5 Hidden Costs of SaaS (and How to Prevent Them)

This year, SaaS adoption will be more pervasive than ever before.

According to the global CIO survey by Deloitte, an average of 22% of company IT budgets go to cloud-based tools and services.

Unfortunately, as this number continues to grow, companies are increasingly unable to effectively track their SaaS usage and spending. This, in turn, leads to SaaS waste — money wasted on unused, underused, or duplicate SaaS tools.

According to the SaaS trends report, the average waste per company can be over $135,000 annually.

Luckily, as long as you identify the root cause of the waste, it can be avoided.

Cost #1. Duplicate Apps

It’s common for two different departments that face similar operational issues to independently purchase unique apps to solve their problem. Unfortunately, this costs the company twice as much SaaS spend.

Large organizations that don’t update their SaaS inventory on a regular basis are prone to this mistake.

Here’s how this might happen:

1. An organization pays for a project management tool for their entire marketing department (ex. Basecamp), but it hasn’t been widely adopted.
2. The PR team, that sits within the marketing department, finds a project management tool they like better (ex. Trello), and buy it.

When two tools are purchased for the same use-case, the organization ends up overpaying. The PR team should have learned how to use the original SaaS tool, or alternatively, migrated the entire marketing department from Basecamp to Trello.

Cost #2. Automatic Renewals

Most SaaS tools issue automatic renewals, forcing companies to proactively opt-out of their subscriptions, instead of requesting recommitment. If your organization doesn’t have clear app ownership, automatic renewals are a huge risk-factor for SaaS waste.

Here’s how this might happen:

1. Marketing asks IT to buy a new SaaS tool.
2. IT purchases the new SaaS tool (with a 6-month subscription) and gives Marketing access.
3. Marketing uses the SaaS tool for three months and then stops, but never tells IT to cancel the subscription.
4. IT is unaware that the tool is not being used, and lets the SaaS tool auto-renew every six months, resulting in serious SaaS waste.

If every app that’s purchased has a designated owner — an individual, rather than a department— this waste can be avoided.

Cost #3. Incorrect Licenses

It’s common for SaaS companies to offer different features depending on the pricing tier. The more advanced features you want, the more you’ll have to pay.

Sometimes, during the purchase process, people overestimate their needs and are compelled to buy the most comprehensive, top-tier plans.

However, once the software is up and running, there comes a realization that many of the features being paid for aren’t actually being used.

For example, you might buy HubSpot Professional plan because it allows you to create a blog and optimize it for SEO:

But as your company’s business goals change over time, you realize that you no longer need SEO functionality, nor the dozens of other advanced features that come with the professional package.

By making a switch to the Starter package, your company can save up to $8,303 annually.

To avoid this pitfall, we recommend closely monitoring the most expensive, top-tier SaaS tools you’ve purchased. Make sure that employees are actively using all the advanced features, and if not, make the case to switch to the less expensive plan.

Cost #4. Abandoned Software

There are so many interesting SaaS tools on the market these days, it seems like every day there is a new ‘go-to solution’ or ‘performance hacker’ that companies need to try.

As with any fad, new technology comes and goes, and it’s common for companies to adopt a solution, use it for a week or two, and then abandon it when something better or different comes along.

A simple solution to app abandonment is a SaaS management solution that tracks software usage. If employees aren’t using a given tool, you can either try and find out why, or just cancel the subscription.

Cost #5. Abandoned Licenses

Unless you have structured onboarding and offboarding processes, abandoned licenses can be commonplace.

Here’s how this might happen:

1. When an employee quits, your IT team forgets to offboard them from a specific SaaS tool (and cancel or recycle their license).
2. The company continues paying for their license, even though it’s not being used.

Most team-oriented SaaS tools charge around $9 to $16 per user per month, so for a single employee, the wasted spend is minimal. At scale, for large organizations with multiple departments and hundreds or thousands of users, the costs contribute to significant SaaS waste.

To avoid this issue and develop a structured offboarding process, we recommend using SaaS management software.

Every time an employee quits, an IT team member triggers an offboarding workflow. This workflow gives IT a complete list of all the tools the employee was using and walks them through the process of cancellation.

How SaaS Management Software Helps Avoid Hidden SaaS Costs

If you’re concerned about your company’s SaaS spend, a practical solution is researching SaaS management tools specially designed for creating business efficiency.

SaaS management can automatically uncover all the tools you’re currently using:

Then, let you manage your SaaS inventory with these features:

• Tracking Software Usage: Get a top-down view of how much each SaaS is being used.
• Onboarding & Offboarding Processes: Automate your onboarding and offboarding processes, ensuring that all employees have access to the tools they need.
• Vendor Management Workflows: Structure your SaaS acquisition workflows and prevent duplicate or unused application purchases.