Vertice Report

SaaS & Cloud Spend Unwrapped

What’s causing rising software costs? And can you mitigate them, or are they inevitable and simply ‘the cost of doing business’? 

Introduction

A well-designed tech stack and cloud architecture enables business performance and growth.

However, rising costs are eating away at the bottom line.

But what’s causing these rising costs? And can you mitigate them, or are they inevitable and simply ‘the cost of doing business’? 

In this new quarterly SaaS and Cloud Spending Unwrapped report, we will show:

How SaaS and cloud spend is evolving
How businesses are adapting their tech stacks over time
The key technologies finance leaders are betting on to increase efficiency 

The big picture

Continued soaring prices make maximizing savings crucial
  1. The gap between SaaS inflation and CPI inflation is at its widest yet and ‘shrinkflation’ continues to be practiced by vendors – creating a ‘pay more, get less’ scenario.
  2. Business use of AI is proving to be more than just hype. The largest proportional increase of any category of tech spend was in AI - 64% YoY growth.
  3. Business' average AWS spend has grown by 11% YoY. But not always efficiently.

Whether combatting soaring SaaS prices with better negotiated contracts, or opting to increase AWS Savings Plan commitment levels over Reserved Instances, there still remains plenty of scope for businesses to find savings and make budgets go further.

SaaS spend in Q2 2024

It’s up and up for SaaS spending

Quarterly SaaS spend by employee has never been higher

SaaS Spend per Employee (Q2'23 to Q2'24)

SaaS Spend Chart
Hover to Magnify

There has been a 26.9% increase in SaaS spend per employee over the last 12 months, with Q2 being the highest on record (avg. $8600).

With the trend for SaaS spend per employee moving up every quarter, it's unlikely we will see a meaningful drop in spend in Q3. Which means visibility and control of your SaaS stack has never been more urgent.

SaaS apps per business hits a new peak

Average Number of SaaS Apps per Business (Q2'23 to Q2'24)

SaaS Spend Chart
Hover to Magnify

The average number of apps per business has grown by 10% since July 2023.

This could be due to the increase in adoption of ‘narrow’ or ‘point’ SaaS (tools that are dedicated to solving very specific problems), largely driven by how well these now tend to integrate with other solutions.

In our recent webinar on slimming down your organization's tech stack without limiting growth, Aarish Shah, Founder of EmergeOne, explains:

It could be easy to think that the reason for more SaaS spend per employee is simply that each employee is using more tools. But that’s not the whole story, as the graph below shows.

SaaS Spend Per Employee Vs. Avg. No. of SaaS Apps Per Business (Q2'23 to Q2'24)

SaaS Spend Chart
Hover to Magnify
Spend
Number of Tools

The SaaS spend per employee rises faster and steeper than the number of tools available to them, showing that there is more to this than the simple volume of apps.

The reasons behind q2 increases

Why is SaaS spend per employee increasing?

1. SaaS Inflation

The gap between CPI and SaaS inflation has steadily increased since February and, by the end of Q2 2024, had almost returned to October 2023’s all-time peak.

SaaS Inflation vs. Market Inflation (Q2'23 to Q2'24)

SaaS Spend Chart
Hover to Magnify
SaaS Inflation
Market Inflation

The gap is extraordinary. SaaS prices are increasing at a far faster rate than market forces ‘require’, and as we have covered in previous reports, buyers are not getting more for their money. In fact, typically they are getting less.

“Average SaaS inflation in Q2 2024 was 11.8% – 3.5x higher than May’s US CPI inflation (3.3%). Showing how this gap has grown, the average difference in Q4 2023 was ‘only’ 2.5x.

And the gap is even wider in the UK, with SaaS prices rising 5.5x faster than consumer goods inflation. And globally, this SaaS inflation surge shows no signs of slowing down.

Eldar Headshot

This is already being noticed by the market. 41% of those that contact Vertice for help optimizing their SaaS spend cite rising costs as their biggest concern - double the next largest issue of a lack of visibility into their SaaS costs and contracts.

Everything you need to understand SaaS Inflation:

The SaaS Inflation Index 2024

The SaaS Shrinkflation Report

2. The hidden cost of global layoffs

When a company makes a headcount reduction, SaaS contracts can rarely be flexed to match. SaaS spend per employee therefore has only one way to go - steeply upwards.

