The SaaS Illusion: You May Be Overspending

Between Software as a Service (SaaS) and custom software, SaaS has become the go-to solution for many companies. The promise of low upfront costs, easy scalability, and accessibility from anywhere is undeniably attractive. However, many businesses are unknowingly bleeding money beneath the surface of those monthly subscription fees. It’s time to flip the script and consider a solution that could be significantly more cost-effective in the long run: custom software.

SaaS: Initial Appeal, Long-Term Pain?

Let’s be honest, SaaS is convenient. You sign up, pay a monthly fee, and boom – you have access to powerful tools. This model seems budget-friendly initially, especially for startups or smaller businesses. However, the cumulative costs of multiple SaaS subscriptions can quickly spiral out of control. Think about it: You might have separate platforms for CRM, email marketing, project management, customer support, and more. Each comes with its own monthly fee, and as your business grows, so do those costs. But the real financial drain often lies in the hidden inefficiencies and limitations of these off-the-shelf solutions.

The Hidden Costs of SaaS

SaaS costs seem straightforward, but there are actually hidden costs you’ve probably never considered. Below, we highlight a few followed by some real world statistics and their implications. 

• Integration Nightmares: Integrating various SaaS platforms can be a costly and time-consuming headache for IT teams. API limitations, the need for third-party integration tools, and the ongoing maintenance of these connections all add up. 
• Data Migration & Vendor Lock-in: Switching SaaS providers can be a costly and complex process. Various factors add to the cost, such as data migration costs, integration costs, temporary business disruption, training and onboarding, customizations, vendor fees, etc. The fear of data loss and the sheer effort involved often leads businesses to stick with suboptimal solutions, even when better options exist. 
• Scalability Costs: While SaaS boasts scalability, the pricing often scales aggressively as your business grows. Moving to higher tiers or adding more users can lead to substantial increases in your monthly bills. 
• Subscription Creep & Unused Licenses: How many SaaS subscriptions does your company actually use to its full potential? Maybe you’re paying for a costly subscription with all the bells and whistles only for a few specific features. It’s also common for departments to adopt their own tools, leading to redundant subscriptions and wasted licenses. According to research from Productiv, the average SaaS spend per employee averages $5,607 with medium and small businesses each spending an average of over $7,000/employee. This research also found that 53% of SaaS licenses go unused. 
  • From the Standish Group in their CHAOS Report, 64-80% of software features are infrequently, rarely, or never used.
    • The Math: Let’s consider a small company with 100 employees that spends the average amount mentioned above of $5,607/employee per year across all SaaS tools. That’s $560,700/year spent on SaaS solutions. However, they only use 36% of the SaaS features, leaving 64% unused. That means potentially they are wasting $358,848/year on features that are never used ($560,700* 0.64 = $358,848). Another way to look at this is by employee, which means they are wasting $3,364.20/employee per year on unused features ($5,607 * 0.64 = $3,588.48).
• Limited Customization & Costly Workarounds: SaaS solutions are designed for a broad audience and often lack the specific features your business truly needs. Employees end up spending valuable time on manual workarounds, switching between applications, looking for information within the various apps, or adapting their processes to fit the software, leading to significant productivity losses.
  • This report from Qatalog and Cornell University’s Ellis Idea Lab found that employees can spend up to 5 hours/week searching for information within tools and apps. They also found that employees spend nearly 4 hours/week toggling between apps and then getting back into a good workflow. These two findings show that an employee could waste up to 9 hours/week, or 22.5% of their workweek on just these two software efficiency issues.  
    • The Math: An employee in the US is making $75,000/year (or $36.06/hour) but is wasting 9 hours/week on software efficiency issues. Assuming the employee works a standard 40-hour work week and 52 weeks per year, the company is losing $16,876.08/year per employee ($324.54/week * 52 weeks/year). Multiply that across your workforce, and the cost becomes staggering.
• Security and Compliance Concerns: Depending on your industry and the sensitivity of your data, relying solely on third-party SaaS providers might raise concerns about data sovereignty and compliance with US regulations like HIPAA or GDPR (if you have international clients).
• Churn Rate: Poor software solutions can lead to frustrated employees as they work to overcome unnecessary hurdles in their workflows. They can quickly feel undervalued and experience burnout, which can lead to an increase in employee churn.
  • The Math: For a simplified example, let’s return to the company of 100 employees with an average annual salary of $75,000. A healthy churn rate for this company is 10%/year. A common rule of thumb is that the cost to replace an employee can range from 0ne-third to two times their annual salary. We’ll stick with the estimate of 1 times the annual salary. If the churn rate increases to be 20% higher due to poor software fit, the company will lose an additional 2 employees/year. The increased cost of churn will cost the company $150,000/year.

