Dive Brief:

• Unsanctioned software-as-a-service purchases by employees can annually cost businesses millions of dollars in wasted spending depending on the size of the organization, according to cloud and SaaS spending management company Vertice.

• Organizations with an employee headcount of 1,000 to 2,000 wasted $3.3 million on underutilized SaaS licenses on average in 2023, according to data provided by London-based Vertice. The cost was as high as $4.3 million in the case of companies with more than 2,000 workers.

• “With software now the second largest expense for many companies after payroll costs, there is a pressing need for CFOs to develop a clear plan for identifying and eliminating SaaS wastage,” Vertice CEO Eldar Tuvey said in an emailed statement. “Organizations have an average of 126 SaaS tools, and any of these could be contributing to wasted spend.”

Dive Insight:

Worldwide end-user spending on public cloud services is projected to grow 20.4% to total $678.8 billion in 2024, up from $563.6 billion in 2023, according to Gartner.

Vertice previously reported that almost three-quarters (73%) of SaaS vendors hiked prices in 2023, pushing total software spending levels to an all-time high.

A recent Vertice blog post highlights another SaaS management challenge: the rise of “maverick buying” within organizations, where employees adopt tools without the knowledge or approval of the information technology department. The problem has also been referred to as “shadow IT.”

“This happens for a variety of reasons — for example, staff members may have tools they are more familiar with from previous roles, or they could be unaware of the established process for new procurement,” Sarah Monette, head of partnerships at Vertice, said in the blog post.

On average, more than 30% of SaaS licenses are barely used or not used at all by the intended employees, representing “substantial cost savings to be had if these [issues] are identified and addressed,” according to the post.  

Besides out-of-control spending, unsupervised or unsanctioned IT purchases within organizations can result in security risks and compliance issues, Monette said.

“To mitigate these risks, you need comprehensive visibility into all company IT use,” she said, adding that companies should also consider establishing clear internal guidelines for requesting, evaluating, and approving new software purchases.