Let’s first start with Salesforce. Salesforce is the #1 SaaS company in the world by revenues and market cap. So that’s always a good place to start.
In Salesforce’s current form contract, or Master Services Agreement, they bake in a 7% price increase each year. https://www.salesforce.com/conte…
As a customer of SaaS, this does make my blood boil a bit. You’re going to raise prices 7% every year, for the exact same software that costs you like $0.06 a month to serve up to me?
But obviously, Salesforce knows the real-world churn impact will be low, and any ability to get this stick at their scale will be huge.
Even here though, bear in mind, this is a bit of a game. First, part of the real goal here is to get customers to do 3+ year contracts. A rep can often guarantee you no pricing increases if they sign a 3 year contract. You may be able to pull this off too, with very large customers. They are familiar with the trade-off and may be fine with it. It’s a great way as a start-up to get 3 years of cash up-front from a subset of enterprise customers (i.e., guaranteeing no price increases for that 3 year term).
Also, built-in price increases allow a form of implicit discounting by the company/AE waiving this instead of adding an actual discount to list pricing. “Sorry, I can’t discount any further, but I can waive the 7% annual pricing increases if you can sign THIS WEEK!”
But that doesn’t mean you should do this. You aren’t #1 in the world like Salesforce. Not yet.
My best practices:
- At least when you are smaller, guarantee pricing for 3 years, and let customers know that. That’s fair.
- Grandfather in your first customers’ pricing through $1m-$2m ARR or so and just let it go. Yes, some of your early customers will get an amazing deal — viewed through the lens of time later. But you shook hands on a fair deal, and they bet on you. Maybe never raise their prices. Or if you do, only do it if they upgrade to a new edition. Take care of your #1 advocates. They will be a very small cohort of your revenue over time, your early adopters. They are often your fiercest advocates for decades.
- Once you have a big brand and are at $30m-$40m+ ARR, revisit it all. Then it becomes less about closing every customer and less about even logos, and more about maximizing revenue per lead and per customer. But maybe wait to enter this phase for longer than your sales team wants you to.