The consumer prices index (CPI), which is used to measure inflation, is linked to the prices consumers pay for everyday goods – as the name implies.
But businesses are being hit by inflation as well, even in software. Chances are, you’re paying more for computer hardware, office supplies, and labor than you were a year ago.
And since other SaaS businesses face the same pressures, you might be paying more for accounting and HR software than you used to.
Here are five ways you can fight inflation as a software as a service business.
1. Lock into longer-term contracts, and pay upfront
If your business is growing, and you have cash available, it often makes sense to lock into longer term contracts with your suppliers. And if possible, it’s also beneficial to pay upfront.
By doing this, most vendors will give you access to around a 5-10% discount, depending on the size of the contract and the nature of the product.
In this economic environment, there is a lot of value in locking in customers for longer. If you can provide this sort of certainty to your suppliers, whether it be for software, hardware, insurance, or anything else, you can usually get a lower price, even with annual inflation at 7-8%.
2. Don’t be afraid to switch suppliers
If your suppliers aren’t willing to offer discounts for extended commitments, or you feel that they’re not providing enough value, consider switching to a different vendor.
CRM software is one area that companies often end up overpaying. These types of products often have all sorts of add-ons that you have to pay for, but which don’t add a whole lot of value at the end of the day.
For example, if you mostly use your CRM for sales, are you paying more for customer service functionality that you don’t really need? In this case, a more simple CRM solution might be a better choice.
If you’re looking to cut costs, sit down with stakeholders who interact with these suppliers and their products, and ask some difficult questions about what it’s really necessary for their teams to have, in order for the business to hit its growth targets.
3. Shop around when buying hardware
For SaaS companies that are back in the office, hardware is an important cost to consider.
For the average SaaS business, you’ll need to buy, maintain, and eventually upgrade equipment like:
- Printers – maybe only one or two per twenty employees, in this day and age
- TVs, for presentations
- Phones, especially if you have a large sales team
- Computer peripherals, like mice and keyboards
- Computer monitors
These expenses can really add up, especially with the chip shortage we’re facing at the moment.
To save money on hardware, there are a number of things you can do:
- Buy refurbished computers and phones. This is a great way to get powerful hardware that will enable your team to maximise its productivity, without spending a fortune.
- Compare phone deals in-depth, and consider buying phones on a contract, just like you were buying a plan for yourself. This way, your monthly cost on the phone with a SIM plan will be lower overall. If an employee leaves, you can reset the phone and give it to a new hire, so there’s usually no harm in committing to a 12 month or longer phone contract.
- Buy items in bulk from larger distributors, if your business has enough employees to make this work.
You might also be able to save money by leasing computers, printers, and other equipment. If you’re not already doing this, it’s a good idea to speak to your accountant, because leasing may or may not be tax-optimal, depending on where your company is based.
4. Don’t be afraid to raise prices
If you’ve wanted to raise prices for a while, but are afraid of customer backlash, now is a great time to do it. Because of the inflation we’re experiencing at the moment, you have a good reason to make your product more expensive.
If you’re still worried about potentially upsetting customers with a price increase, you could try to release a new product tier with a higher cost and more functionality, and push your best customers towards this option. This works best if you know that some customers have a higher willingness to pay, and will get more value out of the increased functionality.
Alternatively, you could release more features on your existing pricing tiers, and then raise prices. Just ensure that the new functionality will have value for the majority of customers, before using this to justify a price increase.
5. Consider outsourcing/offshoring non-core tasks
If the labor market is driving your costs higher, you could consider outsourcing or offshoring certain tasks that are not mission-critical.
There are companies known as business processes outsourcers that manage tasks such as customer service, collections, and even software development, potentially helping you to lower costs.
Just ensure that you avoid outsourcing business functions that are key value drivers for your company. In SaaS businesses, it’s generally not a good idea to use external developers, as this will increase the time it takes to deploy new functionality, and may reduce the quality of the code you’re shipping.