Shopify Announces Price Hikes for Lower Tiers: 4 Key Takeaways

Shopify Announces Price Hikes for Lower Tiers: 4 Key Takeaways

Yesterday, before it announced its earnings date, Shopify increased the prices of its Basic, Shopify, and Advanced tiers by approximately 30%. Frankly, this was well-executed. Here are a few takes:

First, there will be many complaints, but almost everyone will stay. That's just the way that price increases work in SaaS. The reason investors like SaaS is that customers are sticky even in the face of price increases. Most alternatives are still not at the price/performance ratio of Shopify. (When I was at ChannelAdvisor in early days we started charging for a product we literally two years prior said was 'free forever' and had like 90%+ retention).

Second, it kind of took them long enough, right? Why they haven't increased prices before now is likely something that Kaz and the new CFO sought to correct almost immediately. It's been many years. This was entirely predictable (btw waiting for a large increase from BigCommerce soon]).

Third, the fact that Shopify Plus is largely unaffected is revealing. Why? It shows they think more about the upgrade from Advanced than they do about comparisons to other Cloud platforms like Salesforce.

Just to give you some idea, Salesforce prior to 4 years ago I never saw in $5-10M deals that Shopify was in -- it was too small for them. Salesforce has yearly GMV commits which can put yearly costs into six figures without much trouble, even for its lower-end stores. By this metric, Plus has a lot of room to run.

This reinforces the fact that Shopify sees Plus as the "slight upgrade" to its existing plan (Loren Padelford famously used to call Plus "stretching up-market" rather than "going up-market" -- I still think that's true).

If they raised Plus prices and saw (a) more attrition, and (b) fewer upgrades from Advanced, it could hurt the business significantly. Plus has more competition than the lower tiers of Shopify in my opinion.

The fact that they kept it similar cements the positioning of Plus as "not up-market". I still expect them to release a tier above Plus at some point, and then layer Components on top of that.... but that will have to wait.

Fourth, this change kills a few birds with one stone from a Wall St. point of view. Lower-tier customers now must sign up for Annual to lock-in their prices. Why wouldn't they? This has a few benefits: (a) Increases the CLV of these customers, (b) Churn goes down for those who upgrade, which are going to be the people who appreciate the service.

With respect to merchants everywhere, the most price-sensitive merchants are the riskiest and most likely to churn. That's just the reality.

In summary, while it's of course easy to be cynical about price increases, from a business POV there is a lot to like about this move. That's not to say that Shopify doesn't have a lot to work ahead of it, as I've written about previously -- but more than anything this was predictable.