6 Hidden Costs of SaaS Applications

The SaaS revolution has been great for businesses of all sizes - driven by the fundamentally different economics of hyper-scale Cloud, brilliantly focused applications can be developed and brought to market at a fraction of the cost of enterprise software just a few years ago. Without any infrastructure set-up or major up-front capital outlay, we can all access the latest and most innovative business software, and there's virtually no lead time. Just sign up and you're good, often you don't even need your credit card in the first instance. However, all that benefit does come with some potential pitfalls.

1. Beware the perils of freemium

SaaS vendors actively encourage a ‘prosumer’ stance, where they pitch their product to consumers with the intention of monetizing when the app gets imported into a business context – so you can get blindsided by applications that you’ve never heard of, spreading at a team level within the organization. What’s free for home use isn’t usually quite so free in the office though, so you can get caught out by the fine print – which you only become aware of when the SaaS vendor sends a bill to the accounts department.

Many SaaS apps are free to consumers because what they really want are 'prosumers' - the product is pitched to consumers with the intention of monetizing when the app gets imported into a business context. So you can get blindsided by applications that you’ve never heard of, spreading at a team level within the organization. Typically, someone in your business signs up for home use then likes the app so much, they start using it at work. They convert their colleagues, who also sign up. But applications that are free at home often aren't free for commercial use, so before you know it, you're exposed to the risk of substantial unplanned licensing costs for an app you've never even heard of.

2. Death by a thousand expense claims

Even when they're paid for from the start, SaaS applications are often paid for by individual teams using company credit cards and covered through expense claims. Before you know it, you have an unmonitored 'black ops' IT budget that's leaking out without any involvement from IT or purchasing. 

3. Tiered licensing costs will catch you out

Many SaaS applications have tiered pricing, so they start out free or very cheap for a few people - but when you cross licensing limits, or want to add enterprise-friendly features like API access or backup, the jump in licensing costs is a hefty hike. And if several teams are using the same product, you could find a higher tier pricing kicks in unexpectedly. You may not have any choice but to pay — or else lose functions that key projects and teams have come to rely on. 

4. Watch out for the add-ons

Many SaaS applications offer cheap or free access to basic functions but charge a premium for add-ons. For instance, a CRM application may offer a very good deal on the basic sales-tracking functions but charge extra for analytics and other advanced features. The thing is, once you've spent months using a SaaS app and entrusting all your data to it, it can be difficult to move — even if buying the high-price extra you need makes it poorer value than one of its competitors.

5. Paying for licenses you don't need

Even after you've upgraded to enterprise licensing, you can't just afford to relax. The SaaS service may not tell you if the number of active users drops below the enterprise threshold again. After all, it's not in their interests to help you cut your licensing costs. 

6. Are you paying for apps you don't need?

The pace of innovation, with new features added to SaaS platforms all the time, can mean that you end up paying for increasingly overlapping services - as a ticketing system adds CRM features for example. You want to know as soon as this starts to happen, so that you can make an informed decision on whether to go on paying for two apps or to migrate fully to one of the two platforms. 

For all these reasons, it's vital that you keep a constant oversight on the introduction and use of SaaS software within the organization, so that costs don't spiral out of control without your knowledge.

About the Author

Trevor Graham is Co-founder and CEO of Ampliphae, offering software products that help enterprises to discover and manage the SaaS Applications in use within their organizations. Deployed in less than an hour, Ampliphae's Cloud-hosted solution uses data collected from your network to find every SaaS application as soon as someone starts using it, and lets you take governance decisions about each one - controlling costs and managing security exposures. With over 15,000 applications in the catalog and more being added all the time, Ampliphae is the one-stop shop for SaaS Application Management.