So the other night, as the quarter was ending, a leading SaaS company sent us 4 threatening emails in the span of less than two hours to upgrade to annual and pay for 46 seats for a 48-month term or they will shut off our service. The thing is — we have 9 folks on the team. And aren’t even using half the seats we pay for. And we’ve happily paid monthly for years, and didn’t ask for any change.
I don’t condone this behavior, but I do sort of get the motivation at least. It was end-of-quarter pressure at a leading public SaaS company whose growth had dramatically slowed. A forced 48-month term would shore up churn, which has grown dramatically at this public company, and doubling our seats without telling us, if it worked, would more than double the revenue from the deal (they also raised the pricing). Heck, if even 10% of their existing base signed this deal, they’d probably make the quarter right there.
But even if this works …What do you do next quarter?
We had paid monthly on credit card happily for years and did not ask to upgrade. We had never used 46 seats, nor asked for a 48-month binding contract extension.
It was a new end-of-quarter low from sales at a Top 10 SaaS co:
- Forced migration to Annual out of the blue, never any discussion or desire
- Forced upsell to higher edition we have zero use for. Don’t need a single feature in the more expensive version, never asked for it.
- Forced upsell to 46 seats. When we paid for 23 before and only used 9.
- Forced into 48-month auto-renew contract at higher per seat price than monthly on credit card. I’ve never seen a vendor double the price for going from monthly to annual before!
Now while this is really about the worst quarter-end behavior I’ve seen so far, so many others are using at least elements of this playbook right now. It’s hardly the only case in 2023. Folks are under stress, growth rates are down, and in some cases, churn is up.
But even if it works … here’s the thing. What do you do next quarter? Raise prices and use strong-arm tactics again? You can’t do it again and again and again. Bandaids that distract from underlying issues work just once, if you are lucky.
And in this case, will leave lasting scars.
Not only did we not pay for 48-months upfront at the new price of $1,117 a month (up from $547 a month right now) … we just simply downgraded.
And now a happy customer is actually paying less, and is no longer … happy.
If nothing else, be aware of incentives, and be aware in stressful times of what’s happening in your sales team. I’ve often seen good reps engage in bad behavior when they see it as the only play they have left. Especially if some layer of management approves it.
If you are going to take a happy 8+ year customer, and threaten to cancel their service if they don’t add 20+ seats they don’t need and move from monthly to a 48-month term … well, if you’re going to do it as CEO, at least be aware and intentional here. It can’t possibly drive your NPS up.
A related post here: