Grandfathering Pricing for SaaS: Policy, Forecasting, and Clear Customer Communication

Understanding Grandfathering: A Strategic Approach to SaaS Price Increases

Your SaaS product has evolved. You have added powerful features, improved infrastructure, and now deliver significantly more value than when you first launched. Your pricing, however, has not kept pace. This brings you to a critical decision point: how to handle existing customers during a SaaS price increase. Raising prices is essential for sustainable growth, yet the fear of alienating your earliest, most loyal subscribers is a valid concern. This is where a grandfathering policy becomes essential. It is a strategic tool, not just a nice gesture, designed to manage this transition carefully.

A well-executed grandfathering strategy allows you to balance immediate revenue needs with long-term customer retention. It can transform a potentially difficult conversation into a moment that reinforces loyalty and trust, demonstrating that you value the customers who supported you from the beginning.

What is Grandfathering in SaaS Pricing?

Grandfathering pricing is the practice of allowing some or all existing customers to remain on their current, lower-priced plan after you introduce new, higher prices. The core purpose is to strike a deliberate balance between maximizing revenue from your entire subscriber base and retaining the customers who provided crucial early traction and feedback. Deciding on your approach requires a clear understanding of the trade-offs involved.

There are three common types of grandfathering policies, each with distinct implications for your business:

1. Full Grandfathering: Early customers keep their exact price and feature set indefinitely. This approach offers the highest potential for retention but can create significant long-term revenue drag and operational complexity as the value gap between legacy and current plans widens.
2. Price Lock with Feature Capping: Customers keep their legacy price but must upgrade to a new plan to access any new features released after the price change. This model rewards loyalty while creating a natural incentive for future upgrades.
3. Time-Limited Discount: Existing customers are moved to the new, higher-priced plan but receive a temporary discount, such as for six or 12 months, to ease the transition. This method standardizes your customer base over time while acknowledging their loyalty.

The choice between these policies will have long-term consequences for your SaaS pricing strategy and your ability to manage legacy customer pricing effectively without creating excessive technical debt or customer confusion.

Section 1: How to Design a Policy for Handling Existing Customers

Crafting a clear and defensible grandfathering policy is the first and most important step. A well-designed policy prevents ambiguity and protects your future pricing power. The process breaks down into two fundamental questions: who gets the legacy deal, and what exactly does that deal include?

The "Who": Defining Eligibility Criteria

The criteria for who qualifies for a grandfathered plan must be simple, fair, and easy to verify with the data you already have. For most early-stage startups, this data lives in Stripe and a few Google Sheets. You do not need a complex business intelligence tool to define your segments. The goal is to establish a clean, logical cutoff that feels equitable to everyone.

Clear, defensible rules might include:

• Sign-up Date: All customers who subscribed before a specific date, such as the day your new pricing page goes live, are eligible. This is often the cleanest and easiest method to implement and communicate.
• Plan Name: Customers on specific legacy plans, like a "Founder Plan" or "Beta Tier," qualify. This works well if you have used distinct plan names historically, but it can be messy if your early plan structures were inconsistent.
• Initial Cohort: The first 100, 500, or 1,000 paying customers. This rewards your true early adopters but can feel arbitrary to customers who just missed the cutoff.

In practice, we see that the sign-up date is the most common and manageable criterion. It creates a clean break, avoids ambiguity, and is simple to query in your payment system, whether it is Stripe for SaaS or Shopify for e-commerce. The key is to choose a rule that you can communicate clearly and apply consistently, which prevents one-off exceptions that erode your pricing integrity and create support overhead.

The "What": Defining the Grandfathered Deal

Deciding what the grandfathered deal contains is arguably more critical for your long-term health than deciding who gets it. This is where you protect your future revenue and align price with value across your customer base.

