Why SaaS Sprawl is Bad for Business & How to Stop It
by Julie Bennett on August 15, 2023
The SaaS model is beloved by countless businesses across the world who no longer have to make a big investment developing software to do exactly what they need day-to-day.
That’s because SaaS offers lower costs and greater efficiency versus developing, onboarding, and updating your own software.
Instead, firms simply pay affordable monthly licensing fees for powerful solutions they never have to update or fix themselves.
The problem is that these little monthly licensing costs add up quickly, especially as a business grows and scales.
For example, this case study into the mal effects of SaaS sprawl revealed that in 2020, organizations with 2,000+ employees had an average of 175 SaaS apps.
Underutilization is a big factor too, with hundreds of millions of dollars spent every year on unused software features.
Obviously, onboarding solution after solution like this is no cheap endeavor. This begs the question–
Does your organization really need all these platforms? Or are you too sprawled out?
Here we’ll talk about what is SaaS sprawl, why it’s bad for business and 8 proven ways you can avoid its pitfalls.
What is SaaS sprawl?
The SaaS revolution has made it possible to easily use software with just an internet connection. There’s no need to download clunky systems onto your hard drive, nor to invest major capital in developing your own software tools.
Instead, you simply sign up with a third-party vendor who has already developed this software for you. You pay monthly or annual licensing fees for each user.
But sometimes, even in smaller companies, all those apps can get out of hand. That’s when you’ve got yourself a case of SaaS sprawl:
SaaS sprawl (aka Software-as-a-Service sprawl) occurs when businesses have so many third-party cloud applications that administrators can no longer manage them effectively.
What causes SaaS sprawl?
SaaS sprawl doesn’t exist in a vacuum. Certain conditions lay the groundwork for a situation where there are suddenly just too many platforms in the mix.
Usually, not all of them make sense in the big picture and cost the business way too much in licensing fees.
SaaS sprawl is ruthlessly common, to the extent that G2 actually created a tracking system to help businesses keep their eye on all the cloud apps that are being used.
And SaaS sprawl doesn’t discriminate, happening to everyone from small startups to enterprise-level organizations across a wide range of sectors. Here are the major causes:
Businesses find themselves in a state of SaaS sprawl, usually, when individual users and teams download applications to serve an immediate need, without first consulting IT or upper management to approve their purchase and use. This is commonly referred to as shadow IT, or IT apps that are onboarded without proper authorization.
Lack of authorization procedure in place
Despite its sinister-sounding moniker, shadow IT isn’t necessarily caused by shady employees who are skirting the rules. Often, SaaS sprawl gets out of control because there are no established authorization procedures for onboarding new IT in the first place.
Without any control system, global teams, especially, often make quick decisions about new platforms they need at the moment, while the IT department is none the wiser.
Another big reason for adding too many SaaS applications is that organizations don’t properly utilize the tools they already have. In many cases, teams don’t know about certain features, which may prompt them to request an additional platform.
And if managers aren’t intimately knowledgeable about the solutions currently being used, they may approve these requests unintentionally. This results in redundancy and overlap and consequently, unnecessary spending on superfluous apps.
When you use platforms that don’t provide all-in-one functionality and/or integrations, you end up with siloed solutions. Siloed solutions don’t play well with others, meaning they don’t provide significant integrations to connect with tools you already use.
When you purchase a SaaS license for a platform that doesn’t integrate with the major tools used in your workflows, you end up with a silo. Siloes don’t connect nor do they flow, but instead just create the need for more siloes.
Why SaaS sprawl is bad for business
You’re paying too much for software licenses.
If you’re not utilizing all the features of the SaaS app or it's redundant in some way, you’re forking over too much cash on a monthly/annual basis. Consolidating your SaaS stack could mean savings of thousands per year.
You’re negatively impacting productivity.
Too many SaaS apps can negatively impact productivity for teams that find themselves constantly having to switch platforms. This is called the switching cost, and it adds up to significant time and money over time. The switch cost represents time spent by team members merely trying to find the right information on the right app. It greatly increases as SaaS sprawl grows.
Your data is less secure.
Unless all your SaaS platforms are seamlessly integrated together– something that doesn’t happen in SaaS sprawl– your data security is probably at risk. Although it may not necessarily result in getting hacked, important information is bound to get lost, to the extent that around 50% of SaaS users lose some kind of data in the shuffle. More sensitive information may unwittingly fall into the wrong hands.
8 Tips to Methodically Avoid Pitfalls of SaaS Sprawl
At the end of the day, SaaS sprawl results in money and time wasted, plus threats to your overall data security.
In order to avoid these nasty pitfalls, here are 8 proven ways you can prevent SaaS sprawl from negatively affecting your business:
1. Regular audits/usage analysis
The number one tip for managers, owners, and CIOs to reduce SaaS sprawl is to conduct rolling audits for accurate usage analysis.
While many may argue that they use dashboards for this sort of thing, dashboards only go so far. Managers, the financial department, etc can’t tell if most employees are truly leveraging all the features and tools they’re paying for.
