Maintaining net dollar retention over 100% is critical to the health ofyour SaaS business and getting a premium valuation. One easy hack to improve NDR is to includeautomatic price escalators in your annual contracts with customers. Our portfolio companies do this, and theautomatic price increase upon renewal is anywhere from 3% to 5%. Even getting 5% or 3% goes a long way toimproving net dollar retention metrics and generating more cash.
Our portfolio companies have had the following experiences with priceescalators:
“We have a standard 5% increase. But so many companies want to strikethat. Jenna has been awesome managingrenewals and is increasing everyone's rates significantly. She hasn't beengetting much push back. She just states it very matter of fact that our rateshave increased.”
“We started including auto-price increases in our renewals at the startof 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 usleverage: i) we can trade an automatic price increase for anearlier renewal, longer contract period, or upselling to more features; and ii) whenwe 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 3% to 5%upon annual renewal, you’re missing out on free money, negotiating leveragewith customers, and improved retention metrics.
Thank you for your readership. Seemore blogs and SaaS data at blossomstreetventures.com. Email the author atsammy@blossomstreetventures.com.
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