Ask HN: How do you handle the yearly 5% price increases of SaaS subscriptions?
Hello HN. If your company subscribes to SaaS services, you are probably all too familiar with the dreaded 5% uplift during the annual renewal of a SaaS contract. “Uplift” is a euphemistic term that obscures what is actually happening: a price increase. This vendor favorite word of uplift makes the change sound positive or value-enhancing when, from the customer’s perspective, it simply means paying more. The vendor lock-in is a real trap with limited recourse. How do you deal with it?
Be prepared to move elsewhere if they attempt to raise the price. Create an artifact like a spreadsheet to model whether moving is worthwhile (considering the time and effort required to migrate) if asking for a concession on a price increase is unsuccessful. Also, use price/cost intelligence vendors to understand what others are paying for the SaaS when possible for negotiation purposes. Treat your vendors like they are commodities whenever possible to defend against vendor lock in risk. Long term contracts (~3 years) with capped increases tied to inflation are also a potential option if your vendor offers it.
The counterparty with the most leverage and who cares the least is the one who usually wins. Be that counterparty when you can.
Thank you. I’m about to ask AI who the price/cost intel providers might be. It might be the answer for creating the idea of leverage with a counterparty. How far to take this proposition of a competitor to the current vendor? The incumbent is embedded deeper every year and knows it.
> How far to take this proposition of a competitor to the current vendor?
How willing and able are you about leaving if they raise the price?
https://online.hbs.edu/blog/post/batna
https://www.pon.harvard.edu/daily/negotiation-training-daily...
From the other side of the table kinda, as a SaaS provider, wages here have risen by about 5% each year. And wages is the greatest expense we have.
That said, I'm just an employee so not my call either way.
SaaS gross margin is typically 60-85%. Lots of margin available for customer cost management.
You can only reduce margin a finite amount. At some point you will be passing on costs. Thus it only makes sense to do so if you'd make more money doing so, by retaining or gaining more customers.
Certainly, but we're not there yet. Lots of margin left to compress. "Your margin is my opportunity." someone once said.
(i am very familiar with SaaS economics as an accredited investor with significant exposure to SaaS investments)
> Lots of margin left to compress.
I guess it depends on market. In our niche we're not losing customers at this point, so no need to go down on margins yet. Perhaps we'll get there in the following years. I do know Covid was hard and we did have to help out some of our customers during that period, so perhaps if the economy crashes again soon.