Guide to business cost reduction

Business cost reduction in 2024

Developing cost reduction strategies has always been a pillar of sound business practice, but the unique economic challenges of 2024 are placing greater emphasis on protecting your bottom line.  

For many years growth was often seen as a clear indicator of business health, but investors and decision-makers are increasingly skeptical of companies laying the groundwork for rapid expansion. Ongoing conflicts in Europe and the Middle East, trade fragmentation, increased raw material costs, and rising global interest rates are forcing businesses to approach growth with caution. 

WeWork’s collapse from the most valuable US startup in history to bankruptcy within a decade is the corporate face of this cautionary tale. WeWork leaders might rightly cite the Covid pandemic — and its devastation to office spaces — as the cause of the company’s dramatic demise, but this only reinforces the point that the world can be unpredictable — and that growing trends can end abruptly.

Building steady growth through process improvements and cost optimization is now considered a more attractive business proposition. Conducting financial management through the prism of sustainability helps mitigate against global market volatility, improving cash flow predictability and engendering a more grounded decision-making process.

Driving profitability through cost reduction initiatives is Vertice’s primary mission. We help organizations take back control of their SaaS and cloud expenditures, with average software cost reductions anywhere between 20-30% for our customers. 

Cost reduction in SaaS and cloud management

SaaS and cloud management is one area that many companies can target for cost savings opportunities. Procuring new technologies can streamline business operations across every department, but only if operating costs are continuously monitored and refined.

SaaS and cloud product uptake is growing exponentially. We estimate that the average business now subscribes to 170 different applications: that’s 170 platforms to review, contracts to manage, and supplier relationships to maintain. 

If all software providers and contracts were the same, SaaS and cloud management would be a much simpler task. However, reducing costs in this area requires a nuanced understanding of product performance, cost structure, complex subscription models, and an awareness of new products coming to market. 

Software cost reduction also demands an understanding of the market traits inherent in the subscription economy. Subscription inflation, for example, is the financial mechanism through which providers enshrine guaranteed yearly profits into customer contracts. If you’re not keeping a close eye on IT costs, it may come as a shock to see your software spend increase by 17.9%, without purchasing any new products, as our 2024 SaaS inflation report exposes. 

Effective cloud and SaaS management also hinges on complete full-stack observability. Activity like maverick spending — where employees purchase software outside of established procurement protocols, often to stimulate productivity in a short-term project — can stop companies accurately calculating total subscription costs. 

Known as shadow IT, this type of spending leads to underutilized subscriptions at significant expense. In businesses with 100-400 employees, underutilization costs $500,000 on average in a year. In businesses with 2,000 employees or more, that figure increases to $4.5 million. 

Shadow IT also has wider implications on security: if there are platforms present in the ecosystem unbeknownst to IT teams, the chances of a security breach increase. This is particularly true if platforms can be accessed on mobile devices away from a centralized IT department.    

It's intuitive to think only about finances when discussing cost reduction, but there are other types of cost associated with SaaS and cloud asset management. According to our research, the average company loses 385 hours to SaaS and cloud contract negotiations every year. And from start to finish, it takes 100 days to close a new deal — a timeframe indicative of inefficient processes. 

See how some of our clients have realized the time and money saving benefits of SaaS and cloud management in the customer case studies below:

• Crunch — Achieved a 700% ROI and reduced contract negotiation time of 50%;
• Spenmo — Achieved 25% cost savings and saved 50 hours of negotiating time;
• FirstVet — Achieved a 300% ROI and full SaaS visibility within 14 days.

Challenges facing cost reduction success

Effective cost reduction strategies significantly optimize wider SaaS and cloud management initiatives, but several challenges can block the way. We’ve outlined some of these below:

SaaS visibility — As mentioned in the previous section, poor SaaS visibility is a major contributor to spiralling costs. Without a clear picture of the platforms and subscriptions live in your stack, it’s impossible to manage those subscriptions effectively. 

Surfacing all your SaaS and cloud licenses is imperative if businesses want lower costs in this area. Once every product in the stack is accounted for, organizations can conduct thorough spend analysis in search of savings opportunities. It’s likely that some features — or entire platforms altogether — are being neglected, but these kinds of insights are only possible with better visibility.

‍Pricing obfuscation — Software suppliers often withhold pricing information online, a well-known IT procurement trend. Suppliers claim that doing so is the only way to pull together bespoke contracts unique to your business needs. While this may be true, the other side of the coin is that vendors wish to establish the parameters for negotiation on their own terms.

Vertice has unique access to transactional data on over 16,000 software vendors, understanding exactly what businesses similar to yours pay for their subscriptions. We offer this information to our customers to ensure they never overspend on their contracts again. 

‍Negotiation tactics — Cost-cutting doesn’t exactly chime with your software providers’ financial health. They’ll want to extract as much value from your agreements with them as possible, employing aggressive or even misleading negotiation tactics during contract discussions.

Undergoing in-depth research on pricing benchmarks and other variables before entering negotiations is essential to mitigate against this tactic. Begin with an understanding of the true product value — ascertained through our benchmarking data — as well as an awareness of current market trends and alternative platforms. Be firm but friendly during discussions, and know the reasons behind your company’s decision to purchase the product. 

Workforce buy-in — Your workforce are key allies in the fight for software cost reduction, and it’s vital that employees are aware of the role they play in this fight. Eradicating shadow IT is a boon not just for a reduction in overall costs, but also in reducing the potential for a security breach. 

Automation, productivity, and innovation are the buzzwords driving modern businesses forward, but there are times when their pursuit can come at a detriment to the organization. Ensure that all stakeholders understand the responsibilities that come with the purchasing and use of new software tools via webinars and education initiatives.

How Vertice supports business cost reduction

Vertice is here to support your cost reduction efforts with a white-glove customer purchasing service, SaaS Purchasing Platform, and the Cloud Cost Optimization Platform.

Our purchasing teams leverage vendor pricing insights to negotiate optimized contracts on your behalf. Our vendor benchmarking is unparalleled, with over 16,000 suppliers accounted for in our database. 

After contract negotiations, our cost reduction software monitors every license in your stack for saving opportunities. Underutilized features and platforms are highlighted, providing insights into product performance within the context of KPIs and other metrics agreed upon during negotiations. 

Vertice has a slightly different attitude to business growth. Rather than pursuing growth with reckless abandon, we aim to support our customers with the sustainable, long-term benefits of business cost reduction. 

For more information on how we could save your organization up to 30% of its annual software spend, get in touch via the form below. You can even receive cost savings analysis on our homepage completely for free.