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Cutting costs in the cloud: six strategies for SaaS companies

SaaS companies are urgently seeking to control cloud hosting costs, but navigating the complex landscape of cloud expenditures is no simple task.

In brief
  • Rapidly increasing cloud hosting costs and a slowdown in growth have prompted software vendors to prioritize cloud hosting optimization.
  • Many SaaS companies are struggling to effectively assess and improve cloud hosting costs.
  • Evaluating cloud architectures, hosting infrastructure and processes is crucial in identifying areas for margin improvement and implementing solutions.

In the fast-paced world of Software as a Service (SaaS) companies, skyrocketing cloud hosting costs have become a major concern. Over the past decade, many businesses have moved their workloads to the cloud to capitalize on its advantages, such as elasticity, scalability and global deployment capabilities. However, this shift has come with a hefty price tag, exacerbated by the increasing demand for innovation and the need to deliver innovative technologies, like Machine Learning (ML) and Artificial Intelligence (AI).

The financial strain

For a typical SaaS company, cloud hosting costs usually account for 6%-12% of SaaS revenue and constitute a sizable portion of their cost of goods sold (COGS)¹. To ensure financial sustainability and continued growth in this competitive market, addressing and optimizing cloud expenses have become critical priorities for SaaS companies.

Taking control of cloud hosting costs: challenges and solutions

Cloud cost management is a multifaceted challenge for SaaS companies, demanding a broad and in-depth understanding of the factors driving these costs. From the deployment architecture to the culture among engineering teams, from pricing strategies to the choice of technologies, every facet contributes to the overall cloud expenses. To confront these challenges head-on, software leaders can take six immediate actions, including:

With extensive experience in assessing hundreds of software companies each year, the EY-Parthenon Software Strategy Group assists private equity operating teams in tackling cloud hosting cost challenges for their portfolio companies. Our knowledge of cloud hosting cost governance, SaaS architecture and cloud suitability assessment enables us to help provide valuable insights and solutions to develop cost-effective cloud expense strategies for our portfolio companies.


Effectively managing cloud hosting costs requires attention to various components, including networking costs, backup storage and deployment architecture. A comprehensive approach to cloud cost management emphasizes monitoring, education and adoption of a cost-aware culture. By taking these proactive measures, SaaS companies can enhance their cloud expenses, make accurate cost predictions, and achieve significant savings while ensuring financial sustainability and continued growth.

Ioannis Wallingford, Harrison Cohn and Patrick Daly of Ernst & Young LLP also contributed to this article.


As companies focus on the bottom line, several strategies can help to improve cloud hosting cost profiles. Companies often struggle with how best to improve hosting COGS and knowing the order in which they should proceed. Reach out to find out how we can help.

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