Research by AccountsIQ has found that CFOs are facing growing pressure around the costs of SaaS. The research, which is based on a survey of 125 CFOs and senior finance leaders, found that 14% have been stung by price hikes, hidden costs (44%) or both (21%). The research did not identify how much software is increasing, though. 78% of respondents were not expecting these price hikes.
However, the Vertice SaaS Inflation Index found that spending on software has increased by almost 27% over the last 12 months. The increase means that $1 in every $8 is spent on SaaS, and inflation is 4x higher than standard market inflation. With the rise in National Insurance costs hitting companies hard, finance leaders face tough decisions about their Saas solutions.
CFOs have naturally reviewed their SaaS spending with companies like Microsoft, increasing SaaS costs every year. For example, on April 1st, Microsoft increased SaaS prices by 5% across several applications. With the UK inflation rate sitting at only 2.6%, SaaS is taking up an increasing share of budgets, and finance leaders are concerned. 64% felt that the increases were unjustified.
While that research did not cover this, the gross profit margins for SaaS firms are often between 70 and 85%. 41% have had to reduce spending in other areas to accommodate the increases. The result is that 81% of respondents are considering switching to alternative software providers because of these price increases.
The survey does not explore what the hidden fees respondents are talking about, though they may include excess licenses, inactive accounts and duplicate subscriptions. Most software contracts are multi-year and have a fixed number of licenses. If a company reduces in size, some vendors will not adjust licenses until the contract term is up. Other costs can include additional cloud costs, such as storage.
Out of the frying pan?
The obvious option, for many, is to switch software suppliers. However, that is also fraught with risk. 60% see lengthy implementation times as the biggest barrier (60%). AccountsIQ did not reveal other challenges, but typically, these are seen as:
- Data migration
- Compatibility with existing software architecture
- Change Management
Despite the issues, 57% of respondents had considered switching in the last year, and a further 29% are still considering a change. 36% have already switched or are actively looking for a new provider.
Darren Cran, CEO of AccountsIQ, summarised, “Finance leaders are facing increasing pressure to manage costs while also having to deal with a multitude of global, political and economic challenges.
“It’s up to software providers to do everything they can to support the mid-market businesses that hold the key to economic growth. By helping finance teams work smarter, we can help them adapt, grow and overcome the challenges they face.”
Enterprise Times: What does this mean
Without full access to the data set, this survey could have provided some additional and useful insights. However, trust is broken between some SaaS providers and their clients. What is missing is the details of the issue. One factor is the power dynamic between the large vendors and SMES. Larger firms often impose blanket price changes without considering the impact on existing clients.
While many small businesses cannot afford to change providers due to the costs and times involved in making such a switch, it breeds distrust, and firms are less likely to purchase additional licenses from those vendors for other solutions. It, therefore, opens the door for other vendors to step in.
Firms also need to carefully consider negotiations for existing and new SaaS contracts. Are price increases linked to the Retail Price Index (RPI)? What happens if they do wish to switch providers? Is their data accessible, and what happens if they need to downsize the organisation? Will the contract terms allow them to reduce the license subscriptions?
