Breaking Down the Billion-Dollar Budgets: How Companies Are Slashing Software Costs

CloudEagle's SaaS Spend Report Reveals Drastic Cuts and Surprising Trends in Software Spending

4 mins read

Key Takeaways:

  • The economic downturn and the pursuit of positive cash flow have prompted companies to reduce software spending by up to 30%.
  • Software spending has become the third-largest expense for organizations, following employee and office costs.
  • Key trends include the rise of ‘Citizen SaaS’ buyers, increasing CFO influence, and a focus on ROI and Total Cost of Ownership (TCO) analysis.

The Software Spending Revolution: Cutting Costs in a Downturn Economy

As economic uncertainties loom large, businesses worldwide are faced with the critical challenge of optimizing their budgets and expenditure. Among the many cost-cutting measures being implemented, one area that has seen significant reductions is software spending. According to CloudEagle’s “EagleEye SaaS Spend Report,” companies have been slashing their software budgets by as much as 30%, triggering a seismic shift in how organizations allocate their resources.

The Race to Positive Cash Flow: Mandates to Cut Software Spend

In a bid to weather the economic downturn and achieve positive cash flow, CFOs (Chief Financial Officers) are taking bold steps to rein in software spending. Mandates have been issued across industries, urging organizations to curtail their software expenditure by percentages ranging from 10% to a substantial 30%. This directive reflects the broader need for financial prudence and a strategic reevaluation of budgets and spending patterns.

Software Spending Takes Center Stage: A New Expense Frontier

The CloudEagle report unveils a pivotal revelation: software spending now ranks as the third-largest expense for organizations, following closely behind employee and office costs. This elevation in status underscores the critical role software plays in modern business operations and the urgency with which companies are addressing their software budgets.

Mapping Software Spending Across Departments: Insights and Trends

The “EagleEye SaaS Spend Report” delves deep into the intricacies of software spending across various departments within organizations. Notable findings include:

  • Engineering Leads the Way: Engineering departments, encompassing IT, Security, and Data, are at the forefront of software spending, accounting for a substantial 45% of the budget.
  • Marketing and Sales Close Behind: Marketing departments allocate 19% of the software budget, followed closely by Sales at 17%.
  • Software Spending by Number of Apps: Marketing is revealed to be the department with the most apps, boasting a staggering 76, followed by Engineering (56), Sales (42), Finance (35), HR (31), and Customer Success (22).
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The Emergence of ‘Citizen SaaS’: A Game-Changer in Software Procurement

One of the most significant trends highlighted in the report is the advent of ‘Citizen SaaS’ buyers. These are individuals or small teams within organizations who independently purchase SaaS tools to fulfill their job requirements. Shockingly, over 40% of SaaS spending across companies is traced back to these ‘Citizen SaaS’ buyers, underscoring their increasing influence in shaping software procurement decisions.

Unused Apps: A Common Conundrum

While certain departments lead in software spending, they also bear the dubious distinction of having the most unused apps within a year of purchase. Teams like Marketing, Sales, and Customer Success tend to acquire various tools to meet immediate needs, but frequently switch to new solutions when their requirements evolve, resulting in underutilized software.

Software Spend Per Employee: Unveiling a Crucial Metric

The report presents an eye-opening metric: on average, companies spend between $1000 and $3500 on software tools per employee annually. This spend can vary significantly depending on the size of the organization. A company with 10-100 employees may allocate between $250,000 and $1 million to software expenses, distributed across 50-70 apps. Conversely, a larger enterprise with 2500-5000 employees could invest between $40 million and $100 million in software, supporting 300-400 applications.

Vendor Negotiations: A Changing Landscape

CloudEagle’s report also sheds light on vendor negotiations. Vendors in categories such as video conferencing, testing, collaboration, storage, helpdesk, payroll management, and mail automation are the most open to negotiating pricing due to the abundance of options available to customers. Conversely, vendors in categories like CRM, enterprise workflow, and business intelligence are less inclined to negotiate, given their entrenched positions in a company’s daily operations and their potential to affect working culture.

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CFO Empowerment and ROI Analysis: Shaping the Future of Software Spending

The report highlights key trends that are reshaping the landscape of software spending. These include:

  • CFO Influence: The increasing influence of CFOs in SaaS buying decisions.
  • ROI and TCO Emphasis: A renewed focus on Return on Investment (ROI) and Total Cost of Ownership (TCO) analysis.
  • Vendor Consolidation: A move towards consolidating software vendors to streamline operations.
  • Citizen SaaS: The growing power of ‘Citizen SaaS’ buyers in influencing software procurement.
  • AI Impact: The role of artificial intelligence in shaping software choices.
  • Buyer-Centric Pricing: The emergence of buyer-centric pricing models that cater to customer needs.

Strategies for Smart Cost Cutting

Nidhi Jain, CEO and Founder of CloudEagle, emphasizes the importance of a data-driven approach to cutting SaaS spending. She states that understanding the ROI for each vendor and evaluating the SaaS spend per employee are essential steps in identifying the true value of software tools. Jain suggests that organizations focus on spend analysis, streamline procurement processes, and cultivate a cost-conscious culture to make informed choices and reduce overall software spending.

Conclusion: A New Era in Software Spending

In an era where every dollar counts more than ever before, the transformation of software spending is pivotal for organizations striving to maintain financial health. As companies navigate the complexities of a downturn economy, optimizing software budgets has become a strategic imperative. The CloudEagle “EagleEye SaaS Spend Report” provides invaluable insights into the evolving landscape of software spending, empowering organizations to make informed decisions that align with their financial goals and growth objectives.

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The full CloudEagle EagleEye SaaS Spends report can be downloaded here.

About CloudEagle

CloudEagle is a leading SaaS procurement and management platform that provides enterprises with visibility into software spending. Founded by industry veterans Nidhi Jain and Prasanna Naik, the company has processed $400 million in transactions, achieving over $50 million in SaaS savings for its customers. With a library of 300+ deep integrations, CloudEagle helps organizations save costs and streamline their end-to-end SaaS buying and renewal processes. The company is backed by Y Combinator, RingCentral, f7 Ventures, and others, serving customers globally, including Ringcentral, OysterHr, Nowports, and more.

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