Why we stopped treating price increases as optional

At our company, there were customers who had not seen a price increase in close to a decade. The product they were using had improved substantially over that period, our support organization had grown and become more capable, and the alternatives in the market in many cases cost a multiple of what we were charging. With inflation, the customer was paying less in real terms every year, and the cost of serving them was rising. We came to treat pricing as a normal operating discipline. Done with care, it restored the economics of the business and kept the customer relationships intact.

A customer at a deep discount was being subsidized by the rest of the business, including our employees. When a meaningful portion of the base was paying below the cost to serve, we could not fund the innovation our other customers were paying for, and we could not pay our team what they had earned.

We approached the problem on two tracks. On every new contract going forward, we built in an annual escalator, typically five percent or CPI, whichever was greater, so we would not end up in the same position again. For the existing base, we ran a customer-by-customer review. The options on the table for any given account were an upsell or cross-sell that brought down the blended discount, a multi-year price correction, or, where appropriate, a reduction in the discount back toward our list price.

The execution had to be done well. We started showing the discount as a line item on every invoice so the customer could see the size of the discount each month. We kept a running record of the feature improvements delivered since that account’s last price change, which in some cases was never. Customer success confirmed the account was actively getting value before we opened a pricing conversation. When we went to the customer, we framed the change as a reduction in their discount toward list price (and not a price increase) and walked them through what had been added to the product since their pricing was set. We also made it clear they were still getting a substantial discount in many cases. We phased the move across multiple years where the correction required it.

The work was unglamorous and in some cases took years to complete. It restored the economics of the customer relationships that needed it, and let us keep investing in the team and the product that the rest of the customer base was counting on.