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New Vertice Research Uncovers SaaS Pricing Inflation Is Growing 4x Faster Than Market Inflation

Rapid increase in SaaS prices has meant customers are spending 53 percent more on licensing than they were five years ago.

Note: TDWI’s editors carefully choose press releases related to the data and analytics industry. We have edited and/or condensed this release to highlight key information but make no claims as to its accuracy.

Vertice, a leading SaaS purchasing and spending management platform, has released a new guide into SaaS pricing inflation. 

Inflation has dominated the financial news landscape in 2022. In many markets, the consumer price index (CPI) has reached its highest point in a generation. This growth in the cost of “things” also applies to software. Almost every organization has come to rely on SaaS to conduct business, from communications tools such as Slack and Zoom to productivity suites such as Microsoft 365 and Google Workspace, as well as department-specific platforms such as Atlassian, Workday, NetSuite, or Salesforce.

Investment accelerated quickly at the onset of the COVID-19 pandemic, as companies raced to support remote working. SaaS spending increased by 26 percent in the months following the initial lockdown in 2020, and has only continued to grow in the years since.

Unlike many other significant overheads such as payroll and rent, the selection, management, and renewal of SaaS products is decentralized in nearly every organization. The reasons vary but buying power plays the most important role. Buying power typically sits across several individuals and departments, with finance leaders managing budget requirements, IT teams assessing systems and compliance considerations, and department heads selecting based on functionality. It’s a complex web of decision-making and, even with the best intentions, it can be a struggle to gain a single view of all the SaaS products a company uses.

This Wild West of a cost center is a significant problem when the share of total cost is considered. A growing percentage of all business expenditures goes to SaaS, with around 12.7 percent of total spending now used on software investments. That means $1 in every $8 that modern organizations spend is now dedicated to SaaS. To translate that into dollars, as of 2022, companies spend around $3,112 per employee each year on SaaS. This figure rises to $4,552 for technology companies, which spend more than firms in any other category.

It has taken only five years for average SaaS spending to double. This growth has far outpaced the rate of general economic inflation, even after factoring in recent periods of an uncharacteristically high CPI. Based on the economic inflation rate over the same period, it would take 18 years for the cost of SaaS to double.

Clearly, the impact of SaaS in terms of increased productivity, collaboration, and inclusion has been significant, but the accompanying cost has also been quietly spiraling upwards.

Analysis of more than 10,000 SaaS contracts shows that 74 percent of vendors have increased their list pricing since 2019. Among the quarter of vendors that have not, almost all have reduced the size of the average discount afforded to customers -- effectively raising the expense without touching the list price.

A comparison of regional inflation rates with the SaaS inflation rate by geography reveals that over the past five years the cost of SaaS for U.S. organizations has grown 3.5 times faster than the general inflation rate -- even after accounting for an exceptionally high national inflation rate in 2022.

SaaS inflation has outstripped general inflation rates even more rapidly elsewhere; spending at British and Australian firms has risen at a rate five times greater than regional economic inflation.

Read the report in full here: (short registration required).

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