• Full Grandfathering: While it seems like the most generous option, it often becomes a long-term burden. As you add value to your product, the gap between what legacy and new customers pay widens. This not only creates a significant revenue gap but also makes your unit economics, like LTV:CAC ratios, harder to manage and compare across cohorts.
• Price Lock with Feature Capping: This is generally the most sustainable option for SaaS businesses. It rewards loyalty with a perpetual price lock on the current feature set but creates a compelling reason to upgrade. When you launch a major new feature, you have a built-in opportunity to invite grandfathered customers to a new tier. This provides a natural, value-driven path for updating subscription plans without forcing a price change.
• Time-Limited Discount: This approach acts as a structured transition plan. It standardizes your customer base onto the new plans over time, which simplifies reporting, support, and product management. It shows goodwill by softening the immediate financial impact while ensuring all customers eventually align with your current value and pricing structure.

Section 2: Forecasting the Revenue and Churn Impact

Forecasting the impact of a price change can feel daunting, especially when your historical data is a mix of Stripe exports and spreadsheets. The objective here is not unattainable precision; it is directional confidence. You need a model that is good enough to confirm that the change is a net positive for the business and to help you understand the potential risks involved.

For most early-stage companies, a complex financial model is unnecessary. A simple model in Excel or Google Sheets is all you need. This "Good Enough" forecasting model involves three straightforward steps.

1. Customer Segmentation: Export your customer list from your billing system, like Stripe. Create simple groups based on your policy: those who will be grandfathered (no price change), those receiving a discount, and those who will be migrated directly to a new price.
2. Gross Revenue Lift Calculation: Calculate the best-case scenario. This is the total potential revenue increase assuming zero customers churn after being notified of the price change. It establishes your maximum potential upside.
3. Net Revenue Lift with Churn Scenarios: Model the impact of potential churn. What happens if 5% of affected customers cancel? What about 10% or 15%? This stress testing helps you identify your break-even churn rate, the point at which customer cancellations completely wipe out your projected revenue gains. Knowing this number is critical for making an informed decision.

Mini-Example: The 'Good Enough' Forecasting Model in Action

Consider a SaaS company with 500 customers on a legacy $20/month plan. The new plan is $30/month, and the policy is to migrate all 500 customers to the new price.

• Current Monthly Recurring Revenue (MRR): 500 customers × $20/month = $10,000
• Step 1 (Segmentation): All 500 customers are in the "migrating" group.
• Step 2 (Gross Lift): The new MRR, assuming 0% churn, would be 500 customers × $30/month = $15,000. This represents a gross lift of $5,000 in MRR.
• Step 3 (Net Lift Scenarios):
  • 5% Churn Scenario: 25 customers churn (500 × 0.05). The revenue loss from these customers is 25 × $20 = $500. The new MRR from the remaining 475 customers is 475 × $30 = $14,250. The net lift is $4,250.
  • 10% Churn Scenario: 50 customers churn. The revenue loss is 50 × $20 = $1,000. The new MRR from the remaining 450 customers is 450 × $30 = $13,500. The net lift is $3,500.
• Break-Even Churn Rate: The point where the new revenue equals the old revenue ($10,000). To find this, we solve for the number of customers `(x)` needed at the new price: `x * $30 = $10,000`, which means `x = 334` customers. You would need to retain at least 334 of your 500 customers. This means you can afford to lose up to 166 customers, a churn rate of 33.2%.

This simple exercise, managed entirely in a spreadsheet, provides the directional confidence needed to move forward with a plan for handling existing subscribers. It turns a vague fear of churn into a quantifiable risk you can plan around.

Section 3: Price Increase Communication: How to Tell Your Customers

How you communicate a price increase is just as important as the policy itself. Your goal is to deliver transparent messaging that minimizes customer backlash and reduces the burden on your support team. Effective price increase communication is built on three core principles: gratitude, explaining the 'why', and providing absolute clarity.

1. Start with Gratitude

Always begin by acknowledging your existing customers, especially your early adopters. Thank them for their loyalty and for betting on you when the product was just getting started. A simple, sincere message of appreciation sets a collaborative tone. If you are offering a grandfathering deal, frame it as a reward for loyalty, not a consolation prize. This positioning reinforces their special status and shows that you value their contribution to your growth.

