Last week, Shopify announced that they were raising prices on their merchant subscription plans – Basic, Shopify and Advanced – their first price increases in 12 years. Customers that pay monthly will see average increases of 33% for their merchant subscription plans. For new customers, the new pricing is effective immediately. Current merchants won’t get hit with the price increase until April 23, 2023.
Those who want to stay with Shopify but want to avoid the big increase can shift from a monthly plan to a yearly plan. The shift to annual pricing represents a 12% increase over previous annual pricing, reports Business Insider.
Here’s how the new merchant subscription plans will be priced:
Source: Shopify
“A small change that enables a big change. The idea behind the products we create has always been the same: we offer merchants the most powerful, innovative, and reliable tools in the industry at a price that’s unmatched in the market. But what that means, and the resources required to live up to that promise, have changed dramatically since we started,” said Kaz Nejatian, VP of product and chief operating officer, in Spotify’s January 24, 2023 announcement. “In order to not change the value of Shopify, we’ve had to change the price.”
By increasing the price, Shopify says it will be able to continue to provide innovative solutions. They also said they won’t have to compromise.
“It allows our merchants to continue to exist in a world where their dreams for what their businesses can become never have to contend with what is possible,” Nejatian added. “We’ll keep making Shopify the best platform to sell things anywhere your customer is and we’ll keep creating a culture of innovators and builders pushing forward the frontier of commerce. We’re not slowing down.”
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Third-quarter 2022 highlights
The changes come just two weeks before Shopify announces their fourth-quarter and full-year 2022 financial results. At the end of the company’s third quarter for the period ended September 30, 2022, they reported the following highlights:
- Total revenue was $1.4 billion, a 22% increase year-over-year.
- Monthly recurring revenue (MRR) was $107.0 million, an 8% increase year-over-year.
- Subscription Solutions revenue was $376.3 million, an increase of 12% year-over-year.
- Merchant Solutions revenue was $989.9 million, an increase of 26% year-over-year.
- Gross Merchandise Volume was $46.2 billion, an 11% increase year-over-year, and Gross Payments Volume was $25.0 billion, representing a 54% increase year-over-year.
- Operating loss was $354.4 million, or 25% of total revenue, compared to a loss of $4.1 million, or 0.4% of revenue, for the third quarter of 2021.
- Adjusted net loss was $30.0 million, or $0.02 loss per basic and diluted share.
- The company finished the quarter with $4.9 billion in cash, cash equivalents and marketable securities, down from $7.8 billion at the end of 2021.
In their updated guidance, the company said they expected an adjusted operating loss for the full year, and an adjusted operating loss for the fourth quarter similar to that in the third quarter.
Shopify stock
Investors didn’t seem phased. On January 24, Shopify stock was valued at $42.69 per share. As of 7:59 p.m. EST yesterday, Shopify stock was valued at $50.26, an increase of $7.57.
Insider Take
Shopify continues to rake in the revenue, and they seem to have grown beyond their own expectations. They continue to add value to the merchant subscription plans, making them harder to leave for a competitor. They have solid cash and cash equivalents on their balance sheet, though they have spent some of that down in the first nine months of 2022.
The price increase doesn’t seem likely phase successful merchants who really like Shopify’s ecommerce solutions. It would take the most price sensitive merchant to leave based on such a price increase. Shopify also benefits from not having raised their prices in 12 years. Maybe the merchants anticipated a potential change. Regardless, a price increase may help reduce the company’s losses, but only for so long. Shopify needs to do something to lower their losses and get their operations into the black.
Takeaways for subscription companies: It is hard to raise prices for fear of losing valued customers, but Shopify did a few things right. They announced the price change three months before it will impact current merchants. New customers won’t know the difference. Also, everybody else is raising prices, so this is likely not a surprise. It is the reality of doing business in an uncertain economy. And they communicated that they continue to add value, so while customers will be paying more for their merchant subscription plans, they are also getting more.
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