I’ve been managing IT budgets for over a decade. The exercise used to be straightforward. Capital expenditure for hardware and major software purchases, operational expense for support and maintenance, predictable line items that didn’t change much year over year.

That world is gone. Now everything is a subscription. Cloud infrastructure, SaaS applications, security tools, even hardware through device-as-a-service models. The shift from CapEx to OpEx has fundamentally changed budget planning, and not entirely for the better.

The Promise of Subscription Economics

The vendors selling subscriptions emphasise the benefits. No large upfront capital outlays. Predictable monthly costs. The ability to scale up or down based on need. Automatic updates and maintenance included.

These advantages are real. Moving to cloud infrastructure eliminated our need to forecast server capacity three years in advance and make large capital purchases based on those forecasts. We can spin up resources when needed and tear them down when we’re done.

SaaS applications eliminated the upgrade cycle where we’d defer updates for years because the implementation cost was prohibitive. Now we get continuous updates whether we want them or not.

The flexibility is genuine. We can add users to applications as we grow, remove them as people leave, and adjust spending based on actual usage. That’s better than buying perpetual licenses for a fixed user count.

The Reality of Subscription Costs

The problem is that subscription costs accumulate and grow faster than the equivalent capital expenditure would have. Every new tool adds another monthly charge. Every application price increase affects our run rate immediately.

We moved our file storage to a cloud provider five years ago. The initial monthly cost was reasonable. Since then, usage has grown and the provider has implemented three price increases. What started as a cost-neutral move now costs us significantly more than maintaining our own storage infrastructure would have.

Cloud infrastructure costs grow with usage, which sounds reasonable until you look at the growth curve. Our AWS bill has increased forty percent year over year for the past three years. Some of that is business growth. Much of it is cost creep from services that are easier to consume than to optimise.

Budgeting for Unpredictable Growth

The shift to subscription makes budget forecasting harder. With capital expenditure, I could predict major purchases years in advance. A storage upgrade every three years. Server refresh every four years. The timing and cost were knowable.

With subscription services, costs drift upward continuously. User counts grow. Usage increases. Vendors raise prices. Individual changes are small, but the aggregate effect is that OpEx budgets grow faster than business growth justifies.

I now build in an assumption that subscription costs will increase ten to fifteen percent annually even without new services. That’s substantially higher than inflation and higher than our business growth rate. It’s just the reality of subscription pricing.

Finance doesn’t like this uncertainty. They want predictable costs they can model. Subscriptions make that difficult.

The Auto-Renewal Trap

Nearly every subscription auto-renews. The vendor wants to reduce churn, so they make renewal automatic. Sounds convenient until you realise you’re paying for services you no longer need because nobody remembered to cancel before the renewal date.

We now have a detailed tracking spreadsheet of every subscription with renewal dates flagged three months in advance. Someone has to review each one and decide whether to renew. It’s administrative overhead we didn’t have with capital purchases.

Missing a renewal date is expensive. Many contracts increase the price on renewal. Some automatically upgrade to larger tiers. We’ve had renewals go through at costs significantly higher than the initial subscription because we didn’t catch them in time.

The burden is entirely on the customer to manage this. Vendors have no incentive to remind you that you’re not using a service or that there’s a cheaper tier that would meet your needs.

Hidden Costs in Usage-Based Pricing

Cloud infrastructure and some SaaS applications use usage-based pricing. You pay for what you use, which sounds fair. The challenge is that usage is hard to predict and costs can spike unexpectedly.

We had a cloud storage bucket misconfigured that caused an application to write the same data repeatedly. Our storage costs tripled in one month before we caught the issue. The cloud provider was happy to bill us for the usage. They had no mechanism to alert us about unusual spending patterns.

Another incident involved a misconfigured database that ran up compute costs. The application was performing poorly because of the database issue, and we responded by increasing the compute tier to improve performance. This made the problem worse and more expensive simultaneously.

Usage-based pricing transfers all the optimisation responsibility to the customer. The vendor has no incentive to help you reduce costs. We’ve had to build our own monitoring and alerting for cost anomalies.

Negotiating in a Subscription World

Negotiating capital purchases was straightforward. You got quotes from multiple vendors, negotiated the best price, and made a purchase. Done.

Subscription negotiations are different. You’re negotiating pricing that will apply for one to three years, but you don’t know your exact usage. You’re committing to volume tiers hoping you’ll grow into them. You’re trying to lock in pricing before the vendor’s next price increase.

Vendors also have more flexibility in subscription pricing because they can offer discounts on the monthly fee, waive implementation costs, include additional services, or adjust the user count thresholds. The complexity makes direct comparison between vendors difficult.

We’ve started working with custom AI development specialists to build tools that model subscription costs under different scenarios. Being able to forecast costs based on growth assumptions helps negotiation and budget planning.

Managing the Subscription Portfolio

We now treat subscription management as a distinct capability within IT. Someone has to maintain the catalogue of subscriptions, track renewal dates, monitor usage against committed volumes, and identify optimisation opportunities.

This is work that didn’t exist when we bought software licenses and hardware. It’s pure overhead. But without active management, subscription costs grow unchecked and waste becomes endemic.

We’ve implemented quarterly reviews of our largest subscriptions to validate that we’re on the right tier, using the appropriate features, and getting value for money. It’s time-consuming but necessary.

Advice for Other IT Leaders

Build subscription cost growth into your budget models. Assume costs will increase faster than business growth. This sets realistic expectations and avoids budget surprises.

Implement tracking for renewal dates and make subscription review a formal process. Don’t rely on remembering to cancel things.

Negotiate multi-year deals when possible to lock in pricing. Vendors raise prices annually. Longer terms provide cost certainty.

Monitor usage actively and optimise continuously. Usage-based pricing requires active management to avoid runaway costs.

Finally, accept that subscription economics have changed budget planning fundamentally. The old models don’t work. You need new processes, new tools, and new ways of forecasting costs. The sooner you adapt, the better controlled your IT spending will be.