Here’s a startling fact: Companies waste money on unused software licenses. Half of these licenses sit idle, which can cost businesses up to $44 million. Your company probably manages at least 66 software subscriptions. These costs grew 10% each month in late 2022. The reality? Only 14% of business leaders think their SaaS subscriptions deliver real value.
Cloud spending keeps climbing and experts predict it will hit $500 billion this year – a 20% jump from last year. Companies throw away 30-35% of their cloud budget. Your organization has plenty of room to cut software costs. McKinsey’s research shows that smart license management can save you money and boost cybersecurity at the same time. This piece will show you how to spot hidden costs and help you save money with practical steps.
The true cost of software: more than just licenses
Software license costs are just the tip of the financial iceberg when you plan your budget. Gartner’s research shows that owning and managing software programs yearly can cost up to four times the original purchase price. This detailed assessment, called Total Cost of Ownership (TCO), includes many expenses that only become visible once they affect your bottom line.
Hidden infrastructure and support costs
Your business faces much more than just subscription costs, with infrastructure expenses that change based on how you deploy the software. On-premises systems need servers, storage, electricity, and cooling. Cloud-based options don’t need physical servers, but they still require better networks and upgraded devices for users.
The costs of running a hosting environment can range from $300 to $120,000 each month. These costs depend on features like load balancing, multiple servers, and backup systems. Support doesn’t stop there – when applications fail, you’ll need dedicated developers who know your systems to fix the problems.
The hidden costs grow bigger as your IT infrastructure expands in eight key areas:
- Data centers (consuming approximately 73 billion kWh in 2020)
- Network and storage
- Physical servers requiring maintenance and monitoring
- Virtualization environments
- Operating systems
- Databases with potentially strict licensing terms
- Applications requiring ongoing development
- Data storage and security
Overlooked training and onboarding expenses
Training and onboarding costs often slip through the cracks in original software budgets. SHRM research puts the average onboarding cost at about $4,100 per new hire. Tech sector employees need even more investment – training can cost between $5,000 and $10,000 for each person.
Lost productivity during training adds up quickly. New team members work at just 25% efficiency in their first four weeks. They might need up to 26 weeks to reach their expected performance levels. This productivity gap becomes a bigger expense with each new hire or software rollout.
Administrative work piles on more costs – about $400 per employee just for paperwork and processes. These expenses multiply as different departments get involved in setting up new software systems.
Maintenance and upgrade fees
Maintenance often becomes the biggest part of software’s lifetime cost. It can reach up to 90% of the total ownership cost for complex systems. Vendors used to charge 15-18% of the license fee yearly for maintenance, but now they’re pushing these rates to 20-25% or higher.
You’ll probably pay nowhere near the original license costs compared to maintenance fees over your software’s lifetime. These costs split into corrective maintenance (20%), adaptive maintenance (25%), perfective maintenance (5%), and innovation enhancements (50%).
Maintenance fees cover two main things: ongoing product development and technical support. Many vendors now treat maintenance like a profit center instead of a service center. This approach is like how electronics stores make more money from extended warranties than from selling products.
Budget-friendly software solutions need more than just looking at license costs. You must understand these hidden costs across your software ecosystem. This knowledge helps you create saving strategies that address the full financial effect of your tech investments.
5 hidden ways your business is wasting money on software
Businesses don’t just waste money by buying too much software. Money leaks through hidden inefficiencies in their tech systems. A quick look at your software setup might show several costly problems you didn’t notice before.
1. Paying for unused or underused licenses
The numbers paint a shocking picture: almost half (49.96%) of installed software sits idle, which costs companies over half a billion dollars each year. The situation looks worse when you consider that 30% of software licenses never see any use, and 8% barely get touched (less than once monthly). This means the average office computer worldwide has about $259 worth of software nobody wants or uses.
Staff turnover makes this problem worse. With yearly turnover rates at 18%, departed employees leave behind active licenses that keep draining your budget every month.
2. Overlapping tools with similar functions
Tool sprawl quietly eats your budget as teams pile up apps that do the same things. Studies show 37% of employees use three different browsers, while 31% juggle multiple collaboration tools. This creates confusion and wastes time and money.