Tech Employee Layoffs

Source: trueup.io/layoffs
SaaS Spend Chart
Hover to Magnify

Why is this?

  1. User-based SaaS contracts are rarely able to be right-sized outside renewal points. Most customers make multi-year commitments without the ability to remove user licenses from agreements mid-way through, so when headcount reduces, the company is lumbered with unused licences.
  2. Most other SaaS contracts are structured on usage or consumption, and these costs will rarely reduce in line with having fewer employees. Examples include Snowflake (queries), Twilio (SMS volumes) or Zapier (API requests). Marketo customers, for instance, are charged in part according to the number of contacts in their customer/prospect database - a factor totally distinct from the number of Marketo users.

SaaS product spending patterns

How are businesses evolving their SaaS stacks?

Category-level spending

Proportion of Spend Per Category

SaaS Spend Chart
Hover to Magnify
Q2 '23
Q2 '24

2024 has seen significantly more investment in ‘Business Ops software’ than the previous year (24%). These are a mix of productivity tools like Google Workspace, plus finance software and other apps focused around business processes and resources.

This is likely to be a result of companies placing more focus on managing their back-offices and supply chains more cost-efficiently.

Meanwhile, investment in AI has increased by an extraordinary 65% YoY - the highest proportional increase of any category by far. Perhaps companies are expecting AI to pick up the slack from headcount cuts. Or larger companies with capital to experiment are onboarding these tools on a ‘proof of concept’ basis.

These projects’ success or failure may be evidenced by whether the growth in this area continues.

“Within Business Ops we have seen particular strength in the Office Of The CFO software subcategory, with demand accelerating following Silicon Valley Bank's March 2023 failure and now a disproportionate lift from interest in AI.

When Matt Slotnick, Founder and CEO of Poggio, recently joined CloudRatings' Cloud Radio podcast, he highlighted who is driving AI adoption right now.

'It's not small sales teams with credit cards that can go swipe. It's actually the market-leading companies that like winning because they see AI and think, 'We won the last game, and now AI helps us win the future. How do we get AI to as many people in our organization as possible?'"

Matt Harney Headshot

Application-level spending

Most Popular SaaS Apps by Spend

AppChange vs July ‘23
Slack
Slack Icon
1st
+2
Google
Google Icon
2nd
-1
1Password
1Password Icon
3rd
+4
Hubspot
4th
0
Intercom
Intercom Icon
5th
+7
Miro
6th
+10
Linkedin
7th
-3
Atlassian
Atlassian Icon
8th
-6
Salesforce
9th
+2
Figma
Figma Icon
10th
-2
Kandji
11th
-2
GitHub
12th
-3
OpenAI
13th
+12
Monday
14th
0
NetSuite
15th
+5
AppChange vs July ‘23
Slack
Slack Icon
1st
+1
Salesforce
2nd
-1
Microsoft
3rd
0
HubSpot
4th
+2
LinkedIn
5th
-1
Atlassian
Atlassian Icon
6th
-1
Google
Google Icon
7th
0
Monday
8th
+4
Miro
9th
+6
1Password
1Password Icon
10th
+1
DocuSign
Docusign Icon
11th
+5
Okta
12th
+1
Intercom
Intercom Icon
13th
+5
NetSuite
14th
0
Adobe
15th
+5
AppChange vs July ‘23
Slack
Slack Icon
1st
+2
LinkedIn
2nd
0
Microsoft
3rd
-2
Salesforce
4th
0
NetSuite
5th
+1
Adobe
6th
+2
HubSpot
7th
+3
Atlassian
Atlassian Icon
8th
-3
Jamf
9th
-2
Snowflake
10th
+2
Okta
11th
-2
GitLab
12th
+5
Intercom
Intercom Icon
13th
+3
DocuSign
Docusign Icon
14th
+1
Google
Google Icon
15th
-4

“Enterprise SaaS is consolidating fast. Businesses want all-in-one solutions and robust integrations, pushing contract values up for heavyweights like Salesforce, Microsoft and HubSpot.

These suppliers offer extensive functionality and seamless ecosystems, reducing implementation risk and making them safer bets for enterprises seeking long-term value.”

