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Beyond The Numbers 2024

The hidden costs of SaaS and Cloud

Jul 9, 2024

Executive summary

The time, energy and resources spent managing SaaS and cloud contracts directly affects your business’ productivity. But it’s something no one is talking about.

Our new report, which analyzed data from 1,000 businesses globally, uncovers the hidden pitfalls of software management and its impact on productivity – with senior finance and tech leaders losing the most time to lengthy purchase and renewals processes.

Employees in charge of buying, managing and renewing SaaS contracts at work – from Salesforce and Canva to Xero – are spending more than half (61%) of their working year doing so.
The contract processes are too lengthy, taking 100 days and 60 days to purchase and renew SaaS respectively.
Businesses lose 385 working hours per year to contract management meetings alone. On average, 4.7 SaaS contracts are renewed every month. Considering how long a renewal process is, teams are constantly working on them.
Only 33% of licenses are being properly utilized. So teams are spending time renewing software they don’t use.
Contracts spend 10 days stuck in legal and IT departments, and could be rejected entirely, delaying and possibly negating all that work.
86% of people waste time doing workplace admin unrelated to their core job, and 33% of people leave employment primarily because of boredom. Contract admin is contributing to this.
Software contract burden hits senior finance (36%) and tech (32%) leaders the most.

All of these inefficiencies are draining productivity away from your departments. Which is impacting the growth of your business. Read on for the detailed picture.

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Introduction

Buying and renewing SaaS and cloud isn't just a money problem

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The revolutionary shift to the cloud has enabled businesses to cut costs, free up time, reduce errors and improve security. The digital savior to our productivity problems.

But over the past few years, challenges have emerged. The first — and most widely known — is the cost. SaaS and cloud are the two largest and fastest-growing areas of IT expenses for businesses worldwide — between 11% and 14% — depending on the product (Gartner).

However, there is a wider problem — one that has been left unseen or ignored for too long.

The time, effort and resources it takes to manage and renew tech contracts — and how this drains productivity.

If a CFO’s value is in strategic execution, isn’t contract management getting in the way of this? And it’s not just leadership that’s being affected. Contract holders sit at all levels, with middle managers wasting hours managing low value contracts.

The monumental and monotonous task of contract management affects what each employee can deliver for the business. Consider this from Chris Ortega, CEO of Fresh FP&A:

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It’s a problem no one is talking about

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As SaaS and cloud stacks quietly increase in number as a company grows, cost and contractual administration does too. As everyone focuses on company growth, high costs and administrative pain are holding your productivity levels back without you knowing.

That’s where we come in. We’ve analyzed data from over 1,000 companies and combined this with industry research to identify the hidden pitfalls of contract management, and how they hold you back from achieving efficiency. And the more you know about each one, the more prepared you are to combat what’s in them. These are:

The time it takes to complete a buying/renewal process
The levels of administration in every process
Contract management is never ending
No visibility into contract administration creates a lack of control
Approvals can put a stop to your work
The emotional cost of contract management detrimentally affects your teams

Let’s unravel the true picture of SaaS and cloud management, so you can tackle the problem from all angles.

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How did we get here?

“It’s always been done this way”
Forbes called this “The most dangerous phrase in business.”¹ We agree. Contract holders have nearly always been siloed in their departments and teams without a centralized support or operations team because that’s the way it was done before them — dealing with contracts as and when they can, without it ever being a priority.
Contract admin doesn’t earn money, and isn’t creatively interesting
Ever heard a colleague say, “Oh, I’ll deal with that on Friday afternoon?” Subscription management falls directly into that category — an administrative task that doesn’t drive revenue but just needs to get done. It’s not what gets people out of bed in the morning.
No centralized view
SaaS and cloud contracts are usually managed individually or at a department level, so having visibility over a company’s entire tech stack is restricted by these siloes. This makes it virtually impossible not only to know who’s using what, but also to control what tech is being purchased or renewed.

These three deep-rooted reasons are entrenched across virtually every company. And without knowing it, they suck you into a vortex that eats your time, effort and resources, and impacts your overall productivity levels.

How? Glad you asked.

A hypothetical scenario

A Head of Marketing in a growing fintech company holds several contracts for their team — including a CRM and tools for project management, design and marketing attribution. Two of them are up for renewal — they want to replace one vendor and re-negotiate price with the other. With vendor research, internal stakeholder meetings, and discussions with both new and expiring providers required, this could take up to 4 hours in a week.

They work a 40-hour week.

That’s 10% of their week spent on these tasks.

In reality, it’s actually more. Amplify this across other departments, stakeholders, teams and the involvement of other colleagues, and you begin to see the scale of the problem. Let’s take a closer look at why.

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The lengthy contract process

It’s a long process to buy or renew parts of your tech stack. Our research shows that, alongside a buying process taking about 100 days, renewing a SaaS license takes an average of 60 days end-to-end.