This issue runs deeper than obvious duplicates—many knowledge workers use several apps to do similar tasks. A marketing campaign might use 15 different SaaS tools where 10 serve almost the same purpose, which makes team coordination harder than it needs to be.
3. Lack of centralized software procurement
Companies without centralized purchasing miss out on big savings. Scattered buying stops you from getting volume discounts and better deals. Tracking purchases becomes nearly impossible when departments buy independently, which hides waste and duplicate spending.
Your tech stack likely includes 10-15% of products without clear ownership or approval. This scattered approach creates inconsistent processes and brings compliance risks while making it hard to see the big picture of spending.
4. Ignoring auto-renewals and forgotten subscriptions
Subscription overload hits businesses hard, and most don’t realize how much they spend monthly. A 2022 study revealed people thought they spent $86 monthly on subscriptions when they actually spent $219. About 42% of consumers forgot they still paid for services they no longer used.
Canceling makes everything harder. Companies often make it much tougher to end subscriptions than to start them, which leads to unnecessary charges. Spotting these charges can be tricky—a charge from “ViacomCBS streaming” might not click as your Paramount+ subscription.
5. Failing to track software usage across teams
Just 5% of companies say they can see all software licenses their employees use. Most companies (64%) don’t use automated tools to manage software licenses. They rely on manual tracking that often fails.
Poor usage monitoring means companies can’t improve their core processes, boost productivity, or find ways to save money. This costs them dearly—50% of enterprises waste over 10% of their budgets on software, SaaS, and cloud infrastructure.
Companies need reliable tracking tools to cut software costs. These tools give analytical insights into how people use apps, which helps make smart decisions about productivity and efficiency.
How to identify and eliminate software waste
Companies waste over $17 million each year on unused SaaS tools. You need well-laid-out processes to uncover this hidden software waste. This will help you create budget-friendly software strategies.
Conducting a software audit
The first step to eliminate waste is a software audit. This means taking a full look at your software setup, including quality standards, licensing, compliance, and security. Start by setting clear goals and audit scope. Make sure the core team knows what you want to achieve. Next, create a detailed list of every software tool and system you want to audit. This should include both licensed and unlicensed software.
A full software audit checklist should cover:
- All software programs your company uses
- Software licensing agreements and verification
- Version details and where everything is installed
- How software use matches up with licenses
- Any gaps and unauthorized usage
Your completed audit helps you build a software compliance plan and spot ways to save money right away. Companies that skip regular software audits often face collateral damage. They end up paying for unused licenses, buying duplicate software, missing bulk discounts, and creating security risks.
Using software asset management tools
Software Asset Management (SAM) tools make shared visibility into your software ecosystem better through automation. These platforms help you track and manage software licenses from one place. This keeps costs down, maintains compliance, and lines up with what your business needs.
Good SAM tools should have:
- License tracking that runs on its own
- Detailed data and reports
- Libraries showing how you can use products
- Tools to watch license compliance
- Ways to track and improve SaaS usage
Advanced SAM systems use product rights like upgrades, downgrades, second use, and non-production to make your software portfolio better automatically. These tools help you find shadow IT risks, spot vulnerable assets, and flag any risky end-of-life software.
Involving department heads in reviews
Department leaders play a vital role in cutting software waste. You should check software needs twice a year. Each department should explain how and why they use their tools. This helps find overlapping functions and shows which apps you can remove safely.
Business process owners from finance, operations, IT, sales, marketing, and HR should join these reviews. Ask these questions about usage patterns:
- Do departments have apps that do the same things?
- How many licenses do people actually use?
- What licenses can you cut without causing problems?
These reviews help you move from reacting to planning ahead. They create an environment where software decisions focus on business value. When you look at purchases this way, your software spending matches what your business really needs.
Smart strategies for software cost reduction
Software waste identification leads to practical cost-saving strategies that bring quick financial gains. Let’s look at proven ways to reduce your software budget without losing productivity.
Switching to open-source alternatives
Your software expenses can drop by a lot when you replace pricey proprietary solutions with resilient open-source options. The numbers speak for themselves – over 2 million users have made this switch. Many open-source alternatives match or outperform their commercial counterparts and eliminate licensing fees completely.
