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Tropic tells finance a 20% software increase is the new baseline for midmarket buyers
The procurement platform's Q1 benchmark puts midmarket and enterprise software growth near 20% against 3.5% at small business, and it attributes the gap to multi-year contracts and integrations that make pushback harder.
The Investor · Invest desk
What happened
- Tropic's Q1 procurement benchmark puts average software spend growth at roughly 20% year over year for midmarket and enterprise companies.
- Over the same period, SMB software spend held nearly flat, rising 3.5%.
- Tropic attributes the split to leverage, saying SMBs can churn or downgrade while larger buyers are held by multi-year contracts, custom integrations and seat counts.
- Tropic also reports that net dollar retention on traditional software has slipped below 100% as companies cut legacy contracts to fund AI tools.
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Why it matters
- contradiction Tropic's causal story is vendors pricing into locked-in accounts, but its own segment data has AI-native spend growing 82% to 127% everywhere, and an average-spend figure cannot separate a renewal uplift from a subscription that did not exist last year.
- decision A finance team that adopts 20% as its planning baseline is pre-approving an increase measured and published by a company whose product is renewal negotiation.
- cost Winning the AI negotiation as Tropic describes it still leaves a 10% to 18.5% uplift, so what the negotiation decides is how big the increase is.
- exposure Legacy vendors retaining under a dollar for every dollar of installed base need new logos to grow. The buyers they have to win now arrive with substitution alternatives.
Divide 20 by 3.5 and the answer is 5.7, which Tropic's own headline rounds up to six [1][2][3][1]. Both figures are growth rates. Which segment writes the larger cheque is a separate question.
Average spend per company goes up two ways: the same contract renews at a higher price, or the company signs something it did not have last year. Tropic reports AI-native spend growing between 82% and 127% year over year in every segment, and says only SMBs treated that as a reason to cut legacy SaaS [5]. Midmarket and enterprise, the firm wrote, "are layering AI on top of an already-growing software stack" [6]. The slowest-growing category in every segment, by Tropic's count, is legacy vendors retrofitting AI features onto existing products [7].
Tropic also wrote that "with headcount growth stalled at many organizations, the seat-expansion model that powered SaaS revenue for a decade is running out of runway" [11]. Take that at face value and the volume growth inside the 20% comes from new products, because the seat counts on the old ones are not moving.
The renewal figures are more concrete. Tropic puts AI vendors' uplift demands at 20% to 37% against single-digit increases on a typical SaaS renewal, and says buyers using its negotiation tactics cut those premiums by more than half [8]. Halve the range and the outcome is 10% to 18.5%, still above the single-digit renewal the same post describes as normal [2].
Tropic sells the benchmarking and negotiation service its post recommends, and wrote that its data "tells you what comparable companies are actually paying" [12]. Its advice to buyers is to open renewal conversations at least six months early and to demand vendor ROI evidence tied to their own usage [13]. Its advice to finance is blunter: "If your software budget didn't grow 20% this year, you're either underinvesting or your vendors haven't gotten to you yet. Finance teams should plan accordingly" [9]. Four consecutive years at that rate take the bill to 2.07 times where it started [3].
I would budget the renewal book and the new-tools book separately, because a 20% average mixes a price increase a buyer can negotiate with a purchase the buyer chose to make. If AI-native tools are still a small share of dollars at midmarket and enterprise, then most of the 20% is price on locked-in contracts and Tropic's baseline is the right planning number. Tropic did not publish the dollar bases, the sample size, or how it defines each segment, so the split is not in the data as released. A same-seats, same-modules price index would settle it.
What to watch
- Whether Tropic's Q2 benchmark holds midmarket growth near 20% or shows it decaying as AI uplifts get negotiated down.
- Whether sub-100% net dollar retention on traditional software shows up in named public SaaS vendors' reported numbers.
- Whether AI vendors start conceding price caps, usage guardrails and contract length instead of discounts, the terms Tropic tells buyers to ask for.