That means if a buying and renewals process happened back-to-back, contract holders would spend 61% of their total working days being involved in software contract management processes.

It peppers a normal working week with meetings and administration that a contract holder would rather not be spending their energy on. And it becomes a constant distraction that prevents full focus from being applied to other tasks.

When you break down a typical renewal process into key stages, you can see how long and laborious it is to complete one contract:

Negotiations Gathering - 23 days - Customer receives a renewal quote/notification from the vendor and schedules a discovery call, while also researching other potential options.

Negotiation - 19 days - Terms are negotiated (including pricing) with vendors – usually via email and video calls.

Internal approvals - 8 days - Once a vendor is chosen, offer and vendor information is sent to internal stakeholders for approval e.g. Finance, IT, legal teams.

Contracting - 9 days - A contract is drawn up by the vendor and sent to the customer to be signed by all relevant internal parties.

Completion - 1 day - Contracts are signed, exchanged and the renewal process is marked as completed.

Total - 60 days - You spend 1/6th of a yearly subscription renewing it.

It's just a timeline though — is it that bad?

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It’s a fair question. Ongoing, unfinished tasks cause the mind to constantly recall it — something called the Zeigarnik effect.² This can distract you from fully applying yourself to other tasks. The remedy is usually to focus on finishing the task quickly, so to remove it from your mind. But what if the task is at a stage that you have no control over? Say, awaiting an email back from a vendor?

The constant on-again, off-again work of contract management becomes a balancing act with regular work. Balancing workloads is a primary skill for any employee, as is time management and focus levels. But when any process is elongated, these become more difficult and productivity suffers as a result.

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Overwhelming administration

Ever heard of “badmin?” It’s a portmanteau of “bad” and “admin,” and it describes unnecessary administration that can stifle efficiency and productivity.

When Personio found that 44% of employees report their business is being slowed down due to inefficient processes and admin, and a further 42% say too much of their time is taken up with workplace tasks that don’t relate to their core job,³ we couldn’t help but think that this was reflective of tech contract management as well.

A 2023 Microsoft survey found that having too many inefficient meetings is one of the top workplace distractions that hurt productivity.⁴

Our research found that companies are, on average, renewing 4.7 contracts per month. These contracts all require meetings, emails, informal chats, demos, zoom calls and back-and-forth negotiations, plus legal, IT security and finance teams’ involvement. That’s a lot of admin tasks, taking time, effort and resources away from more productive projects.

And that’s only for renewals. If you want to purchase a new piece of software, we found that 3 bids are tabled for every purchase. Which means three sets of meetings, emails and demos to bring this to conclusion — unlike traditional vendor processes where all vendors get a time slot to pitch their solutions one after the other.

We then went further with our research. We found that there are 2.8 meetings per process, 8.6 emails for a renewal and 5.2 emails per new purchase. These averages are from best-case scenario situations — ones that don’t include back-and-forth negotiations. Initially these numbers don’t sound very high, but they do when you consider the wider context.

In meetings and emails alone, this equates to (per company):

26 hours of meetings and 59.4 emails per month.
385 hours of meetings and 712.8 emails per year.

385 is just a number though. What can it mean for your business?

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The pain of administration affects all levels, but its most profound impact is at departmental and strategic levels. We found that finance (36%) and tech (32%) were the departments have the highest concentration of software contract owners, with senior leaders impacted by sprawling SaaS contracts the most. 30% of contract holders sat at manager level and 29% at director level.

If they are stuck in admin, the valuable time they need to push their teams, departments and the whole business forward is limited. Strategic direction and action suffers as a result.

And contract management isn’t restricted to the timespan of a single month. If we take January as starting from a clean slate, that means that the January contracts are still being administered in February, adding another stack to the pile. It could seem never ending.

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Never-ending contract management

On average, two thirds of these need renewing every year once we discount the rolling licenses, which equates to a whopping 4.7 contracts per month. That’s a nuclear amount of admin involved to just keep them all rolling.

Those 126 SaaS contracts are purely the “official” ones, without counting Shadow IT — software, services and devices that are unauthorized for use by the business. When 80% of workers admit to using Shadow IT,⁵ it means there are many more contracts on the table that require management.

All of these contracts involve research time, discussion, negotiation and approvals. And considering these processes take around two months to complete, you get a real sense of just how constant these must feel to contract holders and key stakeholders.

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An auto-renewal scourge

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It’s contract cost vs the value of employee time. And since auto-renewals become the default, it’s clear that employee time is more valuable than company cash. But that’s not solving the problem, it’s simply shifting it.

With vendors giving minimal notice for renewals, it’s hard for contract owners to get ahead of the game. It doesn’t help that they lack total visibility over their tech contract situation.

