Software Growth

Grandfathering

Grandfathering lets existing customers keep their old price or plan after you raise prices or change packaging, while new customers pay the new rate.

Grandfathering is the practice of leaving existing customers on their legacy price when you raise prices or restructure plans. New signups see the new price. People who signed up earlier keep what they had, for a fixed period or indefinitely.

It is the default fix for the fear that makes founders avoid raising prices: that customers will churn. It is also a quiet cost. Every grandfathered account earns less than it could, forever, and you carry old plans in your billing and support.

What it costs

Take 200 customers at $29 a month and a new price of $39. If you raised everyone, MRR would rise by 200 x $10 = $2,000, or $24,000 a year. If you grandfather all 200, you give up that amount every year, and the gap widens with each further increase. A $20k MRR product that is 30% grandfathered is quietly under-earning on a third of its base.

The options

  • Grandfather indefinitely. Simple and fair, but permanent drag, and you run two price books.
  • Grandfather for a period. For example, 6 or 12 months of notice, then everyone moves. Common, and easier to defend.
  • Raise everyone with notice. Jason Cohen's recommendation in "How do I raise prices?" Announce the new price on your pricing page with advance notice (he suggests a week for new customers), explain honestly why, and expect that almost everyone stays (source).
  • Selective grandfathering. Cohen's version: if someone complains and you agree, give them the old price or raise theirs only a little. That keeps the flexibility to protect relationships without giving away the whole base.
  • Tie it to a condition. The old price lasts while the customer stays on the plan with no gaps, or until they change their seat count. Lapse and they come back at the current price.

When to grandfather

  • You are changing the value metric or removing features people rely on. Changes that make a customer's bill rise unpredictably deserve protection.
  • Your earliest customers took a risk on you, and word of mouth from them matters.
  • Customers have long contracts or annual prepayment. Honor the term, then re-price on renewal.

When not to

  • The old price is so far below the value delivered that it threatens your ability to keep improving the product. Cohen's template email says exactly that: being underpriced since day one prevents hiring developers and support.
  • Your cost to serve has risen, for example in a usage-heavy product.

How to run it

  1. Decide the rule before you announce it, and write it down.
  2. Tell customers how the change affects them individually, in a personal email, not only a changelog entry.
  3. Set an expiry date for any grandfathered status you can, and say so.
  4. Track churn for the affected cohort separately for 60 to 90 days.
  5. Review legacy plans yearly. Add a migration offer such as a better plan at the old price plus a modest increase.

For a bootstrapped product, a gentle default works well: raise prices for new customers first, watch conversion, then move existing customers with 30 to 60 days' notice and room for exceptions. Most small SaaS businesses are priced too low for years, so the larger risk is usually never raising, not raising too much.

Sources

Back to the SaaS glossary