Why Automatic Price Increases in SaaS are a Bad Idea
I’d like to think that not much upsets me…but there is one B2B practice that does. I was reminded of it twice this week…
When did we begin to believe that including automatic annual price increases in contracts actually improves profitability and revenue? Sure, maybe you’re winning a little playing the short game – free money, right?
It’s the opposite of transparency. It’s a short-term win that harms the mid- and long-term.
For example, you probably subscribe to streaming TV services, right? Each month, you pay an amount. It’s likely you don’t even think about it…until…
…you receive a notification that the price is going up. Your brain likely begins to process whether this subscription is still worth it. Maybe you cancel. Maybe you evaluate & stay. Maybe you begin couch-tracking alternatives…
…and cancel sooner than you would have otherwise.
Now take that into B2B.
Your customer signs a subscription agreement at a certain amount. If you’ve managed to slide an auto-price increase into it…
◼ You’ve probably eroded some trust at the goal line by sneaking it in there, which I’m sure your customers try to negotiate out, but that’s the least of the problems…
◼ At renewal time, the customer probably doesn’t remember it’s there. Or, the person doing the renewal isn’t the person who signed the agreement originally… so, they’re paying it reluctantly, and the budget issue you’ve created just stole the customer’s time, resources, and opinion of you.
Which means now your auto price increase is also likely:
(a) creating a cost of sale/renewal when a percentage of your customers are now beginning to re-evaluate,
(b) creating a potential churn, that,…
(c) your account management / CSM team has to spend time saving, versus spending time growing another account, and along with it,…
(d) your upsell/cross-sell is likely minimized via this practice!
Automatic price increases in subscription contracts, to me, is the opposite of transparency.
Yes, sometimes you have to raise prices…I get it! Every year automatically? I’d argue you’re eroding your profitability with that practice, not raising it.
Earn your price increases! Cards face up!
In a subscription economy, success comes from signing customers who stay, buy more, and become advocates. Your auto-price-increases are likely reducing the odds of all three!
*end of rant*
I speak and teach revenue organizations on how to leverage transparency and decision science to maximize their revenue capacity. It’s what I do…teach sellers, their leaders, well…entire revenue organizations how we as human beings make decisions, then how to use that knowledge for good (not evil) in their messaging (informal and formal), negotiations, and revenue leadership. I wrote a book Book Authority lists as the 6th best sales book of all time (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘤𝘺 𝘚𝘢𝘭𝘦), and a second award-winning book (𝘛𝘩𝘦 𝘛𝘳𝘢𝘯𝘴𝘱𝘢𝘳𝘦𝘯𝘵 𝘚𝘢𝘭𝘦𝘴 𝘓𝘦𝘢𝘥𝘦𝘳).
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