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Zero tech stack visibility

The number of software tools used by workforces is expanding — and rapidly. According to CIO Dive, employees use approximately 11 applications to do their job⁷ — and this number has doubled in the past five years. The majority of these applications are department-specific (marketing, sales, engineering etc), rather than used across the whole company.

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The burgeoning numbers of siloed tools increases the difficulty in tracking all of the software used across a company. This is needed for financial modeling and predictions, IT and security audits, and legal requirements.

When we consider that SaaS and cloud spend is the second biggest overhead after headcount, knowing what software is being purchased and renewed is of huge importance to any efficient financial oversight.

We’ve talked at length about the importance of having total visibility over your SaaS stack from a monetary angle — but what about from a time, effort, and resource angle?

Put simply, duplicate and unused licenses cause contractual headaches, as your employees spend more time renewing licenses they don’t need.

For example, Sales and Product departments have been found to have the highest rates of products being underutilized — 49% and 45%, respectively.

Not having clear visibility here can duplicate work for the team member who engages in the renewal. Since many teams track renewals in outdated formats like spreadsheets, achieving and maintaining real-time visibility is especially tricky.

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It also means deadlines can be missed, at which point you spend a huge amount of time unpicking the renewal and extricating your business from a situation that could easily have been avoided.

The worst case scenario is you end up with a suboptimal outcome, whereby you are subscribed to far more than you need.

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Internal decision makers are blockers

When administering software licenses, processes are seldom as smooth as Barry White’s voice. Internal decision makers who have to review and approve your contracts can hit your progress with unexpected delays, emergency stops and even U-turn.

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In some cases, finance teams may unintentionally act as blockers due to reliance on manual methods for contract tracking, renewals, and payments with different spreadsheets and documents – leading to delays in processing contracts and payments.

Without automated systems or visibility of real-time data, contract management workflows may be difficult to streamline, resulting in inefficiencies, errors and missed opportunities to optimize supplier relationships.

They tend to be placed in teams that are removed from where the core license will be held. Areas like legal, IT and security, and finance are classic examples of stakeholders who are required to review each contract and give their sign off.

Their reviews take time. Our research shows that it takes, on average, seven days for a contract to get through legal, and an additional three days to be approved by IT.

These approvals might be frustratingly long, but they are critical. They safeguard the business from potentially disastrous scenarios like cyber attacks, financial mismanagement, and fraud. So they are absolutely key — and there are a lot of them. EY found that in large businesses, legal departments are handling 350 contracts a week.⁸ That’s 18,200 a year. Your SaaS license is not likely to be top of the priority list, so all you can do is sit and wait for their answer.

If it doesn’t pass approval, there isn’t a lot you can do either. You may have to look at an alternative, which resets your entire process.

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The emotional cost

Managing SaaS and cloud contracts usually triggers two emotions: boredom and stress. And both of these can negatively impact performance and productivity.

Boredom

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If you’re hired to sell products, keep customers happy, or write code, that’s what you want to be doing — and that’s what your company wants you to be doing.

Renewing and negotiating technology contracts, as we’ve seen, takes a lot of time and effort away from these primary and preferable tasks. This means contract holders and stakeholders are spending a lot of time doing things they don’t want to be doing, or sitting around waiting for answers. According to Business Standard, 86% of people feel they waste time in admin unrelated to their core job, with 41% of these spending over an hour a day mired in it.⁹

A drop in mood decreases the commitment to core projects and overall productivity. Oxford University found that happy workers are 13% more productive¹⁰ than those that aren’t. Combine this with a study by Korn Ferry that found 33% of people leave jobs primarily because of boredom¹¹ (as opposed to 19% who leave for a better salary), and we can plainly see the sheer impact boredom can have on the workplace.

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There is also the more human element to consider. The National Center for Biotechnology Information notes that boredom causes decreased productivity, poor mental health and even physical health issues.

A cited study by the University of Virginia found that, given the opportunity, 67% of men and 25% of women would rather administer themselves with an electric shock than experience boredom.¹²

We are not suggesting that bored employees partake in such extreme measures. But it clearly highlights the human dislike of being bored, and how people want to avoid the negative effects associated with such a mindset.

If SaaS and cloud license management is contributing to this, you should try and alleviate it by changing how your contracts are handled — can you spread the responsibility around so it doesn’t all fall on one person or team? Can you centralize tasks across an operations team?

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Stress

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The other side of the emotional coin is stress. Consider the following:

A contract holder who has limited experience in negotiating contracts, and little interest in doing so, but is under pressure to keep to a strict budget.

A vendor that waits until the last minute to start the renewals process, to maximize the pressure on the contract holder and also the chance of them signing something off quickly and without due diligence.

A leadership team that’s keen to reduce costs and is balancing headcount vs tech.

