Cost of software crisis: SaaS inflation outstrips UK consumer inflation for the first time

Almost three-quarters (73%) of SaaS vendors hiked prices in 2023, pushing software spending to all-time high according to Vertice’s annual SaaS Inflation Index.

LONDON, Nov. 14, 2023 /PRNewswire/ — Software inflation has remained stubbornly high in 2023 at 8.7%, significantly higher than the rate of CPI inflation in the UK (6.7%) according to Vertice, the SaaS and cloud spend optimization platform.

While CPI inflation has cooled compared with 2022, Vertice’s annual “SaaS Inflation Index” shows that software prices are surging. A SaaS stack that cost £1,000,000 last year will today cost businesses an additional £87,000.

The SaaS Inflation Index, which analyses data from 16,000 software vendors, identified a “SaaS inflation gap” for the first time, illustrating a gulf between surging software prices and CPI inflation. In 2022, the annual CPI rate grew 18% faster than the rate of inflation in software. However, over the past year, this trend has reversed – with SaaS prices rising 28% faster than consumer goods inflation and showing no signs of slowing down.

Spiraling software price hikes

Almost three-quarters (73%) of software vendors increased their prices in 2023, including HubSpot (+12%), Microsoft (+15%), and Webflow (+23%).

Over half (57%) of SaaS vendors hide their pricing from public view, making it easier to mask price hikes. Vertice found that the less transparent a software company is about its pricing, the more likely it is to make sudden price increases.

More than £1 of every £8 spent on software – a record high in SaaS business expenditure

SaaS spending now accounts for 14.1% of a typical company’s expense line, which means that more than £1 of every £8 spent is on SaaS. This equates to an average of £6,500 per employee spent on software, compared to £4,740 in 2022.

Rampant “SaaS shrinkflation”

Alarmingly, the research highlights that while overall business SaaS spending is growing by 17.9%, only 8.7% comes from growth in prices. The remainder is driven by adding more users; introducing new software tools; and – most worryingly – the rise of “SaaS shrinkflation”.

28% of software contracts have been impacted by shrinkflation, where vendors charge the same price for reduced functionality. Vertice has seen a rise in the use of opaque techniques to hide decreases in real value – including “bundling”, “unbundling”, and “currency harmonization”.

Eldar Tuvey, CEO and founder of Vertice, said:

“While consumers across the world face a cost of living crisis, businesses are facing their own cost of software crisis, with costs rising much faster than last year, as vendors look to grow their top lines in a challenging macroeconomic environment. The growing prevalence of SaaS shrinkflation makes software pricing more difficult to navigate than ever.

“There is a pressing need for businesses to manage their cost base in order to allocate their resources to more productive areas and ride out the global downturn in better shape. Getting value for money starts with gathering accurate information and asking vendors lots of probing questions, for example: ‘What are other companies like us paying for their licenses?’

“Efficient businesses are not only more likely to turn a profit or avoid cashflow problems, but they are also less vulnerable to being forced into making redundancies that reduce productivity. Leaders should look to technologies that can control and centralize the software stack, provide visibility into software pricing, and support them with contract negotiations.”

Downloadable assets:

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Vertice’s 2023 SaaS Inflation Index:

Download the full report.

Contact:

Emily Glover

[email protected]

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