For Software Firms, Price Increases Are Becoming a Bigger Growth Factor

After a flood of earnings today, from the likes of MongoDB, Broadcom and Nutanix, we’re pretty much done with tech’s latest quarterly earnings season. (Next earnings season is only six weeks away—whoopee!) As we look back at what we learned, here’s something that’s worth thinking about: Price increases for enterprise software firms are likely to underwrite revenue growth in the next year or so. Various companies in the sector have announced price increases in the past 12 months—from Salesforce to Shopify—in at least some parts of the world. Understanding what’s driving top-line expansion is therefore going to require looking beyond the actual number—how much of growth is due to price increases and how much to acquiring new customers. 

To get a sense of why that is, check out last week’s IPO filing by e-commerce marketing software firm Klaviyo. The filing showed that the firm’s revenue grew 54% in the first half of this year, which sounds great. But more than half of the increase resulted from existing customers spending more, both because some moved into a higher tier of service and because of a price increase, the filing said. That’s not the best way to drive growth, particularly given the competition Klaviyo faces (for more on that, see this story.)