by Andrew Alex, Founder and CEO, Spendbase
SaaS tools and cloud infrastructure lay the foundation of any startup’s operational efficiency and the ability to scale, but only if managed properly. Unfortunately, as data proves, this is frequently not the case. In fact, quite the opposite: most businesses overspend on their SaaS and cloud without even realizing it.
According to the Spendbase Benchmarking Report, businesses waste on average 10.5% of their total SaaS and cloud costs, which could otherwise be optimized. While it may sound comparatively insignificant, these recurring expenses add up and create a substantial annual bill. For example, the latest report insights revealed:
- Annual SaaS and cloud costs reach up to $444,875 for very large companies;
- Annual overspend from inefficient management of SaaS and cloud tools goes as high as $79,660 for enterprises with 500–2,000+ employees;
- The spend varies across industries, with the Retail enterprises leading SaaS & cloud spend at $3.57M annually, followed by Financial Services at $2.2M.
This article unpacks where founders and CFOs so often go wrong and how to fix it before the budget blows up.
Cost Optimization Is Worth It Only After Scaling
Startup leaders often think cost optimization should only be addressed once the company has grown and expenses are “big enough to matter.” This mindset often leads teams to ignore inefficiencies in their SaaS tools and cloud usage during the early phases.
In reality, actively scaling businesses are the ones that need cost optimization the most. As the report data suggests, smaller companies have significantly higher SaaS & cloud costs per employee, which signals high inefficiencies. By ignoring them or delaying fixes, startups risk runaway bills that can threaten their runway, profitability, and even survival.
Commonly, when a company scales, it can negotiate better rates with vendors, benefit from volume discounts, and leverage economies of scale, which altogether help optimize spend per employee. However, smaller companies can manage SaaS costs efficiently with several handy principles as well. They include:
> Watch out for shadow IT — review SaaS usage quarterly to uncover unused or duplicate tools.
> Utilize off-the-shelf SaaS and cloud discounts from spend management solutions providers
> Right-size resources from day one by starting with the smallest viable instances and upgrading only when utilization consistently passes thresholds.
> Build cost reviews into culture while ensuring all new tools go through IT or finance approval.
SaaS Cost Is Fair for All
It’s common sense to presume SaaS pricing is fixed and fair for every customer. The sad truth is, SaaS cost structures often lack transparency, with hidden fees, unclear seat-based pricing, and vague usage thresholds. As a result, two companies of similar size can end up paying dramatically different amounts for the same software simply because one negotiated more effectively.
Vendor discounts, contract terms, and even billing cycles are highly negotiable. Eventually, the truth is that SaaS cost fairness depends less on what’s published and more on how efficiently you negotiate and manage vendor relationships.
To secure the best SaaS deals, use the following tips:
> Negotiate early or partner up with spend management experts to handle negotiations for you;
> Benchmark solutions meticulously — compare vendor quotes with market rates to spot overpricing;
> Time your renewals, since vendors often give bigger discounts at quarter- or year-end.
Scalable Means Cost-Scalable
Many startup executives think this way: if the architecture is technically scalable, costs will scale smoothly too. However, in reality, many technologies become unproportionally expensive as usage grows. The Benchmarking Report data illustrates exactly that.
Among the overspend reasons, one underlooked fact is that many technologies become unproportionally expensive as usage grows. For example, serverless platforms or third-party APIs can cause costs to skyrocket during scaling. The same happens with cloud egress fees from moving large datasets across regions, SaaS tools that charge per seat or per transaction, and machine learning workloads that require costly GPU clusters. What looks affordable at low volume often becomes unsustainable at scale.
This was a lesson learned the hard way by one startup that was nearly killed by a $12,000 AWS bill. What looked affordable at a small scale, exploded in cost when a client requested image analysis, followed by a sudden surge of 600,000+ images and driving their monthly bill from ~$340 to $12,847.
To mitigate such potential mistakes, ensure the following practices are in place:
> Run cost forecasts and model how they can grow with user or data scale;
> Use hybrid approaches, such as mixing serverless for unpredictable workloads with reserved instances for steady-state loads;
> Review architecture every 3–6 months to reassess cost scalability while product and usage evolve.
“We’ll Notice If Costs Get Out of Hand…”
One of the most common misconceptions lies in a belief that escalating SaaS or cloud costs will be obvious. In reality, businesses lose thousands annually from unused licenses or forgotten workloads that keep billing invisibly. The table below, featuring real-life behavior data of 3,000 companies, illustrates exactly that.
Similarly, cloud costs might often spiral even from seemingly small oversights: common cases include over-provisioning for peak traffic, forgotten test environments, expensive GPU instances left running, or runaway autoscaling without caps.
Take the shocking example of a startup that burned $450,000 on GCP through API misuse in just 45 days. Their Google Cloud API key was compromised and used to perform massive automated translation workloads, all without their knowledge.
To avoid situations like this, luckily there are several ways, including:
> Set billing alerts with thresholds that trigger notifications if spend spikes;
> Practice daily and weekly checks with a dedicated person along with automated monitoring tools like Datadog or CloudHealth;
> Enforce hard limits on API calls, workloads, or budgets to automatically stop runaway charges as soon as they happen;
> Automate monitoring tools like Datadog, CloudHealth, or others.
Monthly Billing Ensures Flexibility
Some startups prefer monthly over annual billing because it avoids large upfront payments and reduces financial commitment. For early-stage companies still experimenting with their tech stack, this can feel safer than being locked into a long-term contract. However, the trade-off is that monthly billing often gets significantly more costly.
Statistically, startups end up paying up to 65% more in the long run — money that could otherwise be used for more strategic initiatives or extending their runway.
To avoid overspending on monthly billing, follow these principles:
> Balance flexibility with savings: by using monthly billing only for tools you’re currently testing out;
> Bundle purchases across teams to unlock volume discounts;
> Negotiate annual contracts with opt-out clauses, since some vendors allow early termination, combining flexibility with discounts.
SaaS and cloud spending doesn’t have to spiral out of control. The earlier cost optimization becomes part of the culture, the less likely founders are to face runaway bills that threaten growth.
If startups embed cost awareness into their culture from day one, leverage spend management tools, and negotiate proactively with vendors, they can turn cloud and SaaS spend from a financial risk into a growth enabler from early on.
About The Author
Andrew Alex is the founder and CEO of Spendbase, a Google-backed FinTech helping companies optimize SaaS and cloud costs. Fluent in tech trends and a TED evangelist, he regularly advises startups and finance leaders on cost efficiency, vendor negotiations, and scaling sustainably.
