Lack of Formalised Cloud Cost Management Leaves Money on the Table—CloudZero Report

CloudZero, the globally trusted leader in proactive cloud cost efficiency, recently released the findings of its research report, “How Cloud Efficient Are Software Companies in 2024?”

From interviewing hundreds of cloud operations and finance professionals, the survey found that most SaaS companies lack maturity when it comes to cloud cost management, and this lack of maturity leads to increased costs and reduced profit margins. (The report is available for download here.)

Additionally, CloudZero is launching the first-of-its-kind cloud cost benchmarking tool to help SaaS companies understand how efficient they are compared to their peers.

Cloud spending is expected to hit USD $675 billion this year, according to Gartner, and increased Artificial Intelligence (AI) adoption will drive spending even higher. Although organisations continue to ramp up cloud spending, they are not getting more cloud efficient as a solid understanding of how those costs tie back to business outcomes seems to be missing.

Cloud Cost Management Is Sorely Lacking

Key findings from CloudZero’s report include:

• Most companies do not proactively manage cloud costs as just 39% of companies have implemented formalised cloud cost management programs.
• 73% of companies report that cloud service provider costs represent at least 20% of their total cost of goods sold (COGS), and 28% report cloud costs accounting for more than half of their COGS.
• For 9 out of 10 companies, at least 10% of their costs cannot be traced to the correct sources.
• A lack of formalised cloud cost management programs also means companies are not making the most of the advanced, powerful cloud cost management approaches now available—including complete or near-complete cost allocation (just 9% say they are using this), cloud cost chargeback (under half), and software code optimisation (just 28%).

Additionally, organisations have struggled to calculate overall cloud cost efficiency, complicated by a lack of an industry-wide benchmark for this measure. CloudZero’s new Cloud Efficiency Rate (CER) is the industry’s first unifying benchmark for cloud efficiency for SaaS businesses. This report shows that top-quartile CER is 92%—meaning, only USD $0.08 of every dollar of revenue goes to cloud service provider(s). The finding underscores the positive financial impact CCM can have.

Phil Pergola, CEO at CloudZero, said, “For SaaS companies, the cloud is typically a top-three budget line item. Yet most do not have rigorous processes for managing their cloud efficiency or understanding the relationship to their unit economics at any level of granularity. Without it, they are leaving a substantial amount of gross profit on the table. By better understanding and managing their Cloud Efficiency Rate, cloud-native organizations can improve their profitability—impacting both the top and bottom line.”