Software Can Seriously Damage Your Financial Health

4 Minute Read

We recently worked with a company that had been purchased out of administration. The main reason the company had gone into administration was that it couldn’t generate enough revenue to cover its Cloud costs.

Unusual reason for going into administration? Probably, but I started Costimised because cloud computing costs are hitting margins at many companies, and reducing those costs is a straightforward way of increasing profitability.

For obvious reasons I’m not going to go into too many specifics about the company in question. What I would say is that this is probably an extreme example as it’s a software company and therefore spends more on technology as a proportion of revenues than, say, a construction company or a legal practice. However, the issues that led to a catastrophic overspend on cloud computing are common, and can materially affect the profitability of a company whatever sector it operates in.

Spending Too Much on Amazon

There are two areas of cloud spend for most organisations. Software as a Service (SaaS), and cloud services like Amazon Web Services (AWS) and Microsoft Azure. For this company, the latter, specifically AWS costs, was the main problem. In some months the AWS bill on its own was higher than the company’s revenue.

To be clear, I’m not criticising AWS here, the issues were all to do with the way that AWS was being used. Again, while the problems this company had were unusual in terms of the scale, they are typical of the way most organisations overspend on services like AWS.

In principle, the reasons companies overspend on cloud services are fairly simple –

• Services are set up with too much capacity “just in case”.
• Services that are no longer in use are kept running.
• Data that is no longer required is held on to.
• Poor choices are made about how to set services up – the wrong tools or architectures are chosen.

Big Problem, Rapid Solution

While these issues are straightforward conceptually, identifying which ones are present, and making changes without breaking or impacting the applications that are using these services is a complex task. It takes specialised knowledge and experience, and that’s why once we’ve identified that cloud services spend is a problem we engaged our partner Evolved Ideas. In this case they were able to reduce monthly cloud services costs by over 40% within a few weeks of getting involved. Annually, this is a six-figure saving.

Incidentally, while this company may be somewhat unusual because of the proportion of its revenue it spends on cloud services, this level of overspend isn’t that much higher in percentage terms than we’ve seen elsewhere - 30% overspend is our rule of thumb.

SaaS – Too Much of a Good Thing

Also not unusual was that there was also overspend on SaaS. While this wasn’t of the same scale in terms of spend per month as the cloud services bill, it wasn’t helping. And again, the reasons for this overspend weren’t unusual, including -

• Having multiple tools with overlapping functionality – in this case five (!) project management tools.
• Not cancelling software that was no longer in use.
• Not reducing the number of licences when headcount reduced.
• Employees buying software on expenses.
• Having “premium” licences for users with needs that could have been served with “basic” licences.

You might think these kind of problems are only seen in larger companies, where it’s hard to keep track of software and control and co-ordinate usage, but that’s absolutely not the case. At its peak, this company had a headcount of thirty-four…

It’s often the Small to Medium Enterprises where overspend on cloud software and services is highest. They are large enough to have a significant technology spend, including a number of SaaS applications and cloud services. However, they are not large enough to have an IT function big enough to have the time and resources to look at the financial optimisation of those SaaS and cloud services. In these companies the IT team often have enough on their plate keeping the lights on, and looking at the financial detail of the applications and services in place never gets to the top of their to-do list.

This is where we can help. Costimised has the tools and expertise to quickly identify areas of cloud overspend and recommend the actions that can be taken to quickly reduce costs. Contact us at enquiries@costimised.com to request a no-obligation call to find out more.

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