SaaS Price Increases: What If Vendors Only Charged More When You Got More?

Price increases are one of the most common and frustrating challenges enterprises face when managing their cloud software portfolio and the various SaaS subscription agreements in place. Vendors like Microsoft, Salesforce, and ServiceNow, often introduce higher costs at renewal through aggressive per unit price increases, sometimes even in-term significantly impacting organization’s IT budgets.

Most organizations work hard to negotiate protections into their contracts. Typically, this means placing a cap on how much the vendor can raise the per-unit subscription price at renewal. This, in theory, might mitigate risk, but these caps usually come with conditions like maintaining the same products, volumes, and spend levels.

Eventually, when the renewal date comes around, the vendor still holds the leverage to drive pricing higher. This is because there is a high probability that one of the conditions on these caps cannot be met, often due to circumstances outside the customer’s control such as headcount reductions in the current economic climate.

But what if the model were flipped on the vendor?

A New Way to Approach SaaS Price Increases

Imagine a world where vendors only raised prices when they added real value to their product. Instead of automatic increases, they would need to prove that:

• The product being subscribed to was enhanced and features were added since your last renewal.
• Your organization was actually using those new features and deriving measurable value.

For example, what if Microsoft only raised your price on Microsoft 365 E3 because your team adopted and benefited from new collaboration or security capabilities that were added since your last contract term?

That would be a massive differentiator in the SaaS marketplace. Instead of feeling pressured to pay more simply because the vendor wants to boost ACV by raising ARPU, enterprise customers would see increases tied directly to the value they receive.

Why Usage Should Drive Pricing

This approach would also incentivize vendors to focus on customer adoption. If software providers only earned the right to increase pricing when new features were used, they would:

• Proactively engage customers to drive adoption.
• Demonstrate ROI and business outcomes tied to those features.
• Build stronger relationships that naturally lead to expanded product purchases.

In fact, increased usage often helps remove friction, helping drive an increased probability that the customer elects to buy additional products or upgrades. Everyone benefits, since the vendor gains revenue through adoption and expansion, and the customer gets more value from their investment.

The Current Reality

Today, that is not how it works. Enterprise SaaS vendors apply increases programmatically, whether or not customers use the new features. Many organizations are not even aware of the functionality available to them, let alone leveraging it. For many customers, even the features available when they first signed or last renewed remain unused and may never be adopted.

This disconnect creates a cycle where enterprises pay more without seeing proportional value. It is a model that prioritizes vendor revenue growth over customer value receipt.

Imagine a Different Future

What if enterprise vendors tied price increases to actual usage and value receipt? It would fundamentally shift the relationship between SaaS vendors and their current or prospective customers, moving from transactional to value-based partnerships.  True “strategic partnerships” will be in place, something enterprise vendors claim to want.

While it may sound idealistic, it is the kind of change that would resonate with enterprises seeking fairness and logic in their SaaS contracts. It could even become a competitive differentiator for whichever vendor is bold enough to lead the way.

I am confident that a proposal stating, ‘there will be no price increase unless we enhance the product during the upcoming term and you actually benefit from it’ would stand out and could significantly shorten the sales cycle. Of course, the upfront or prior renewal pricing needs to have been appropriate as well.

The Bottom Line

Enterprises should continue to challenge the current model and vendor approach to pushing automatic, programmatic price increases. Although not yet standard practice, requiring vendors to tie price increases to real, adopted enhancements can create leverage in SaaS renewals and could eventually push vendors to drop automatic price hikes from their playbook.

Ready to push back on unfair SaaS price increases? Reach out today to learn how UpperEdge can help you negotiate stronger protections and align your contracts with the value you actually receive.