SaaS price hikes put CIOs’ budgets in a bind

Subscription prices from major SaaS vendors have risen sharply in recent months, putting many CIOs in a bind as they struggle to stay within their IT budgets.

SaaS subscription costs from several large vendors have risen between 10% and 20% this year, outpacing IT budget growth projections of 2.8%, says Mike Tucciarone, a vice president and analyst in the software and cloud negotiation practice at Gartner.

“We are seeing significant and broad-based cost increases across the enterprise SaaS market,” he says. “This is creating notable budgetary pressure for many organizations.”

While inflation may have driven some cost increases in past months, rates have since stabilized, meaning there are other factors at play, Tucciarone says. Vendors are justifying subscription price hikes with frequent product repackaging schemes, consumption-based subscription models, regional pricing adjustments, and evolving generative AI offerings, he adds.

“Vendors are rationalizing this as the cost of innovation and gen AI development,” he says.

Tucciarone sees the biggest hikes coming from vendors owned by private equity firms, with SaaS price increases as high as a whopping 900%. The number of private equity software deals grew by 28% in 2024, he notes.

“These firms are laser-focused on short-term profitability,” he says. “This is a growing cost risk that CIOs can’t afford to ignore.”

Mission-critical price increases

Tucciarone isn’t alone in noticing recent SaaS price hikes.

SaaS prices for analytics and other data-related tools are rising as enterprise data volumes soar, some observers say. Subscription pricing for mission-critical systems, including ERP, CRM, and data platforms have risen significantly in the past year, says Guillaume Aymé, CEO of DataOps platform provider Lenses.io.

Aymé points to SaaS consolidation as a major driver of cost increases, with large tech companies and private-equity firms buying up smaller providers of essential SaaS packages.

“Then, they ramp up the pricing, knowing that the cost of migration off those platforms is exceptionally expensive, especially at time when businesses are just trying to figure out their AI strategy at the same time,” he says. “They’ve already got a number of initiatives in flight, and asking them to do a migration is going to be very difficult.”

These SaaS price increases have come at a time when many organizations are still trying to find money for AI initiatives, forcing CIOs to make tough decisions, he adds.

“They certainly have a totally separate budget for AI, which is coming at the cost of having to reduce their operational costs, their day-to-day costs, and at the same time, they’re faced with price increases, and that puts them in a very difficult position,” Aymé says. “The price increase are not totally across the industry, but specifically in mission-critical [areas], where the cost of a migration or rip and replace is high.”

The price of data

SaaS data platforms fall into a similar category as other mission-critical applications, Aymé adds, because the cost of moving an organization’s data can be prohibitively expensive, in addition to the price of a new SaaS tool.

Kunal Agarwal, CEO and cofounder of data observability platform Unravel Data, also pointed to price increases for data-related SaaS tools. Data infrastructure costs, including cloud data warehouses, lakehouses, and analytics platforms, have risen 30% to 50% in the past year, he says.

Several factors are driving cost increases, including the proliferation of computing-intensive gen AI workloads and a lack of visibility into organizational consumption, he adds.

 “Unlike traditional SaaS, where you’re paying for seats, these platforms bill based on consumption, making costs highly variable and difficult to predict,” Agarwal says.

In some cases, vendors are shifting pricing plans away from predictable models to less consistent use-based pricing, he says. Some vendors have also introduced premium pricing tiers for capabilities that were previously included in lower tiers.

Beyond data-heavy platforms, vendors of security and observability tools and AI-enhanced SaaS are pushing price increases, says Ed Barrow, CEO and cofounder of data center investment management firm Cloud Capital.

“SaaS inflation is real and broad,” he says. “It’s hitting startups, midmarket, and enterprises alike.”

While AI is squeezing CIOs’ internal IT budgets, it’s also driving SaaS cost increases, Barrow suggests. “Vendors’ margins are getting squeezed by GPU-heavy workloads, and they’re passing those costs downstream,” he says. “Add rising cloud infrastructure bills and policy changes from hyperscalers, and price resets are inevitable.”

How to adjust

While some price hikes may be hard to avoid, CIOs have some ways to cushion the blow, observers say.

Unravel Data’s Agarwal recommends that IT leaders focus on usage patterns as they manage SaaS data platform costs.

“Many organizations discover that 20% to 40% of their data infrastructure spend is simply waste — idle resources, inefficient queries, or redundant processing,” he says. “The key insight is reframing this not as cost-cutting, but as cost optimization that frees up budget for innovation and additional workloads.”

When organizations optimize their existing workloads, they often find they can expand their data platform usage for new AI initiatives without increasing their overall budgets, he adds. “The winners in this environment will be those who treat data infrastructure as a product that needs active management, not just a utility you pay for and forget about,” he says.

Lenses.io’s Aymé urges CIOs to avoid single-vendor deployments for mission-critical capabilities, when possible. While many vendors push customers to adopt their all-in-one platforms, modular apps that plug into larger software packages can limit vendor lock-in exposure, he says.

The growing adoption of AI agents, as well as agent standards like Model Context Protocol, will make it easier for CIOs to bring SaaS tools from different vendors together in a cobbled-together ERP platform, for example, he says.

“No exec wants their team to use 10 different systems and swivel between 10 different consoles, so there is an advantage by saying, ‘We’re just going to have one solution, one vendor, that unifies those 10 things,’” he says. “But the executives that I speak to say they want their users to be interfacing with copilot or a chat assistant, and the chat assistants to be connected to all these different systems.”

CIOs should also be proactive by locking in long-term agreements for critical solutions and planning for renewals a year or two ahead of time, advises Gartner’s Tucciarone.

“With the high rate of change in the SaaS market, vendors have the upper hand in negotiations,” he adds. “CIOs must rigorously assess their IT negotiation intelligence, demonstrate they’re informed buyers, and leverage market data to secure better outcomes.”