The New Cost Landscape for SaaS Companies: Why Many ERPs Fall Short and What Needs to Change

ERP (Enterprise Resource Planning) systems help businesses manage and integrate their core processes, such as finance, supply chain, and human resources. These systems have been around for decades, primarily designed for traditional manufacturing companies. They emphasized physical products, tangible costs, and revenue recognized when goods changed hands. Cost management focused on people, production, logistics, and inventory—fitting the needs of industries where every input and output is measurable in physical units.

Today, however, technology companies dominate the global economy, and their business models differ fundamentally from manufacturing. SaaS companies sell software-driven services, rely on subscription-based models, and recognize revenue over time. While ERP systems have evolved to address some of these changes in revenue recognition, they have largely failed to adapt to the shifting cost landscape faced by modern technology businesses. SaaS companies face unique challenges, such as managing dynamic cloud infrastructure expenses, fluctuating subscription costs for third-party tools, and unpredictable AI service fees—costs that are fundamentally different from the stable, fixed expenses typical of traditional industries.

From Physical Assets to Cloud Infrastructure

Where manufacturers invest in factories, machinery, and inventory, SaaS companies invest in cloud infrastructure and digital tools. Traditional ERP systems emphasize tangible assets, fixed costs, and inventory valuations, while in a SaaS model, the primary asset is data. Costs are linked to storage, compute power, and access rather than physical production lines.

Cloud infrastructure costs are inherently dynamic—they grow with user demand and data usage, often unpredictably. These unpredictable costs can significantly impact financial planning and budgeting, making it challenging for SaaS companies to maintain cost control and forecast future expenses accurately. To mitigate these unpredictable expenses, SaaS companies can implement cost optimization strategies such as autoscaling, using reserved instances, and regularly reviewing cloud resource utilization.

AWS's optimization tools, for example, demonstrate the cost reduction capabilities individual platforms already offer, such as AWS Cost Explorer, Trusted Advisor, and Savings Plans. These tools highlight optimization potential within a specific environment, but companies still need a comprehensive overview across all their services to identify where to start optimizing first. For example, sudden spikes in user traffic or increased data processing needs can lead to unexpected surges in cloud expenses. This variability contrasts starkly with the steady-state costs typical of manufacturing. As a result, effective financial management for SaaS companies requires a new kind of cost control that traditional ERPs do not provide.

Hidden Costs: The Expanding Ecosystem of Subscription Tools

SaaS businesses today rely on a wide array of third-party tools—from marketing automation to customer support, video conferencing, and project management applications. The accumulation of these tools can lead to inefficiencies, making it challenging to control costs and manage overlapping functionalities across departments, ultimately impacting overall operational efficiency. These tools are subscription-based, accumulate rapidly across departments, and aren’t treated as physical assets that depreciate over time. Their financial impact can be significant, with costs often becoming unpredictable and difficult to manage due to varying subscription terms, usage rates, and overlapping functionalities. Managing these costs can be challenging, with aggregate costs fluctuating unpredictably due to differing usage and renewal schedules.

The Need for a New Generation of Cost Management

Managing costs effectively in this environment requires a paradigm shift. Controllers need visibility into the drivers of cloud and SaaS-related costs, such as cloud storage, compute resources, and subscription renewals, in a way that traditional ERP systems do not support. They need tools to monitor, analyze, and forecast costs based on usage, demand, and business objectives. A modern SaaS ERP system should allow for real-time cost analysis, integrating insights from cloud infrastructure providers, SaaS applications, and even AI services—each a critical piece of the operational puzzle in a digital business.

AI costs, in particular, are even less predictable than usual cloud costs. Unlike standard cloud infrastructure where expenses can be roughly estimated based on storage or compute usage, AI costs can vary significantly based on model training times, inference workloads, and unpredictable spikes in usage. The variability of AI services makes it challenging to forecast expenses accurately, leading to further uncertainty in determining overall cost structures.

These new cost structures are also essential for calculating margins accurately. AI costs, with their inherently unpredictable nature, add a further layer of complexity. Deal profitability is often an unknown due to the lack of transparency concerning costs of goods sold in the cloud, particularly when it involves AI services. Without clear insights into cloud infrastructure, AI, and subscription expenses, it becomes nearly impossible to determine the true profitability of individual customer contracts or services. Controllers need real-time access to these cost elements to understand margins at a granular level and make informed decisions that drive profitability.

The demand for better cost control isn’t just a nice-to-have; it’s a necessity for the health of the business. Without these insights, technology companies risk letting costs spiral out of control, impacting profitability and competitive edge. Controllers must move from a mindset of static asset management to dynamic, usage-based cost tracking and forecasting. This means embracing technology that sees beyond traditional cost buckets and adapts to the fluid, multi-faceted expense structure of today’s SaaS companies.

Why Many ERP Systems Can’t Keep Up

Traditional ERP systems, rooted in static asset management, struggle to handle the dynamic, subscription-driven cost structures of SaaS businesses. For example, traditional ERPs often fail to provide real-time insights into fluctuating cloud expenses or subscription renewals, leading to delayed decision-making and increased financial risk for SaaS companies. Even with customizations, they lack the flexibility to track and analyze costs that behave more like utility bills than inventory costs.

A next-generation ERP must be built for flexibility—accommodating subscription-based costs, enabling real-time cost transparency, and supporting granular margin analysis.

Finance teams need:

• Transparency into real-time cloud infrastructure costs and usage patterns.

• Tools to track SaaS application expenses across the organization, with insights into utilization rates, renewal schedules, and potential overlaps.

• Cost forecasting capabilities that align with business demand, from high-traffic periods to off-peak times.

• Granular margin and deal profitability analysis by understanding the cost of goods sold in the cloud, giving finance teams the ability to evaluate the profitability of each deal with precision.

• Accountability through accessible cost data to decision-makers across departments, fostering a culture of fiscal responsibility.

Embracing a New Cost Management Mindset

SaaS companies must adopt a proactive, data-driven approach to cost management. Controllers need AI and analytics tools to uncover hidden costs, predict future expenses, and optimize spending. This shift is critical to sustaining growth and profitability in the rapidly evolving digital economy.

The Call for Change

SaaS companies are propelling the global economy but are held back by outdated ERP solutions. These systems cannot effectively manage subscription-based costs, cloud infrastructure expenses, or fluctuating operational demands. As a result, SaaS companies struggle to scale efficiently. As traditional systems fall further behind the needs of the cloud era, the call for a new generation of ERP grows louder. It’s time for ERP to evolve to meet the unique business models and cost dynamics of the digital economy—delivering the insights that SaaS companies need, not just on the revenue side but crucially on the cost side as well. Initiatives like FOCUS (Financial Operations Cloud Universal Standards) also highlight the need for change on multiple fronts—not just within ERP systems, but among service providers as well. FOCUS aims to standardize APIs and create common reporting frameworks across cloud and SaaS providers, emphasizing that the entire ecosystem must evolve to better serve modern business needs. The future of cost management is here, and it’s built for the cloud.