Startup Costs: How Much Should a Startup Spend on Software?

Want to optimize your startup costs? Get key insights into software budget allocation in this post.
Startup Costs: How Much Should a Startup Spend on Software?

Most successful startups use their software stack to streamline processes and attain scalability in a cost-efficient way. But, with thousands of tools targeting all kinds of business needs, it can be very challenging to decide where to allocate your SaaS budget.

Don’t worry, we’ve got you covered. In this post, we'll share:

  • 5 software-focused startup budgeting tips
  • A look at startups' top 10 SaaS spending categories & the most popular tools in each category

But first, let’s take a look at why software makes up one of startups’ biggest expenses. 

Let’s get started!

Why Software Is Among the Largest Startup Costs 

Software spending has been increasing rapidly in the startup sector. According to statistics compiled by Cledara:

  • In 2021, the SaaS market was worth approximately 146 billion dollars. By 2023, it’s expected to reach 195 billion U.S. dollars 
  • In total, SaaS represents about a third of cloud spending

Additionally, recent research concluded that:

  • Software spending grew by 10% MoM September-October 2022
  • Global cloud spending grew by 20% in 2022

But, why? In short, startups spend so much of their budget on software because it helps them to:

  • Streamline processes across teams 
  • Centralize task management and simplify operations
  • Store & analyze user data
  • Automate tedious tasks
  • Deliver customized experiences efficiently and at scale

One thing’s for sure: It’s incredibly complicated to imagine how a modern startup would operate without a SaaS stack. And the right tools can change how a startup operates 360°, enabling teams to achieve more.

How to Make Your SaaS Stack Work for You: 5 Startup Budgeting Tips

Choosing the right tools for your SaaS stack can be tricky. And among the many factors you may be considering, budget is certainly one to keep in mind. 

So, in this section, we'll share 5 tips that’ll help you determine the cost and composition of your new SaaS stack.

We suggest you:

  • Conduct an internal tool audit
  • Use other startups’ budget allocation as a guide, not a rule
  • Make the most of trial periods
  • Avoid tool redundancy
  • Continue auditing

Conduct an Internal Tool Audit

Conducting an internal tool audit implies analyzing:

  • What tools you and your team are using
  • Who is using each tool and what role that tool plays
  • How satisfied your team is with their current stack
  • How impactful each of your tools is 

There are platforms that can help you streamline this process. However, if you’re just getting started, you can conduct your audit in a simple spreadsheet. All in all, it's important to know what you're spending your money on and how each tool impacts your business. 

Trying to determine whether you need a new tool for a particular process? Ask yourself these questions:

  • What processes are taking longer than they should?
  • Which non-essential processes are taking most of your team members’ time?
  • What processes are your competitors automating?
  • Are there any tools that are giving your competitors an unfair advantage?

For instance, if you find out that your sales team spends most of their time sending prospecting emails manually, you may want to adopt a sales automation tool. And if your competitor has a highly personalized onboarding process, and you don’t, you may want to adopt a user onboarding tool

Use Other Startups’ Budget Distribution as a Guide, not a Rule

Later in this article, we’ll take a look at how startups usually allocate their software budget. We suggest you take these insights as a guide, not an example of how you should distribute your software spending. Make your budgeting decisions based on your  company structure, challenges, and priorities.

Take Advantage of Trial Periods

Once you know how much you’re spending, on what, and what you should be spending on, it’s time to try new tools. Here is where trial periods come in handy.

Trial periods are an ideal time to:

  • Assess different tools’ pricing and features
  • Compare various tools simultaneously 
  • Analyze how each tool could help your business 
  • Test how your team adapts to each tool 

Nevertheless, it’s fair to mention that not all tools offer trial periods, some offer a demo. If you’ll book a software demo, we recommend inviting those teams that will leverage the tool on a daily basis. 

Avoid Tool Redundancy

Make sure your SaaS tools don't overlap in terms of their features and use cases. In other words, check that there aren’t multiple tools serving the same purpose.

Redundant tools can:

  • Result in unnecessary software spending
  • Generate or reinforce knowledge silos

Continue Auditing Your Stack

You shouldn't stop evaluating your tools after the trial period is over and you've signed up for a paid plan. 

Why? New tools are being launched every day. Plus, software updates can change a platform’s entire user experience. And your processes will change as your startup grows. So, don't get too attached to any particular tool. 

The time frame is up to you, it could be every 3 months, once a year, or simply each time that you have to renew your subscription. But don't forget to follow up with your team and ask for feedback. 

Startups’ Top 10 SaaS Spending Categories 

In this section, we’ll dive into how startups usually allocate their software budget. Additionally, we’ll take a close look at each category and recommend some top tools. 

According to Cledara’s insights, the average startup spends most of its software budget on productivity and collaboration tools.

The rest of the budget is distributed across:

  • Marketing automation tools
  • Development tools
  • Customer service platforms
  • IT tools
  • HR management platforms
  • Internal communication tools
  • Analytics software
  • Sales tools & CRMs
  • Payment platforms
  • Design tools
  • Other categories

Let’s dive into what each category entails, and how they make a difference. 

Productivity and Collaboration Tools

Productivity and collaboration tools help companies to organize tasks, set deadlines, categorize deliverables and more. Simply put, they allow you to work with your team more effectively. 

