According to Vertice’s annual SaaS Inflation Index, nearly three-quarters (73%) of SaaS vendors raised pricing in 2023, sending software spending to an all-time high.
According to Vertice, the SaaS and cloud spend optimization platform, software inflation has remained persistently high in 2023 at 8.7% – more than double the rate of US CPI inflation.
While CPI inflation has decreased since 2022, Vertice’s “SaaS Inflation Index” reveals that software prices are increasing. In fact, a SaaS stack that cost $1,000,000 a year ago will now cost firms $87,000 more.
According to Vertice study, corporations are now spending more than $1 in every $8 on SaaS. Software inflation has now surpassed US CPI inflation.
The Index, which analyzes data from 16,000 software companies, discovered a “SaaS inflation gap” – the difference between software and market inflation – that has grown since last year. It demonstrates that the rate of inflation in software is more than twice (136%) the annual CPI rate of inflation and shows no signs of diminishing. In comparison, the inflation differential in 2022 was 38%.
Price increases for software are spiraling out of control.
In 2023, nearly three-quarters (73%) of software providers raised their pricing, including HubSpot (+12%), Microsoft (++15%), and Webflow (+23%).
More than half (57%) of SaaS companies conceal their pricing from the public eye, making price increases simpler to conceal.
SaaS business spending has reached an all-time high.
For the first time in history, software spending has exceeded the contribution companies make for healthcare coverage. SaaS spending now accounts for 14.1% of a typical company’s expense line, up from 12.7% last year, which indicates that SaaS accounts for more than $1 of every $8 spent. This amounts to an average of $7,900 spent on software per person, up from $5,760 in 2022.
“SaaS shrinkflation” is on the rise.
Worryingly, the analysis shows that while overall SaaS spending is increasing by 17.9%, pricing rise accounts for only 8.7% of the increase. The remainder is driven by additional users, the introduction of new software tools, and, most concerningly, the emergence of “SaaS shrinkflation.”
Shrinkflation, which happens when vendors charge the same price for less functionality in order to generate sales in challenging economic times, has impacted more than a quarter (28%) of Vertice’s clients’ contracts. Vertice has seen an increase in the employment of opaque tactics to conceal declines in actual value, such as “bundling,” “unbundling,” and “currency harmonization.”
Vertice’s CEO and founder, Eldar Tuvey, stated:
“While consumers around the world are experiencing a cost-of-living crisis, businesses are experiencing their own cost-of-software crisis, with costs rising much faster than last year as vendors seek to grow their top lines in a challenging macroeconomic environment.” The growing frequency of SaaS shrinkflation makes navigating software pricing more complex than ever.
“There is a pressing need for businesses all over the world to manage their cost base in order to reallocate resources to more productive areas and weather the global downturn in better shape.” Getting good value for money begins with gathering accurate information and investigating providers with questions like, ‘What are other companies like us paying for their licenses?’
“Not only are efficient businesses more likely to turn a profit or avoid cash flow problems, but they are also less vulnerable to being forced to make redundancies that reduce productivity.” Leaders should search for technology that can regulate and organize the software stack, offer visibility into software pricing, and help them negotiate contracts.”