Shadow IT is spending on software tools that the IT department doesn't know about. A marketer buys a tool without telling IT. An engineer spins up a service on AWS without approval. A sales rep starts using a tool that wasn't in the budget.
Most companies think shadow IT is a small problem. It's not. It's a massive problem. And it's getting worse.
The Scale of Shadow IT
Our analysis shows that for the median company, shadow IT represents about 35-40% of total SaaS spend. For some companies, it's as high as 60-70%.
What does this mean? If your official SaaS spend is $100,000 per year, your actual spend is probably $150,000-$170,000 when you account for shadow IT. For a company with $500,000 in official SaaS spend, actual spend is probably $700,000-$850,000.
The scale is enormous. And it's not getting smaller. Shadow IT is growing faster than official SaaS spending.
Why Shadow IT Is Rampant
The approval process is too slow. If you want to buy a tool, you have to file a request, wait for approval, negotiate budget, and jump through security hoops. It's easier to just use your personal credit card and expense it later. Most tools are cheap enough that the expense doesn't trigger scrutiny.
Departmental budgets are siloed. Marketing has a budget. Sales has a budget. Engineering has a budget. But if a tool benefits multiple departments, no one wants to pay for it. So individuals buy and hide the cost in other expenses.
Free tools and freemium models make the entry cost zero. Slack. Figma. Notion. Airtable. Most tools start free. By the time a team has created significant value in the tool, paying to upgrade feels inevitable. No approval process involved.
Engineering teams build their own. Instead of buying a tool, engineers sometimes build custom solutions. These solutions often end up requiring ongoing support and maintenance, becoming an undisclosed cost.
The Costs of Shadow IT
Direct financial cost. The most obvious cost is the money itself. If your shadow IT is 35% of spend, you're wasting 35% of your SaaS budget on tools that IT doesn't manage or optimize.
Duplicate tool purchases. The most common result of shadow IT is duplicate purchases. Marketing buys Slack. Engineering buys Slack. Finance buys Slack. You end up with three independent Slack workspaces instead of one integrated workspace. Multiply this across dozens of tools and the waste compounds.
Security risk. When IT doesn't know about tools, IT can't manage access, monitor for breaches, or ensure compliance. Shadow IT tools are often cloud-based SaaS tools that store sensitive company data. Data breaches from shadow IT tools are increasing.
Integration and interoperability. Approved tools are integrated with your systems. Shadow IT tools are isolated islands. Data silos form. Manual processes proliferate. Productivity decreases.
License audits and compliance. When you consolidate, you often discover you're running unlicensed versions of software or violating vendor terms. Audit costs can be surprising.
How to Combat Shadow IT (and How Cledara Makes it Automatic)
The solution isn't to ban all new software, but to make the official process faster and more transparent. Here is how you can combat Shadow IT effectively using Cledara.
1. Make the approval process faster
If the approval process takes a week, you’ll get Shadow IT. If it takes 24 hours, you’ll get fewer shadows.
- The Cledara Advantage: Cledara streamlines the "request-to-approval" journey by embedding compliance and security checks directly into the purchasing workflow. Instead of chasing emails, employees submit requests through a central platform where IT and Finance can review and approve them in minutes, not days.
2. Create a corporate SaaS marketplace
Teams often bypass IT because they don’t know which tools are already available or pre-vetted.
- The Cledara Advantage: Use Cledara to build an Application Directory. This acts as your company’s internal "app store," showing employees exactly which tools are already approved and in use. If a team needs a project management tool and sees one is already vetted, they can self-serve instead of buying a competing, unmanaged subscription.
3. Implement a virtual credit card system
Traditional corporate cards are a primary source of Shadow IT because they allow for untracked, recurring SaaS "leakage."
- The Cledara Advantage: Cledara uses issued virtual cards for every subscription. This gives teams the budget they need while ensuring every penny is tracked. Because each card is tied to a specific piece of software, you get instant visibility into who is buying what. If a tool isn't in the system, it doesn't get a card, and the "shadow" never even has a chance to form.
4. Conduct a continuous Shadow IT audit
One-off audits are helpful, but Shadow IT is a moving target. Many companies discover $100k+ in hidden spend in their first audit alone.
- The Cledara Advantage: Tools like Cledara Engage provide real-time visibility by capturing subscriptions you didn’t even know existed. Rather than waiting for a yearly audit, Cledara monitors your ecosystem constantly, alerting you the moment a new, unauthorized tool enters the business so you can address it before it becomes a security risk.
5. Be pragmatic about consolidation
Once you've found Shadow IT, don't just kill it all. Some "shadow" tools are genuinely solving problems better than official ones.
- The Cledara Advantage: Cledara’s analytics show you exactly how much a tool is being used and by whom. If you discover a shadow tool with high engagement, you can use Cledara to officially "onboard" it—bringing it into your security perimeter, assigning a virtual card, and managing the renewal—rather than banning a tool your team loves.
The Bottom Line
Shadow IT represents 35-40% of total SaaS spend for most companies, and the risks range from data breaches to failed ISO 27001 certifications.
The solution is to make official processes so fast and convenient that Shadow IT becomes the harder path. By using Cledara to centralize approvals, automate payments with virtual cards, and maintain a transparent app directory, you can cut Shadow IT by 50-70% while empowering your team to use the tools they need to stay productive.