The most popular productivity and collaboration tools among startups are:

  • Atlassian, a favorite among development teams
  • Asana, an intuitive and versatile project management platform
  • Trello, a project management platform that combines the simplicity of a kanban with thousands of integrations
  • Google Workspace, a cloud-based office suite that serves as the operational backbone of most startups

Marketing Automation Tools

Marketing automation tools help you to:

  • Automate marketing operations
  • Perform competitor analysis
  • Track performance
  • Customize the customer journey
  • And more

Some of startups’ favorite marketing automation tools are:

  • Optimizely, a CMS made to deliver hyper-personalized experiences
  • SEMRush, a top SEO research tool 
  • Mailchimp, a beginner-friendly email marketing platform with great integrations

Development Tools

DevTools are the software stack that developers rely on. With the right DevTools, software teams can easily:

  • Collaborate
  • Automate repetitive tasks
  • Debug their code
  • Track changes
  • Document their code and manage knowledge

The top development tools among startups are:

  • Gitbook, a powerful software documentation platform
  • Jetbrains, a project management suite for technical teams
  • Postman, a collaboration platform for API development
  • Github, the go-to platform for collaborative software development & version control

Customer Service Tools

Today, customer support & personalization can be a startup’s greatest competitive advantages. However, its upkeep and improvement would be impossible without tools to simplify processes.

Customer service tools help CX teams to streamline customer communication. As a result of this technology, they’re able to respond to complaints, inquiries, and requests in an organized and timely manner. 

Looking for customer support tools? Most startups choose:

  • Zendesk for easy help desk management
  • Intercom to provide quick chat support and scalable help centers
  • Salesforce Service Cloud, if they’re already using Salesforce and want an integrated solution

IT Management Tools

IT management tools ensure that your startup’s technology operates effectively and securely.

Some of the most popular IT tools among startups are:

  • Solarwinds, a comprehensive platform helping businesses to keep their systems secure, compliant and performant
  • ​​Citrix Systems, a platform for secure hybrid and remote work, with robust desktop virtualization
  • Atera, a modern IT management solution, with everything from automations to patch management and ticketing

HR Management Tools

HR management tools help teams to:

  • Manage talent
  • Streamline payroll & compensation
  • Monitor the employee experience
  • Fulfill the company’s HR duties
  • Simplify compliance

Startups’ favorite HR management tools include:

  • Breezy, a comprehensive tool to execute and manage the hiring process
  • Avature, a scalable HR engagement platform that covers everything from hiring to retention
  • BambooHR, an easy-to-use platform for all stages of the employee experience

Internal Communication Tools

Communication tools allow you to stay connected with your team in a way that’s trackable and maximizes efficiency.

When it comes to communication tools, most startups will gravitate towards:

  • Slack, the most popular messaging platform for teams
  • Microsoft Teams, especially if they’re already using Office 365
  • Discord, a free communication platform native to the gaming niche, but adopted across industries

Analytics Tools

A good analytics stack can help you to:

  • Spot relevant trends 
  • Get the most out of your data
  • Make informed strategic decisions

The most popular analytics tools among startups are:

  • Google Analytics, the leading free analytics web platform
  • Fathom Analytics, a privacy-focused alternative to Google Analytics
  • Mixpanel, an analytics tool for digital products
  • Supermetrics, which allows you to pull data from several platforms to create reports or enrich your database

Sales Tools & CRMs

Sales tools and CRMs can help you to:

  • Unify and segment customers’ data
  • Engage your audience across the customer lifecycle
  • Understand your customer data with analytics
  • Connect and unify your customer data with specific integrations

In short, sales tools play a key role in making sales scalable. Maybe that’s why, according to a recent survey, most SaaS startups won’t reduce their sales stack in 2023. 

Looking for the right sales tool to scale your startup’s client acquisition efforts? Startups’ favorite CRMs include:

  • Hubspot, the leading inbound marketing & sales platform
  • Pipedrive, a simple but effective CRM that covers the essentials
  • Salesforce, a CRM & customer experience platform with a steep learning curve but endless possibilities

Payment Platforms

Payment platforms make it easy to:

  • Accept and manage payments
  • Offer convenient payment options
  • Calculate taxes 
  • Get revenue KPIs transparently and effortlessly

Depending on their particular needs, most startups gravitate towards:

  • Stripe, the leading payment platform for SaaS companies
  • Square, a convenient option for retailers

Design Tools

Your design tools will be essential to your designers’ experience. Especially if you run a digital product with a high-performing UX/UI team. 

The most popular design tools among startups are:

  • Figma, a powerful freemium collaborative design tool
  • Adobe Creative Cloud, the industry standard for photo editing, illustration and more
  • Sketch, a collaborative design tool for MacOS-powered teams, with amazing developer handoff features

How Cledara Can Help You Better Organize Your SaaS Startup Expenses

In today’s post, we shared some key steps and considerations to help you allocate and manage your software budget. The good news is that you won’t have to do it all by yourself, there are tools that can help you streamline this process and stay on top of your stack. That’s how Cledara enters the picture.

With Cledara, you will:

  • Have a comprehensive view of all your software subscriptions
  • Manage SaaS platform access and seats effortlessly
  • Unsubscribe from unnecessary subscriptions, with one click
  • Make sure that every team has access to the tools they need
  • Prevent shadow IT
  • Streamline onboarding and offboarding processes, while preserving data security
  • And much more

Take control of your SaaS stack. Book a Cledara demo today!

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Jenny Liu
Head of Finance @ Marshmallow