS Management practice, powered by a dedicated SaaS Management platform. 

Take the First Step: Gain Full Visibility into All SaaS

SaaS Management is a proven way to reduce and avoid costs. But you don’t have to tackle all aspects of SaaS Management right out of the gate. In fact, you shouldn’t. The best approach is to start small and build from there.

The first step of any SaaS Management journey is to gain visibility into all SaaS in use at your organization. After all, you can’t manage and optimize what you don’t know exists. 

During the SaaS discovery process, it’s essential to gain visibility into all apps purchased by: 

• IT
• Business units
• Individuals

Fair warning that what you find may surprise you. Today, the average organization has 291 SaaS applications. Yet, IT leaders often underestimate SaaS application quantity by 2-3x.

And while visibility is the first step of SaaS Management, it’s not a case of one and done. That’s because SaaS portfolios are extremely dynamic (again, thanks to the ease of purchase), which means apps are coming and going on a regular basis. On average six new applications are added to a company’s SaaS portfolio every 30 days. 

In addition to discovering which (and how many) SaaS tools you have, it’s also important to gain visibility into how much your organization is spending on SaaS – and how each tool is being used. Spend and usage insights are foundational for shedding light on optimization opportunities, which include:

• Rightsizing licenses
• Securing the best prices
• Renewing with confidence

Many organizations attempt to undergo the discovery process by leveraging a spreadsheet. But this manual approach doesn’t work. If you expect to find all SaaS that’s lurking throughout your organization – automatically and continually – you need a dedicated SaaS Management platform. 

Don’t Settle for the (Costly) Status Quo: Now’s the Time to Take Action to Manage SaaS

Choice is the ability to make a decision when you have two or more possibilities. But remember: choosing not to take action is a choice, and it’s one that’ll cost you. 

If your goal is to optimize SaaS spend, you have at least 1.7 million reasons to take action. 

While non-action may make sense in some cases, not managing your SaaS estate isn’t one of them. Read on to learn how to break the status quo, overcome inaction and start managing your SaaS costs.

Learn how Zylo’s Discovery Engine can help you get started by giving you visibility into all your SaaS. Or, see it in action by requesting a demo with our team of experts.