Our analysis of 111 publicly traded enterprise software companies* found that 57% improved gross margins by at least one percentage point in the past year. Yet there’s still room to grow: The median gross margin remains at 74%, falling below our benchmark range of 75% to 85%. In the last two years, many companies have made tough decisions to optimize major cost drivers—cloud hosting, sales and marketing, support, and labor. Now, AI is adding a new dimension to this equation.
Software companies are embedding AI into their products at a rapid pace, both to enhance their offerings and improve internal efficiencies. Some Examples: Salesforce’s AgentForce, Zendesk AI, and Sierra.AI.
AI’s potential is undeniable—but it also shifts the cost structure in ways many software companies haven’t fully accounted for. In the rest of this article, we'll explore how AI impacts cost structures and highlight specific strategies to optimize spending and drive sustainable margin expansion.
*with revenues between $250 million and $2 billion, October 2024
59%
of public software companies in our analysis are below gross margin benchmarks
Our analysis of 111 publicly traded enterprise software companies* found that 57% improved gross margins by at least one percentage point in the past year. Yet there’s still room to grow: The median gross margin remains at 74%, falling below our benchmark range of 75% to 85%. In the last two years, many companies have made tough decisions to optimize major cost drivers—cloud hosting, sales and marketing, support, and labor. Now, AI is adding a new dimension to this equation.
Software companies are embedding AI into their products at a rapid pace, both to enhance their offerings and improve internal efficiencies. Some Examples: Salesforce’s AgentForce, Zendesk AI, and Sierra.AI.
AI’s potential is undeniable—but it also shifts the cost structure in ways many software companies haven’t fully accounted for. In the rest of this article, we'll explore how AI impacts cost structures and highlight specific strategies to optimize spending and drive sustainable margin expansion.
*with revenues between $250 million and $2 billion, October 2024
of publicly traded software companies improved gross margin by at least 1% in the last year.
57%