Instead of relying on dashboards, perform audits to analyze SaaS usage across the organization, and talk to your employees. This critical feedback can help you determine what’s not being used and what might be redundant.
From there, you can make better decisions about what subscriptions to keep, which to end, and which to perhaps downgrade if features aren’t being well leveraged.
2. Identify critical features and cohorts
Before you start getting rid of subscriptions, you want to make sure you’re not dumping anything that’s important for specific individuals and teams.
For example, let’s say most of the team will use the platform’s base functionality, but maybe certain features are critical to your creatives or your developers. Find out who these people are and get feedback from them before deciding on terminating or downgrading your SaaS plan.
3. Put an authorization process in place for new solutions
Shadow tech, or unaccounted-for license subscriptions, can quickly cause SaaS sprawl to get out of control. This is especially true with larger teams, projects with lots of stakeholders, and global, remote teams.
Someone needs a tool to do their job, they sign up, and they might forget about it. Meanwhile, your business is stuck with the bill for months or years to come.
To prevent shadow tech and onboarding invaluable new software, put a solid authorization process in place. For example, if someone wants a new license, they have to submit a form to the IT department which will review and approve or reject it.
It doesn’t have to be complicated (and it shouldn’t be). Just be sure there are clear steps to follow and clear ways of documenting what is approved and what gets denied. This way, if someone else requests a similar platform, you will have the documentation to show that the features they need are already in a pre-existing solution, for example.
4. Stop people from using decommissioned software
Sometimes SaaS sprawl happens because individuals simply don’t realize that a platform has purposefully been jettisoned. On the flip side, you can have people that are reluctant to onboard a replacement for their favorite tool.
To stop this from happening, put a process in place to prevent people from using decommissioned software. This will help get everyone on the same page.
Communication is key to helping your team know exactly what SaaS apps are approved and which are no longer permitted.
5. Schedule periodic vendor/contract reviews
Check-in on what your SaaS vendors offer every year or every six months, especially if your business is growing quickly. With these periodic reviews, you can make sure everything still aligns with what your business needs.
As businesses grow, scale, and change, certain software features will inevitably become obsolete or inadequate. As long as you put a system in place to review your SaaS contracts from time to time, you should be able to avoid future SaaS sprawl.
6. Leverage features with SaaS apps you already pay for
As we already discussed, underutilization is one of the big reasons SaaS sprawl happens in the first place. Before you go out looking for another platform to add to your tech stack, first check with your pre-existing apps to see if there are any features you’re not leveraging or not using correctly. Encourage your team to do the same and to follow the authorization process whenever they want to onboard a new SaaS app.
7. Get more advanced features later
SaaS subscriptions always come in pricing tiers which increase as you add more features and more functionality. While it can be tempting to go with a pricier option to cover your bases, this mentality can often contribute to SaaS sprawl.
So when you’re signing up for a new platform, resist the temptation. Go with what you need immediately to get the job done, and you can always upgrade later if there are features you cannot live without. Sometimes less is more.
8. Leverage all-in-one functionality and integrations
SaaS platforms are evolving more and more into systems with all-in-one functionality, particularly for project management. The more elite vendors are also offering robust integrations to make their solutions more attractive to more users.
When you go with an all-in-one solution, you can effectively solve SaaS sprawl. Instead of using one platform for invoicing, one for planning, and one for contracts, for example, you can get a PSA tool that does all these things. So you end up paying for one SaaS license instead of three.
Integrations will also make your life easier in that they help eliminate silos common to a bloated tech stack. This makes your data more secure and cuts down on the switching cost.
Cloud-based SaaS platforms are an integral part of most tech stacks today. They offer considerable advantages over the old-school software model.
But if you’re not careful, you may find yourself with too many licenses, some of which may be redundant or unnecessary.
Project managers and other leaders lose visibility into the tech stack as things pile up. SaaS sprawl happens when team members onboard unauthorized platforms (shadow IT), when current apps are underutilized, and if too many siloed solutions are in place.
The three major pitfalls of SaaS sprawl include spending too much on licensing fees, decreased productivity, and lack of data security.
Luckily, there are proven ways to get SaaS sprawl under control and avoid these mal effects. First, you’ll need to do some usage analysis to figure out what you’re actually paying for and how much is being used. Also, be sure to identify which features are critical to certain teams and who are the individuals that cannot do their job without them.
Next, you’ll put more processes in place to ensure that the authorization and decommissioning of SaaS apps is clear-cut. You’ll need to periodically review your SaaS contracts as well, in order to make sure the functionality still aligns with what your business needs.
Before you onboard a new SaaS app, see if you can leverage features with pre-existing tools to accomplish what you want. It’s also recommended to add on more advanced features later, in case you end up not using them.
Finally, adopting tools with all-in-one functionality and strong integrations can help eliminate SaaS sprawl by effectively replacing multiple tools with just one or two.
If you find yourself in the midst of SaaS sprawl, there’s a way out. Simply follow our steps to freedom from a bloated tech stack to save money, be more productive, and keep your data secure.