Nick Riley Headshot

Tanja Fischer, CFO at Lindus Health who recently featured on our For The Love of Finance podcast series, noted that "startups are using tools like Microsoft, Slack and Monday to build communication structures that enable employee productivity".

She also noted the importance of business-critical tools like Okta and 1Password that can also unlock growth for startups:

"Investing in security can help pursue accreditations that are usually required to partner with larger customers."

Perhaps unsurprisingly, AI is dominating the top 10.

OpenAI takes the top spot as companies increasingly investigate both internal and external use cases, ranging from customer service chatbots to internal search engines and marketing copy generators.

Meanwhile the popularity of tools like Hex shows companies' eagerness to understand their data better, and the rise of Apollo.io seems to have been driven by their recent focus on new AI-driven capabilities.

“We use AI in our customer support and success areas to service our customers far more quickly and easily.”

Philip Watson Headshot

Also, our data shows that AI software utilization is higher than the overall average (72% vs 65%) - suggesting teams are adopting these tools eagerly, potentially due to their effectiveness and impact.

This all costs money in a time of soaring costs. We’ve also noticed key players like Microsoft and Google giving big discounts for Copilot and Gemini, helping customers test them out for themselves and also helping the vendors fine-tune their products to establish strong product-market fit.

Fastest Growing Apps by Region ($ Spent)

Top Vendors Chart
Hover to Magnify

Cloud Spend in Q2 2024

Cloud spend is increasing, and significant savings opportunities are being missed.

Cloud spending patterns

YoY AWS Spend per Business

Cloud Spend Chart
Hover to Magnify
Spend
Trendline

Monthly AWS spend per business has increased 11% YoY, with Q2 2024 showing the highest average monthly spend ($137,000 per business p/m). This indicates, whilst there are peaks and troughs month-by-month, costs are generally rising.

Q1 to Q2 2024 saw the biggest quarter-on-quarter spike, with average monthly spend per customer jumping by $9,000.

Share of Spend per Category

CategorySpend Q2 '24Spend Q1 '24Spend Q2 '23
Compute27.33%25.70%27.15%
Databases18.46%20.86%20.73%
Networking & Content Delivery10.70%10.27%12.55%
Cloud Financial Management12.33%12.04%8.27%
Management & Governance5.62%5.33%5.83%
Storage5.52%5.44%6.76%
Analytics4.75%5.19%4.76%
Support4.75%5.19%5.54%
Containers3.95%3.41%2.33%
Security, Identity & Compliance3.13%2.77%2.66%
Application Integration1.31%1.19%0.99%
Others2.15%2.60%2.43%

The starkest observation from this chart is arguably the most reassuring. While many categories saw a reduction in spend YoY, Cloud Financial Management saw a 49% surge in investment, probably driven by a heightened awareness over rising costs and a desire to control them.

In Summary

Grappling with high software spend is the new normal

It’s time to spend smarter

Businesses can’t allow their SaaS and cloud spend to increase at this rate. They must quickly become more sophisticated in cost oversight and management.

We are seeing attempts to do so - trusting AI more, and the greater use of Savings Plans for example. But integrated efforts across SaaS and Cloud appear to be lacking.

"SaaS and cloud spend are often the silent killers in a company's budgets - too often left unmonitored, or assumed to be an unalterable business cost.

This simply isn't the case. And we are yet to meet a finance or procurement leader who hasn't been astonished by the value of the savings tactics available to them they aren't capitalizing on.

We can't realistically predict a substantial drop in SaaS pricing. Nor can we expect growing companies to focus less on cloud. Which means it’s up to finance and procurement leaders to find new ways to reduce spend while increasing efficiency."

Eldar Headshot

Report Methodology

To create our software spending reports, we use aggregated, anonymized data to provide an in-depth view of global SaaS and cloud spending. 

This data is based on a network of thousands of companies, vendors, and millions of cloud metrics across a varied portfolio of businesses worldwide. These companies span every major industry and vary in size, from small businesses to some of the world’s largest organizations, with hundreds of thousands of employees and millions of customers.

When referring to company size, Vertice uses the term "startups" to refer to companies with 100 or fewer employees.

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