Do You Actually Need SOC 2? The Honest Assessment

Your sales team lost a deal. Enterprise prospect asked: "Are you SOC 2 certified?"

Answer was no. Deal died.

Now leadership wants SOC 2. The audit firm quoted $60,000-120,000 and 6-12 months. Your 40-person company doesn't have dedicated security staff. Half your systems are SaaS tools you don't control. The project seems impossible.

Here's the question nobody asks before panicking: Do you actually need SOC 2, or did you just need a better answer?

Let's have the honest conversation about SOC 2—when it's necessary, when it's not, and what alternatives exist for companies that aren't ready for six-figure compliance projects.

What SOC 2 Actually Is

Strip away the acronyms and consultant-speak:

SOC 2 (Service Organization Control 2): An audit framework for service providers to demonstrate security controls to customers.

What it does:

• Third-party auditor examines your security controls
• Issues report stating whether controls exist and work
• Customers can review report instead of auditing you themselves
• Demonstrates you take security seriously (on paper)

What it doesn't do:

• Guarantee you're secure (audits have limits)
• Prevent breaches (companies with SOC 2 still get hacked)
• Replace good security practices (it documents them, doesn't create them)

Types of SOC 2:

Type I: Controls are designed appropriately (point-in-time) Type II: Controls operate effectively over time (usually 6-12 months)

Enterprise customers want Type II. Type I is seen as "starter SOC 2" that proves less.

When Customers Actually Require SOC 2

Let's separate "nice to have" from "mandatory to close deals":

Enterprise Sales (100,000+ ARR deals)

When SOC 2 is expected:

• Selling to Fortune 500 companies
• Handling their sensitive data
• Integration with their core systems
• Procurement has security questionnaire

What happens without it:

• Security review process stalls
• Procurement flags as risk
• Legal involvement increases
• Deal timeline extends 6+ months
• Or deal just dies

Alternative that sometimes works:

• Strong security documentation
• Third-party penetration test
• Willingness to negotiate contract terms
• Executive sponsor pushing deal through

Reality: For true enterprise sales ($250K+ deals), SOC 2 increasingly expected. You can close some deals without it, but you'll lose others.

Regulated Industries

Healthcare:

• HIPAA compliance required (separate from SOC 2)
• Large healthcare organizations expect SOC 2 additionally
• Smaller practices often don't care

Financial services:

• Regulatory requirements for vendors
• Banks and investment firms expect SOC 2
• Smaller financial companies more flexible

Government:

• FedRAMP for federal (SOC 2 not sufficient)
• State/local more variable
• SOC 2 helps but not always required

Highly Competitive Markets

When competitors have SOC 2:

• Customers compare security posture
• SOC 2 becomes table stakes
• Missing it = competitive disadvantage

When competitors don't:

• First to market with SOC 2 = differentiator
• Can charge premium for "enterprise security"
• Opens doors competitors can't access

When SOC 2 Is Overkill

Equally important: when SOC 2 doesn't make sense yet.

Early-Stage Companies (Pre-Product-Market Fit)

Why it's premature:

• Product and processes changing rapidly
• Controls documented today invalid next month
• Audit requires stability you don't have
• Money better spent on product/growth

What to do instead:

• Implement good security practices
• Document as you go
• Prepare for SOC 2 later
• Focus on reaching scale first

SMB-Focused Products

When customers don't care:

• Selling to 10-50 person businesses
• Customers aren't asking
• Price point under $10K/year
• Self-service sales model

Reality check: Small businesses don't request SOC 2 reports. They might ask "are you secure?" but don't have procurement teams requiring formal audits.

Better investment: Strong security practices, transparency, good support.

Consumer Products

When it's irrelevant:

• B2C business model
• Consumers don't know what SOC 2 is
• Security matters but not formal compliance
• App store reviews matter more than audit reports

When Revenue Doesn't Justify Cost

The math:

• SOC 2 costs: $60K-120K initially, $30K-60K annually
• If annual revenue under $1M: 6-12% of revenue on compliance
• Hard to justify unless blocking major deals

Rule of thumb: SOC 2 makes sense when the deals you'll close with it exceed the cost by 5-10x.

The Real SOC 2 Costs

Let's do honest math, not consultant estimates.

Initial Audit (Year 1)

Auditor fees:

• Small company (< 50 employees): $40,000-80,000
• Medium company (50-200 employees): $80,000-150,000
• Depends on complexity, number of systems, audit firm

Readiness assessment (if needed):

• Pre-audit gap analysis: $15,000-30,000
• Identifies what you need to fix
• Optional but recommended for first time

Remediation costs:

• Depends on gaps found
• Could be $0 (already compliant) to $100,000+ (lots to fix)
• Common: $20,000-50,000 in tooling and consulting

Internal time:

• 200-500 hours (often underestimated)
• Security team, IT, HR, legal, executives
• Evidence gathering, policy writing, meetings

Tools and software:

• Security monitoring: $5,000-20,000/year
• Compliance automation (Vanta, Drata): $12,000-30,000/year
• Additional security tooling: $10,000-30,000/year