These powerful open-source replacements stand out:
- Odoo (42,749 GitHub stars) for detailed business management
- Grafana (67,823 GitHub stars) for monitoring and visualization
- WooCommerce for e-commerce solutions
- Supabase as a Firebase alternative for app development
Implementing shared license models
Shared licensing models let multiple users access software through a central license pool, unlike traditional node-locked licenses tied to specific computers. Users return licenses to the pool after they finish, which reduces the total number needed.
This approach saves money because companies can buy licenses based on actual usage instead of total employee count. Teams get great value from concurrent licensing, especially with occasionally used applications where individual licenses for every potential user would get pricey. This helps businesses cut costs while giving software access to everyone who needs it.
Renegotiating vendor contracts
Regular review and renegotiation of software contracts opens up major cost-saving possibilities. Smart negotiation can lead to better pricing, improved service packages, or exclusive deals instead of accepting standard renewal terms.
Success depends on gathering key information about usage patterns, contract terms, and your vendor’s market position before talks begin. The best time to approach vendors comes near their fiscal year-end when they push harder to close deals. Your negotiating position becomes stronger with usage data backing you up.
Automating license tracking and renewals
Automated systems make license tracking and renewal management easier. Central license management platforms help avoid unexpected renewal charges and show clear usage patterns. These tools prevent surprise bills by alerting teams about upcoming deadlines.
Teams can reclaim unused licenses, optimize IT costs, and stay compliant without manual work through automated tracking. Good automation eliminates the 48% of software spend that gets wasted on forgotten or duplicate subscriptions.
Risks of cutting software costs the wrong way
Smart cost-cutting brings clear benefits to software budgets. However, hasty cuts create dangerous blind spots. Companies that make blanket reductions fail to protect what matters most, and often create bigger problems than the expenses they tried to avoid.
Compromising on security and compliance
Random cuts to software budgets weaken security systems and leave them exposed to sophisticated cyber attacks. A security breach can lead to sabotaged operations, stolen intellectual property, and heavy regulatory fines. The damage goes beyond money – these incidents destroy customer trust and damage relationships with partners. The irony is that skimping on security tools ends up costing more later, with an average data breach hitting nearly $5 million.
Companies in regulated industries must meet strict data protection rules. They risk legal penalties, failed audits, and lost contracts if they don’t stay compliant with frameworks like NIST 800-171, DFARS, or ISO/IEC 27001.
Lowering employee productivity
Rushed software cost cuts often backfire by hurting how well people work. Teams that rush development, work with fewer resources, or skip crucial testing end up with unreliable software. These problems create bottlenecks that spread – studies show bad tech decisions hurt other team members’ work over 60% of the time.
Scattered and messy software systems make it hard for employees to find the programs they need. This wastes time on troubleshooting and reduces how much work gets done.
Damaging vendor relationships
Vendors are key business allies who directly affect how smoothly operations run. Quick cost cuts often strain these relationships and lead to:
- Slower support response times
- Excessive software downtime
- Less access to account managers
Good vendor relationships need steady communication throughout the year, not just during renewals. Companies should realize that cheaper suppliers often cost less for reasons that cause operational headaches down the road.
Note that software savings work best when you prioritize cuts based on strategic value instead of making equal reductions everywhere.
Conclusion
Software waste offers a huge chance for businesses to optimize their technology spending. Without doubt, the numbers tell the story – businesses waste 30-35% of cloud expenses, and almost half of their software licenses remain unused. Your organization can cut costs without compromising functionality or security.
We got into how software expenses go way beyond what you see in license costs. Your total ownership costs can climb up to four times higher than the original purchase price. This includes hidden infrastructure needs, training costs, and ongoing maintenance fees. On top of that, scattered buying processes, forgotten subscriptions, and poor usage tracking drain your budget through avoidable waste.
Here’s the bright side – you can take back control of your software spending. Software audits, asset management tools, and team-level reviews help you see exactly what’s happening in your tech setup. This knowledge lets you make smart choices about open-source options, shared licenses, and vendor negotiations.
Note that managing software costs needs the right balance. Quick cuts often lead to security risks, lower productivity, or strained vendor relationships. Your focus should be on cutting real waste while keeping systems that bring value to your business.
The strategies in this piece will help you move from reactive to strategic software spending. This fundamental change helps you spot chances to save money while building a stronger tech foundation. The end result? You’ll have a streamlined software portfolio that lines up with your business goals and delivers clear value to your organization.