Grandfathering your SaaS pricing without fear

I use Senja for collecting testimonials on Roast My Pricing Page. I really like this product for two main reasons: it streamlines the process of retrieving customer reviews, and it makes the reviews look very appealing. It even allows you to create a “wall of love” featuring selected reviews. You can see Roast My Pricing Page’s “wall of love” here.

Recently, Senja’s founders announced a price increase. With this new pricing, they also introduced a grandfathering policy, allowing former customers to keep their old pricing under certain conditions, which I'll explain below. This approach, known as ”grandfathering” in SaaS pricing, reminded me of a similar strategy we used at Livestorm when we rolled out our new usage-based pricing in 2022.

In the following article, I will share my experience with SaaS grandfathering strategies. The aim of these guidelines is to help you effectively implement a grandfathering strategy, easing the transition to a new pricing offer and maintaining customer satisfaction.

What is grandfathering in SaaS pricing?

Grandfathering in SaaS pricing means keeping existing customers on the old pricing while requiring new customers to subscribe to the new pricing offer you just rolled-out.

When you launch your SaaS, it’s almost inevitable that you will change your pricing:

• Your initial offer will be generally cheaper than it should be. Your first aim is to get some early customers to iterate over your product while validating that they are willing to pay for the problem you’re solving.

• Your product will improve. Your SaaS is going to evolve, and you will implement features like new integrations, AI capabilities, SSO SAML, or other security-related features like SOC 2. These require resources and possibly incur new costs, which are natural to amortize with a new pricing offer.

• You may target new markets, such as the enterprise market, where you’re likely to offer more professional services. By definition, this will require more human resources, and this should be reflected in your pricing.

  
  

  
  

Your pricing is likely to change regularly, so it's important to ensure your pricing implementation is flexible from the start. This principle is crucial to keep in mind when launching your SaaS pricing strategy.

SaaS founders often use grandfathering to make transitioning to a new pricing model smoother. By keeping existing customers on the old pricing, you can avoid disputes and maintain their satisfaction, reducing the risk of churn. Meanwhile, new customers will subscribe to the updated pricing, allowing you to implement and benefit from your new pricing strategy.

How to define your grandfathering strategy?

Which customers will stay on the former pricing?

New customers will have to adopt your new pricing offer. However, you must define the trigger for historical customers to switch to the new pricing. Here are some possibilities:

• Keep all old customers on the historical pricing regardless of their actions, and wait for the former pricing date of sunset

• Require historical customers to switch to the new pricing when they update their subscription, such as upgrading or downgrading.

• Transition historical customers to the new pricing at the end of their billing period, which is typically done for yearly contracts.

• Move customers to the new pricing when they want to access specific features, such as a Salesforce integration, a new AI feature, or a security enhancement.

  
  

For example, Libeo, a French startup digitalizing invoice creation, decided to switch existing customers to the new pricing after their yearly billing period. Anne-Sophie Corbeau, their Chief Product Officer, explained: "The rule we applied is that existing customers have to switch to the new pricing offer upon renewal. This transition was facilitated by the support of our sales”

What enticing offer can you offer to your historical customers?

For your historical customers, you should think about giving them an enticing offer as a reward for being customers before the new pricing roll-out:

• You can offer them a discount to switch to the new pricing offer. Make sure to offer this discount only when they subscribe with the same billing period as before. For example, if they were on a yearly plan, make sure they can use the discount only on the yearly plan of the new pricing

• You offer them to stay on the former pricing, but only if they switch to the yearly plan. That way, you keep them on the former pricing, but you use this new pricing offer as an opportunity to increase your LTV. This is what Senja did, as shown by this email sent to historical customers

Senja’s email to announce the official release of their new pricing offer

Come-up with a timeline

Creating a timeline for transitioning your customer base to the new pricing starts with setting a sunset date for your old pricing. It's important not to keep the former pricing indefinitely, except for very specific customers. Here’s why:

• Maintaining different operations for multiple pricing offers over the long term will create inefficiencies for your teams.

• You adopted the new pricing because it benefits your business. After validating that the new pricing yields positive outcomes, you should aim to extend these benefits across your entire customer base.

  
  

Establish a timeline of 12 to 18 months for the transition. It’s not necessary to announce to your customers an exact date immediately upon releasing the new pricing. Instead, you may want to adjust the timeline based on how well the new pricing is adopted.

Your timeline should also enable you to progressively transition your customers to the new pricing. Begin by switching customers who are nearing the end of their billing period under the former pricing. Once you receive positive feedback, you can become more aggressive by offering significant discounts. Subsequently, require customers who wish to change their billing period or upgrade to adopt the new pricing.

