SaaS Inflation Index 2025

SaaS inflation outstrips consumer inflation once again

Spend on software is predicted to increase by 14% in 2025, according to Gartner. This is on top of an 11.7% growth in 2024.

Yet taken as a single data point, it can be hard to distinguish between how much of that is made up of genuine growth - i.e. buying more tools and paying for more users - versus price rises.

This research takes a detailed look at how spending on SaaS is changing, with particular regard to inflation and rising prices.

Key takeaway: a typical business at the start of 2025 is spending significantly more on software than it was a year ago — even without purchasing any new products or licenses. Without a close understanding of pricing data and an intelligent approach to software purchasing, these costs are at risk of running away from procurement leaders and CFOs.

SaaS spend is surging by any measure

It is incredibly rare to find any sizable organization that does not have more than 100 different SaaS products in its tech stack. Software has simply become a cost of doing business.

In 2025, global SaaS spend is predicted to hit the $300bn mark. Putting that into more practical terms, that represents approximately $9,000 per employee, up from $8,700 mid-2024 and $7,900 in 2023. This highlights the constant steady increase of SaaS spending, with little to slow it down.

Giving individual workers everything they need to be productive is a meaningful investment. Just consider the most basic of needs from IT (collaboration, video conferencing, messaging), HR (resource management), security (SSO, networking, endpoint) and finance (payroll, expense management) - all this before any specific departmental SaaS tools are even included.

Yet the figure of $9,000 may come as a surprise. The rise in percentage terms YTD is above the US median salary increase. It also surpasses, for the first time ever, the average employer contributions for healthcare coverage.

Spend on SaaS per employee is now a bigger contribution than healthcare.

This increase in SaaS spend per employee - up by 3.5% from mid-2024, 10% from 2023 and 37% from two years ago - is caused by:

1. More tools per head - the average amount of applications per company hit a high water mark of 130 in Q4 2024.

2. SaaS price increases - it's not uncommon to see vendors increase prices by up to 25%.

3. Widespread headcount cuts combined with inflexible SaaS contracts that won't accommodate fewer users.

This last point is an important one. Many vendors charge by usage, volume, consumption or features, not by user (e.g. Snowflake (queries), Twilio (SMS) or Zapier (API requests) or HubSpot (marketing contacts)), and so reductions in headcount just mean the SaaS cost is spread over fewer employees.

Meanwhile those vendors who do charge per user (46% in fact) are very unlikely to offer meaningful discounts outside renewal times, or without restarting a contract term - an unattractive offer for a business making headcount cuts.

However, we are starting to see a shift to different pricing models. Per user pricing has dropped by 8%, with hybrid pricing and usage pricing increasing in popularity - powered by the rise of AI and the desire for more flexible pricing structures. It's unlikely this will make meaningful change to overall costs, as this switch is gradual rather than immediate, but watch this space.

Spend on SaaS and cloud now represents 25% of a typical company’s expense line.

All this combines to mean that the typical organization now spends over $1 in every $8 on SaaS.

Cloud spend has also grown as a total dollar value and as a share of the spend. This category of spending includes investment in infrastructure like AWS, Azure and Google Cloud (GCP) and has grown even faster than SaaS. Globally, spending on cloud computing for businesses has increased by 57% YTD from January 2024.

The SaaS Inflation factor

It’s obvious that SaaS spending has grown — as a total, as a share of spend, and per employee. Dissecting the factors driving that is a more nuanced matter, but the rising price of software is unmistakably significant.

SaaS inflation is a term coined to describe the average price increase of software. Just like a typical person’s shopping cart is used to quantify the consumer price index (CPI), the same can be done for an organization’s SaaS stack.

If you were to take the full stack of SaaS services your organization was using 12 months ago, what would that same package cost today? A business spending $1,000,000 per annum last year can expect to now have to spend an additional $118,000 - for the exact same stack.

Compared to H2 2024 this has dipped slightly. But inflation fluctuates, and the 2024 average was 47% higher than the 2023 average (8.7%). So it's likely businesses will be paying a lot more in 2025 than 2024 if this trend continues, and companies don't take action to mitigate.

For 2024, the average SaaS inflation rate was 12.8%, meaning the same unchanged set of SaaS products will cost businesses significantly more than it did a year ago.

SaaS inflation in 2024 has been driven by a variety of factors, but fundamentally it is due to a majority of vendors increasing their pricing.

Over half (58%) of all software vendors put prices up over the past 6 months. And compared to the 2024 average, we are starting to see a worrying trend increase after a welcome backslide.

This is driven by significant price hikes from popular vendors such as Kandji and Asana, averaging a 22.8% increase between them. And some were even higher, such as Snowflake, whose customers experienced a 25% rise.

This average is well above consumer inflation, even after accounting for those that left prices unchanged. Consumer inflation, which includes everything from apparel and food to housing and healthcare, has decreased drastically since a spike in 2021-2022, with most markets hovering between 2 and 5%.

While wider consumer inflation has fallen from 3.3% to 2.2% (G7 average), SaaS inflation remains uncomfortably high — 322% higher than for most other products.

Vendors broadly increase pricing at a globally consistent rate. Consumer inflation, of course, varies wildly between regions and can be directly managed by central banks for each nation. SaaS inflation is less beholden to these forces, but it means that the growth in the cost of SaaS outstrips the cost of other goods at a swifter pace in some regions than others.