Total Year 1 cost for 40-person company:

• Low end: $70,000 (simple, using automation, minimal gaps)
• High end: $200,000 (complex, manual process, lots of remediation)
• Typical: $100,000-130,000

Annual Recertification (Year 2+)

Auditor fees:

• Type II recertification: $30,000-60,000 annually
• Easier than initial (same controls, just proving they work)

Ongoing compliance:

• Compliance automation tool: $12,000-30,000/year
• Security tooling maintenance: $15,000-30,000/year
• Internal time: 100-200 hours annually

Total ongoing cost:

• $50,000-100,000 annually
• Plus opportunity cost of time spent on compliance vs. product

The Hidden Costs

Things people forget to budget:

Change management overhead:

• Every system change must be evaluated for SOC 2 impact
• Slows down development (not much, but noticeable)
• Additional documentation for changes

Hiring implications:

• Need someone responsible for compliance
• Might need to hire security person earlier than planned
• Compliance knowledge becomes hiring requirement

Customer expectations:

• Once you have SOC 2, customers expect it maintained
• Letting it lapse is worse than never having it
• Ongoing commitment, not one-time project

The SOC 2 Process

What actually happens during SOC 2 certification:

Phase 1: Readiness (2-4 months)

Gap assessment:

• Auditor (or consultant) reviews current state
• Compares to SOC 2 requirements
• Identifies gaps and required changes

Example gaps commonly found:

• No formal security policy
• Password requirements not enforced
• Background checks not documented
• Vendor reviews not conducted
• Backup testing not logged
• Access reviews not regular
• Incident response plan missing

Remediation:

• Fix identified gaps
• Implement missing controls
• Document policies and procedures
• Train employees on new processes

Phase 2: Type I Audit (1-2 months)

What auditor examines:

• Security policies exist
• Controls are designed appropriately
• Evidence of controls in place
• Point-in-time verification

What you provide:

• Policy documents
• System configurations
• Employee training records
• Vendor contracts
• Access control evidence

Outcome: Type I report (controls exist)

Phase 3: Observation Period (6-12 months)

For Type II, auditor needs to see controls working over time:

• Can't audit this until controls have operated 6-12 months
• Must demonstrate consistent operation
• Can't skip this (no way to fast-track Type II)

During this period:

• Maintain all controls
• Collect evidence of operation
• Document exceptions and resolutions

Phase 4: Type II Audit (1-2 months)

What auditor examines:

• Controls operated throughout period
• Evidence of consistent application
• Exceptions and how handled
• Changes and change management

What you provide:

• Logs and evidence from entire period
• Audit logs, access reviews, change records
• Incident reports and resolutions
• Training records, vendor reviews

Outcome: Type II report (controls work over time)

Timeline Reality

Fastest possible: 8-10 months from start to Type II report

• 2 months readiness
• 1 month Type I
• 6 months observation
• 1 month Type II audit

More typical: 12-18 months for first Type II

• Gaps take longer to remediate
• Observation period might be 12 months
• Learning curve adds time

This can't be rushed. The observation period requires actual time passage.

The Trust Service Criteria

SOC 2 audits against five trust service criteria. You choose which to include:

Security (Mandatory)

Always included, foundation of SOC 2:

• Access controls
• System operations
• Change management
• Risk mitigation

Availability (Optional)

System uptime and availability:

• Monitoring and incident response
• Business continuity planning
• Disaster recovery procedures

Add this if: Customers care about uptime SLAs

Confidentiality (Optional)

Protecting confidential information:

• Data classification
• Encryption
• Non-disclosure agreements

Add this if: Handling sensitive customer data beyond normal security

Processing Integrity (Optional)

System processing is complete, valid, accurate:

• Quality assurance
• Error handling
• Data validation

Add this if: Providing financial processing, data processing services

Privacy (Optional)

Personal information handling:

• Privacy notices
• Data retention and disposal
• Individual rights (access, deletion)

Add this if: Handling personal data, especially under GDPR/CCPA

Most companies choose: Security + Availability Healthcare adds: Confidentiality Data processors add: Processing Integrity, Privacy

More criteria = more complexity and cost

SOC 2 Automation Tools

Manual SOC 2 is painful. Automation helps but isn't magic.

Vanta

What it does:

• Automates evidence collection
• Connects to AWS, Google Workspace, GitHub, etc.
• Continuous monitoring of controls
• Auditor portal for evidence sharing

Cost: ~$24,000-36,000/year Best for: Tech companies with cloud infrastructure Limitations: Only monitors what it integrates with

Drata

What it does:

• Similar to Vanta (direct competitor)
• Automated evidence collection
• Pre-built policies and procedures
• Audit management

Cost: ~$18,000-30,000/year Best for: Similar to Vanta, slightly cheaper Limitations: Same integration limitations

Secureframe

What it does:

• Another automation platform
• Evidence collection and monitoring
• Compliance dashboard

Cost: ~$12,000-24,000/year Best for: Smaller companies, more affordable Limitations: Fewer integrations than Vanta/Drata

Manual Approach

What it requires:

• Spreadsheets tracking evidence
• Manual collection of logs and screenshots
• No automated monitoring
• Higher auditor costs (more time verifying)

Cost: $0 for tooling, higher auditor fees Best for: Companies with dedicated compliance person Reality: Painful but possible

Recommendation: For first SOC 2, automation tool worth it. Saves enough auditor time to pay for itself.

