Price escalators in SaaS contracts

Price escalators in SaaS contracts

Maintaining net dollar retention over 100% is critical to the health of your SaaS business and getting a premium valuation.?One easy hack to improve NDR is to include automatic price escalators in your annual contracts with customers.?Our portfolio companies do this, and the automatic price increase upon renewal is anywhere from 5% to 10%.?Even getting 5% or 3% goes a long way to improving net dollar retention metrics and generating more cash.?

?

Our portfolio companies have had the following experiences with price escalators:

?

“We have a standard 5% increase. But so many companies want to strike that.?Jenna has been awesome managing renewals and is increasing everyone's rates significantly. She hasn't been getting much push back. She just states it very matter of fact that our rates have increased.”

?

“We started including auto-price increases in our renewals at the start of this year and it's been surprisingly effective. Our starting point is 10% and we get it more often than not; some customers negotiate us down to the 3-5% range.”

?

“The automatic price increases are a beautiful thing because they give us leverage: i) we can trade an automatic price increase for an earlier renewal, longer contract period, or upselling to more features; and ii) when we do waive price increases, the customer walks away satisfied.?They feel like they’re winning.”

?

So, if your SaaS contracts don’t have automatic price increases of 5% to 10% upon annual renewal, you’re missing out on free money, negotiating leverage with customers, and improved retention metrics.?

?

Below are the net dollar retention trends over past 5 quarters of all publicly traded SaaS companies.?Visit our website to see all data.?Thanks for reading our blog.

No alt text provided for this image
No alt text provided for this image


?

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures.?Visit us at blossomstreetventures.com and email directly at [email protected].?We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue.?We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions.?We can commit in 3 weeks and our check is $1mm to $4mm.?Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.

Chris James L.

CEO & Founder at iSocialize | Innovating the Future of Social Commerce

1 年

We are ready

回复

要查看或添加评论,请登录

Sammy Abdullah的更多文章

  • SaaS Partnerships and Integration Importance

    SaaS Partnerships and Integration Importance

    When Bill.com went public, one of the graphics in their prospectus showed the major milestones in the company’s history.

  • SaaS Revenue and Opex Per Head

    SaaS Revenue and Opex Per Head

    Two metrics we use to compare software businesses are revenue per employee and operating expense (“opex”) per employee.…

  • SaaS Margins are not what you think

    SaaS Margins are not what you think

    The general rule of thumb for spending in SaaS is 40/40/20/20. Explained further, R&D spend should be 40% of revenue…

  • Profitability of the last 79 SaaS?IPOs

    Profitability of the last 79 SaaS?IPOs

    Profitability is not a requirement in SaaS. Of the 79 SaaS IPO’s since October 2017, 60 of them were not profitable at…

  • The State of B2B Sales Q1 2025

    The State of B2B Sales Q1 2025

    Bridge Group is a B2B SaaS sales consultancy, and we chat with them quarterly about the sales environment. Below is our…

  • Assessing your B2B?Pipeline

    Assessing your B2B?Pipeline

    We saw a great blogpost by SBIGrowth.com about b2b pipeline health.

    1 条评论
  • SaaS Pricing Done Right

    SaaS Pricing Done Right

    PriceIntelligently.com puts out phenomenal content on how to price your SaaS product.

  • The components of a SaaS LOI

    The components of a SaaS LOI

    Expecting an LOI or bid for your business? Below is what you should see from the acquirer. Purchase price and form of…

  • The Origin Story of?Twitter

    The Origin Story of?Twitter

    Recently I re-read Nick Bolton’s book “Hatching Twitter.” It is the story of Twitter and it is fantastic.

  • Lessons from an SMB SaaS exit

    Lessons from an SMB SaaS exit

    We chatted with Sasha Poljak, the Executive Chairman of Ximble, about Ximble’s successful exit to Paycor. Ximble is a…

社区洞察

其他会员也浏览了