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All of these contract-related scenarios can be the cause of stress across a business. And stress at work can reduce happiness, productivity and can eventually lead to quitting. In the US alone, one million workers miss days at work due to stress, depression, and anxiety.¹³

Stress is rarely attributed to a sole factor, but by eliminating as many of them as possible, you can reduce the rate of stress and burnout and increase overall productivity.

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Managing cloud spend alongside SaaS

Having undergone explosive growth, we discovered spend on cloud can range from 5-20% of a company’s budget (depending on its size). And to show the speed of its growth, 55% of companies are spending more on cloud year over year, with 24% describing their upward spend as significant.

But does this growth necessarily mean extra administration? There are fewer contracts. For example, cloud products tend to be more “plug-and-play” and are controlled by the engineering department, rather than spread across the whole company. This helps increase visibility, maintain cost control, and reduce administrative tasks.

We’ve found that nearly a third (32%) of cloud spend goes to waste, due to idle, underused and/or poorly optimized cloud resources. While this could indicate inefficiency or a lack of oversight, it also highlights the complexities and effort required to effectively manage any cloud instance. Managing the cloud is less about contracts and more about consistent product monitoring and optimization — which is still administrative and draws focus away from revenue generation.

Take Reserved Instances, for example. We found that up to 20% of an engineer’s focus is on Cloud Cost Optimization and monitoring RIs per month. In terms of their time, that’s 32 hours a month, or 384 hours a year — enough time to become fluent in another language.

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In summary

You should now be painfully aware of the hidden challenges in any purchasing or renewals process.

Wasted time within a long process
Overwhelming administration
Never-ending contract management
Minimal license visibility
Internal and external decision makers
Cloud product management
Emotional strains

You see what your teams are going through to simply administer the myriad of SaaS and cloud contracts and licenses, and keep technology going within the business. You’re aware of the distractions, the stress and the constant work they take that are outside of core revenue-driving activities.

You also know that the current processes can disengage people, which negatively affects overall productivity, too. Not to shock you, but a recent Gallup study found that unengaged employees cost the world economy $8.8 trillion,¹⁴ which equates to 9% of global GDP. And workplace communication platform Slack found that poor productivity also leads to a drop in creativity — possibly resulting in a creative brain drain.

We know that SaaS and cloud license management is not causing all of this, but if it even contributes to it, it’s worth looking into it. Efficient and effective use of employees’ time, effort and resources are all incredibly valuable to the success of any business, so tidying this area up to release a wealth of other more productive ones is ideal!

But these processes are so ingrained, it’s hard to solve them all at once. There are steps you can take to remedy each one individually, but creating a dedicated team to centralize all contract administration is what many companies have looked at in the past. Though, this is expensive, slow and still doesn’t guarantee total real-time contract visibility.‍ There is another way.

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How Vertice does the work for you?

The Vertice platform is not just designed to save you money. Yes, it can save you 25% by getting your SaaS and cloud usage under control and with better discounted vendor contracts. And your business can see a financial return on Vertice in approximately 90 days, with an annual 7x ROI.

But it is so much more than just a money-saver. With access to a dedicated and experienced purchasing team, you can boost your own team’s efficiency and maximize results by shifting the administrative work to Vertice.

Extend your team

With expert buyers, we can negotiate your licenses on your behalf – alleviating the admin and enabling you to concentrate on strategic procurement, as well as your normal revenue-driving activities.

Get optimal pricing

We know a thing or two about proper pricing. With over $1.1bn in spend management across our customers, and over 15,000 price points to benchmark against, we can get you the best deal for your license. No need to worry about research or negotiation, we’ve got all of that handled.

Streamline approvals and get contract visibility

The Vertice platform brings all of your agreements, vendor information and contract details under one roof. Customizable workflows and intuitive usage data helps you regain control of license utilization with ease.

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Streamline your procurement process

Our Diligence Insights reduces the countless hours spent buying, managing and renewing software into a few clicks.

The Vertice platform identifies key conditions you can use to assess or negotiate on, and benchmarks your agreement with thousands of others so you get clarity on where yours stands.

With pre-completed security questionnaires, streamlined processes for compliance and approvals and detailed information on each vendor, your security, IT, and legal teams have a massively reduced load too.

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Unlock your cloud engineering team

Our Cloud Cost Optimization platform takes the resource intensive optimization and management away from your busy teams and automates them. Our proprietary algorithm buys and sells RIs on your behalf based on sophisticated optimization tests, so you don’t have to spend time and focus doing this yourself.

With zero-hassle implementation and the ability to also slash your cloud costs by up to 25%, you can focus on other key projects knowing your cloud instance is being managed and optimized effectively and automatically.

If you want to reduce the hidden administration that is tying your teams down, and release their productive potential, then Vertice is your answer.

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Methodology

Vertice analyzed the purchase and renewal of SaaS and cloud contracts across a total of 1000 businesses worldwide.

The research was conducted in February 2024.

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References

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