SaaS inflation is over four times the rate of consumer inflation (CPI) in the US, UK, Germany and Spain, and around even reaches over 7x or 8x the national CPI of Singapore or France.

The global average is also higher than this time last year (3.7x in Jan '24) This clearly demonstrates that, even if SaaS inflation takes a small dip, costs will remain disproportionally high if it doesn't match market inflation patterns.

The rise in SaaS prices is not uniform by product category either. Sales software, which already suffers from poor licence utiliization and poor pricing transparency, has seen bigger price hikes than in other software categories - averaging a 16.6% inflation rate.

This is followed by project management (16.1%) and IT infrastructure (15.8%) tools. However hosting and connectivity tools have seen the biggest inflation increase, hitting nearly 18%.

SaaS Shrinkflation is rampant

One striking finding from this research is that while SaaS spending is growing, only about half of this comes from vendor price increases. The remainder is driven by at least two other mechanisms. Firstly, there is increased levels of adoption; essentially more investment per head in new products. In AI software alone, investment surged by 65% YoY.

The other is 'shrinkflation' - a portmanteau to describe obfuscated changes to pricing and value that are not immediately obvious on the rate card.

Inflation is, for most people, a fairly intuitive concept. It’s simple to grasp how a grocery item that cost $1 five years ago now costs $2. SaaS is a little more nebulous, involving a complex and frequently changing constellation of packages, bundles and license agreements that make comprehending it more difficult.

Shrinkflation takes advantage of this confusion, and affected 27% of businesses up to January 2025.

61% of SaaS providers take measures to mask their pricing from customers - only 39% publish pricing, such as on their website. It’s worth stressing this data point, as it is underlined by the finding that vendors with weak Pricing Clarity scores are much more likely to increase prices than those with strong Pricing Clarity scores.

Pricing Clarity is a score developed by Vertice that provides insight into how a vendor compares with peers with regard to its pricing approach. The score is comprised of three core metrics, each concerning a different aspect of a vendor’s pricing.

• Simplicity is rated on how easy and intuitive pricing is to understand
• Transparency is rated on the availability of published pricing structures
• Parity is rated on how consistent pricing is across similar customer profiles

Vertice research shows that an increase in Pricing Clarity by one standard deviation leads to lower average price increases by 2.7%. Put more simply, the more hidden, complicated and divergent a vendor’s pricing is, the more likely it is to have recently been increased.

There are myriad of ways in which SaaS shrinkflation manifests, and understanding the concepts behind them can be useful when negotiating renewals or managing new purchases.

1. ‍Bundling of products and features can often hide decreases in real value to end customers. Vendors such as Aircall and Atlassian position their pricing to compile multiple solutions into a single offering, not all of which are necessarily required by their customers.
2. ‍Unbundling of products and features can achieve the same end result, albeit with inverted methods. By charging for individual modules rather than a single platform, the SaaS vendors can squeeze out more revenue per customer.
3. ‍Non-cumulative pricing limits the amount of value a customer can accrue over time. Some vendors do not allow customers to collect cumulative credits on usage or other criteria, instead making customers use their paid-for allowance or accept losing it for subsequent pay periods. Switching to a use-it-or-lose-it model is a subtle way of increasing revenue for SaaS vendors — both Snowflake and Zapier use this model.
4. ‍Currency harmonization is the practice of adjusting prices regionally to account for currency drift, retaining some parity between pricing in different markets. In reality, vendor pricing is often increased in markets that are more affordable for customers, rather than pricing being marked-up in markets that are comparatively more expensive — as was the case with Microsoft.
5. ‍Restructuring pricing can also be a wholesale change, as when Unity transformed its approach for charging developers to catastrophic effects. This can be aligned with a major product shift, such as when moving to the cloud, or just a strategic business change. Major adjustments to pricing models can mask increases as it becomes challenging for customers to compare in a before-and-after analysis.
6. ‍Reduced discounting occurs when vendors adopt new parameters for setting levels of discounts for their products, and is an often invisible element of shrinkflation. Reducing the discounts that salespeople are able to unilaterally grant in order to secure a deal can drive up net prices. A push for longer term contracts can obfuscate contractual price increases, with discounting less flexible over time. Vertice has observed that the willingness to discount has reduced markedly among software vendors.

How to tackle SaaS inflation and 'Shrinkflation'

While consumers face a cost of living crisis across much of the world, businesses are facing their own ‘cost of software’ crisis, with costs rising much faster than is reasonable. This is driven largely by SaaS inflation, and amplified by the more subtle impact of SaaS shrinkflation.

When coupled with other spiraling costs, such as those associated with working in the cloud, it’s evident that CFOs that can manage their costs in a lean, strategic way stand to benefit significantly over those that don’t. Efficient businesses are not only more likely to turn a profit or avoid cash flow problems, but they are also less vulnerable to being forced into making redundancies and other hard-hitting measures that can cut deep into a business.

This is where Vertice comes in.

With access to authentic and validated pricing data for more than 16,000 vendors worldwide, our expert purchasing team will ensure you’re getting the best possible deal on any SaaS contract, enabling you to reduce your annual software spend by up to 30% without compromising on your preferred tech stack.

Chat with our team of experts today to discover how you can combat the effects of SaaS inflation.