Grandfathering: An Essential Piece of Your Pricing Puzzle
Verizon and AT&T are once again in the news for their notorious grandfathered unlimited data plans. To cut a long story short, these carriers have been unable to sustain their cheaper legacy plans for early customers and are now revising those prices to general ire.
Pricing strategy changes are inevitable as businesses grow and scale. But it’s not the price revision itself that rubs customers the wrong way.
It’s the fact that they feel that these mobile carriers are dishonoring their grandfather clauses with bait-and-switch tactics. So how can you introduce pricing changes for your customers without alarming or inconveniencing them?
Keep Your Existing Customers to Upgrade Them
When it comes to SaaS pricing, a grandfather clause is one which lets your existing customers remain at the same price point at which they first signed up for your product, while you change your pricing plan for new customers.
It’s all too common for businesses to price themselves lower than they should when they start out.
And it’s not uncommon to see SaaS pricing plans start from $0 either. Having an inexpensive or free plan is a great way to give people an opportunity to use your product with no strings attached. (We have one ourselves). But problems start creeping up when you tell customers that your free plan is free forever.
Ultimately, you want to convert your most valuable customers on a free plan to a higher pricing tier. However, your own ‘lifetime free’ label can block you from the possibility of ever upgrading them. And you’ll soon find that it was an impractical promise that may be impossible to keep.
Business Benefits of the Grandfather Clause
Often, mismanaged expectations are responsible for pricing changes gone awry with customers. Simply considering the necessity of grandfathering as you build out your first pricing plans will put you on the track of thinking ahead to the point when you will eventually change them.
But once you’re on the brink of change, what benefits do grandfathered-in plans provide? On the surface, it may look like you’re forgoing revenue. But dive deeper and you’ll see that grandfathering lets you:
- Run pricing experiments with higher retention rates
Customer acquisition costs are a big part of any company’s expenditure. So it makes sense to understand all the aspects of a trade-off between losing customers on a free or low-paying plan and the cost of acquiring an equal number of new, engaged customers. Mostly, it’s better to retain rather than to acquire.
- Maintain long-term customer satisfaction
The relationships you build with your early customers are often more personal than the ones you make as you scale. And they will likely be your strongest supporters in the long run. Grandfathered-in plans respect your early relationships.
Of course, grandfathering is only one of several ways to shift customers gradually from the old to the new. While it works in most cases, there are other variations and methods you can adopt depending on your pricing model and SaaS product. Some of them are explained in Patrick Campbell’s guide to changing SaaS pricing linked below.
The important thing to remember is that pricing plan changes shouldn’t come as a sudden shock to the people using your product or services, but as a chance for them to reassess your product or service’s value in a positive way.