The Surprising Affordability of Custom Software

For many businesses, the thought of custom software conjures up images of exorbitant development costs and lengthy timelines. However, the reality might be more surprising than you think. 

• Tailored Solutions for Business Needs: Custom software is built specifically for your unique requirements. You’re not paying for features you don’t need, and your workflows are optimized for maximum efficiency, directly addressing the productivity losses often seen with generic SaaS.
• Long-Term Cost Savings: While there’s an upfront investment, custom software eliminates those recurring monthly SaaS fees. Considering that the average hourly rate for custom software development in the US ranges from $80 to $300+ per hour, a well-defined project can offer significant long-term savings compared to the increasing costs of multiple SaaS subscriptions.
• Full Ownership & Control: You own your custom software and your data. You have complete control over its features, updates, and integrations, allowing you to adapt it precisely to your evolving business needs. 
• Seamless Integration: Custom software can be designed to integrate flawlessly with your existing systems, potentially eliminating the need for multiple SaaS tools and the associated integration headaches. 
• Competitive Advantage: Unique features built into your custom software can provide a significant competitive edge.

When Does Custom Software Make Sense for Your Company?

Custom software may be your solution to recover revenue, streamline operations, increase efficiency, and more. Even a small business can benefit from custom software, which we cover in our article “5 Ways Custom Software Can Increase You Small Business Revenue.”

In addition to what we have already covered, below are a few more considerations to help you determine if custom software makes sense for your business: 

• Your business has highly specific needs that off-the-shelf SaaS solutions don’t adequately address.
• You require deep integration with existing legacy systems.
• You’re looking for a long-term software solution that scales with your business without escalating subscription costs.
• Data security and compliance within the regulatory framework are critical concerns. 
• You want to create a unique competitive advantage through proprietary software features. 

Debunking the Myths about Custom Software:

While we are at it, let’s go ahead and debunk a few myths.

• Myth: Custom software is too expensive.
  • Reality: While the initial investment might be higher, eliminating recurring SaaS fews and increasing efficiency can lead to significant long-term cost savings.
• Myth: It takes too long to develop.
  • Reality: With modern agile development methodologies, custom software can be developed iteratively, allowing you to see value and implement key features relatively quickly.
• Myth: It’s difficult to maintain.
  • Reality: Choosing a reliable partner and ensuring proper documentation can make maintenance manageable and cost-effective.  

Rethink Your Software Strategy: Invest Wisely for Long-Term Success 

While SaaS offers undeniable convenience, businesses need to look beyond the initial low price point and consider the total cost of ownership. By carefully evaluating your long-term needs and analyzing your current SaaS spending, you might find that investing in custom software is not just an option, but a surprisingly affordable path to greater efficiency, control, and long-term financial health for your business. 

To help, we’re offering a free cost/savings analysis with no strings attached to discover how your current software solutions are working for your business and the gaps they may be leaving and how custom software can impact your business. Make an informed decision that’s best for your business, whether that’s sticking with your current solutions or choosing custom software. Fill out the form on this page to get started.