Alternatives to SOC 2

When SOC 2 is premature or excessive, alternatives exist:

ISO 27001

What it is: International security standard Compared to SOC 2: More prescriptive, globally recognized Cost: Similar to SOC 2 ($50K-100K) When to choose: Selling internationally, ISO more recognized in Europe

Penetration Testing

What it is: Ethical hackers test your security Compared to SOC 2: Tests actual security, not controls documentation Cost: $15,000-40,000 depending on scope When to choose: Customers want proof of security, not formal audit

Security Questionnaires

What it is: Detailed responses to customer security questions Compared to SOC 2: More work per customer, but cheaper Cost: Internal time only When to choose: Low volume of security reviews, customers accept it

Custom Security Documentation

What it is: Professional security documentation package Compared to SOC 2: Not third-party verified, but demonstrates maturity Cost: $5,000-15,000 to create professionally When to choose: Selling to smaller enterprises, building toward SOC 2

Package could include:

• Security policies and procedures
• Network architecture diagram
• Data flow documentation
• Incident response plan
• Disaster recovery plan
• Employee security training program
• Vendor management process

Not as strong as SOC 2, but shows you're serious.

The "We Need SOC 2" Decision Framework

Work through these questions:

Question 1: Are We Losing Deals?

If yes:

• How many deals?
• What value?
• Is SOC 2 specifically mentioned as blocker?

If no:

• Don't pursue SOC 2 preemptively
• Wait until actually blocking revenue

Question 2: What's the Deal Value?

If SOC 2 would unlock $500K+ in annual revenue:

• Probably worth $100K investment

If SOC 2 would unlock $100K in revenue:

• Probably not worth it yet
• Try alternatives first

Question 3: Are We Ready Operationally?

Do you have:

• Documented security policies?
• Consistent security practices?
• Someone to own compliance?
• Stable processes (not changing weekly)?

If no to multiple:

• Too early for SOC 2
• Build foundations first

Question 4: What's Our Timeline?

If you need SOC 2 in 6 months:

• Impossible (observation period required)
• Try alternatives for immediate deals

If you can plan 12-18 months out:

• Realistic timeline
• Start readiness now

Question 5: What Do Customers Actually Need?

Ask the customer who wants SOC 2:

• What specific concerns does SOC 2 address?
• Would detailed security documentation suffice?
• Would penetration test results help?
• Is this procurement checkbox or actual requirement?

Sometimes: They want proof of security, SOC 2 is just what they know to ask for. Alternative proof might work.

What We Actually Recommend

For most growing companies (20-100 employees):

If Revenue < $2M/year

Don't pursue SOC 2 yet.

Instead:

• Implement good security practices
• Document policies and procedures
• Get penetration test if needed for specific deals
• Build foundation for future SOC 2

If Revenue $2M-5M/year

Only pursue if actively losing enterprise deals.

Consider:

• Lightweight alternatives first
• Custom security documentation
• Detailed security questionnaire responses
• If still blocking deals, start SOC 2 process

If Revenue $5M-10M/year

Evaluate seriously, likely beneficial.

Approach:

• Assess readiness (gap analysis)
• Budget $100K-150K for Year 1
• Plan 12-18 month timeline
• Use automation tool (Vanta, Drata)
• Dedicate internal resource

If Revenue $10M+/year

Probably time for SOC 2.

At this scale:

• Enterprise deals are growth path
• SOC 2 as percentage of revenue is manageable
• Competitive necessity in many markets
• Can support ongoing compliance

If Selling to Regulated Industries

Industry-specific compliance probably more important:

Healthcare: HIPAA first, SOC 2 second Finance: SOC 2 + industry regulations Government: FedRAMP or StateRAMP more relevant

The Bottom Line

SOC 2 is expensive, time-consuming, and absolutely unnecessary until it's necessary.

The magic moment: when the revenue you're losing without SOC 2 exceeds the cost of getting it by 5-10x. Before that moment, invest in actual security practices and cheaper proof points.

A $2M revenue company spending $100K on SOC 2 preemptively is burning money. A $10M revenue company losing $1M in pipeline to "no SOC 2" objections is leaving money on the table.

Most companies should:

1. Implement good security practices first
2. Document them professionally
3. Get penetration tested
4. Respond to security questionnaires thoroughly
5. Pursue SOC 2 when actually blocking deals

The time to start SOC 2: When you have specific enterprise deals worth 10x the cost waiting for the report.

Not before.

Sometimes the most valuable compliance advice is: build good security practices and wait to formalize them until customers are actually paying for the certification.

You don't need a third-party audit to prove you're secure. You need to actually be secure and be able to demonstrate it convincingly. SOC 2 is one way. It's not the only way, and it's not the first way.