When we rolled out the new pricing at Livestorm, we initially decided not to impact any existing customers. A few weeks later, we asked the sales team to renew enterprise customers on the new pricing. After further validation of the new pricing model, we adjusted the product so that self-service customers had to switch to the new pricing if they wanted to upgrade or downgrade. Then, a new step consisted in obliging customers who came back after churning on the former pricing to subscribe to the new pricing.

This approach gradually increased the number of customers on the new pricing.

Define your strategy based on the leverage you believe you have with your customers

There is no universally good or bad strategy.

However, define your grandfathering strategy depending on the "leverage" you have with your customers. This leverage varies according to factors such as your overall NPS, the price of your product compared to competitors, the size of the customer base affected, and many other elements.

Depending on this leverage, you can be more or less aggressive in transitioning your customer base to the new pricing offer.

Also, make sure to run interviews from your customers or ask sales people about how customers perceive this new pricing offer. You can also run quantitative analysis to predict the percentage of your customer base who will pay more than their initial offers.

This is especially critical when your pricing model changes completely, and it’s not obvious to assess what percentage of your customer base will pay more.

Note that this latter info should actually be something you should inquire about before opting to change your pricing offer.

⚠️ Note that this latter info should actually be something you should inquire about before opting to change your pricing offer.

Prepare the operations around your grandfathering strategy

Even as a product-led company primarily offering a self-serve plan, it's likely that your customer support team will need to manually transition customers from the old pricing to the new version.

This requires enabling non-technical teams to handle pricing transitions. It needs a proper billing entitlement setup, connected to an admin interface accessible to customer support. Tools like Schematic and some billing software allow developers to use entitlements in their code, ensuring pricing changes can be managed by non-technical teams like Revenue and Product.

Schematic’s billing entitlement product enables revenue teams to make changes on pricing without depending on tech

Additionally, ensure that the tracking of customer pricing subscriptions is correctly set up. Monitoring the percentage of customers on the old versus new pricing will be your key metric, guiding daily decisions.

Communicate effectively to your customers

Communicate early

Communicate to your existing customers in advance even though they won’t be impacted directly. At Livestorm, we rolled-out the new pricing offer for Entreprise customers 6 months prior to the release of the new pricing for everyone. This was the first occasion to communicate on the new pricing. We then announced it to self-served customers 1 month prior.

Don’t hesitate to be thorough and precise, but don’t dive into all the details

In the wake of this communication, it’s important to insist on a couple of elements:

• Reassure the customers:

  Insist on the fact that historical customers can remain on the former pricing. I would advize not diving into the details of the grandfathering strategy unless they ask. Don’t explicit any sunset deadline. Unless I missed this information, Senja did not mention explicitly that customers would have to upgrade to a yearly plan to stay on the former pricing. But that felt ok when they communicated this new info given the satisfaction I have with the product

  
  

• Explain the why behind this new pricing:

  At Livestorm, we precisely explained that this new pricing made for us, because it was much more aligned with our costs making it possible to continue delivering value on the long run

  Senja explained they rolled-out a bunch of features recently, that they were way cheaper than competition, and that they were going upmarket.

Communicate on important features

If you manage to synchronize the rollout of this new pricing offer with the introduction of highly requested features, such as a much-anticipated integration, it will help mitigate any negative reactions from your customers.

Senja did well by communicating on the roll-out of a Convertkit integration the day after the official roll-out of the new pricing offer.

Take responsibility

Napoleon famously said: “You should always weigh the pros and cons, but once a decision is made, you must stick to it firmly and move forward without hesitation.”

Once you have taken your decisions, stay consistent in your communications. Repeat the same communication over and over again, and stay kind. Some customers may be unhappy, but these are customers you may not want to keep.

At Livestorm, our historical pricing was very advantageous for solopreneurs and small companies. However, we wanted to move upmarket. This is one of the reasons why we opted for the new pricing. As a result, we initially lost customers with smaller subscriptions, but they were quickly replaced by customers with larger subscriptions.

Recap of key insights on how to run an effective grandfathering strategy

Grandfathering strategy based on customer leverage:

Your approach to grandfathering existing customers onto a new pricing model should be informed by the leverage you have with your current customer base. Assess factors like customer satisfaction (NPS), competitive pricing, and the size of your customer base. This will determine how aggressively you can run the transition.

Ease of operational management:

Ensure your operational teams can smoothly manage the transition. Set up a robust billing entitlement system connected to an admin interface accessible to customer support. Use tools that allow non-technical teams to handle pricing changes efficiently. Prepare for a roll-back ticket in case of disastrous outcome on your revenue metrics.

Clear but concise communication:

Communicate the changes to your customers early and clearly, without delving into excessive details. Focus on reassuring customers that historical pricing will remain for existing users and explain the rationale behind the new pricing. Highlight the benefits and any new features being introduced to help soften the impact of the change.