2. Explain the 'Why' Behind the Change

Be transparent about why prices are changing. Customers are more receptive to a price increase when they understand the reason for it. Connect the increase directly to the value you have added since they subscribed. For example: "Since you joined, we've launched [Feature X], improved performance by 40%, and invested in more robust infrastructure to support your growth." This reframes the price change from a simple cost increase to a fair reflection of enhanced value and your continued investment in the product.

3. Provide Absolute Clarity

Leave no room for ambiguity. Your communication must clearly state what is changing, for whom, and when it will take effect. A 30-day notice period is standard for most price changes. However, a 60-day notice is recommended for significant B2B price changes to allow customers time to adjust their budgets. It is crucial to check your existing Terms of Service, as you may have contractual obligations on notice periods. This is true for companies in both the UK and the USA.

UK firms should be aware of the CMA's new consumer enforcement regime, which emphasizes fairness and transparency in subscription contracts. Similarly, US businesses should watch for changes to state-level rules, such as recent amendments to California's automatic renewal law, which you can read about here.

Using a simple comparison list is an effective way to communicate the change visually. Instead of a complex table, a clear breakdown helps customers see the value they are getting.

Comparing Your Legacy Plan to the New Pro Plan

• Price: Your grandfathered plan will remain at $20/month. The new Pro plan for new customers is $30/month.
• Current Features (A & B): You retain full access to all the features you use today.
• New Premium Features (C & D): These powerful new tools are available on the Pro plan.

This format helps customers quickly understand what they gain with the new pricing, making the transition feel fair and justified. Preparing a concise FAQ to accompany your announcement and publishing a clear rate card will also help manage the volume of support tickets and ensure consistency in your messaging.

Finalizing Your Approach to Legacy Customer Pricing

Successfully managing a price increase for existing customers comes down to a few core practices. As you finalize your approach to legacy customer pricing and communication, keep these key principles in mind to ensure a smooth transition that benefits both your business and your customers.

• Clarity Over Complexity: Your policy should be simple enough to explain in a single sentence. For example, "All customers who joined before Jan 1st will keep their current price forever." Complex rules with multiple conditions create confusion, exceptions, and unnecessary support overhead.
• Forecast for Direction, Not Perfection: Use the "Good Enough" forecasting model to build confidence. The goal is to understand your break-even churn rate and confirm that the net result is positive for the business. Your data in Stripe or your bookkeeping software (like QuickBooks or Xero) is sufficient for this.
• Communicate with Empathy and Precision: Start your announcement with gratitude. Explain the 'why' behind the change by connecting it to new value, and provide a clear, unambiguous timeline. Frame grandfathering as a genuine thank you to your most loyal supporters.
• Check Your Contracts First: Before announcing anything, review your Terms of Service to ensure you are compliant with your contractual notice periods. This is a simple but critical step for both UK and US-based companies to avoid legal complications.

By designing a thoughtful policy, forecasting its impact pragmatically, and communicating transparently, you can implement a SaaS price increase that strengthens your business financially without sacrificing the valuable customer relationships you have worked so hard to build. For more insights into your broader strategy, see the Pricing hub.

Frequently Asked Questions

Q: What is the biggest mistake SaaS companies make when grandfathering customers?
A: The most common mistake is offering "Full Grandfathering" without feature capping. While it feels generous, it creates long-term revenue drag and technical debt. As the product evolves, these legacy plans become misaligned with the value provided, making it difficult to manage unit economics or ever migrate those users to modern plans.

Q: Is it ever okay to raise prices on previously grandfathered customers?
A: Yes, but it must be handled with extreme care. This effectively ends your grandfathering promise and requires a compelling reason, such as a fundamental product transformation. You should provide a very long notice period (e.g., 6-12 months), a strong value proposition, and potentially a transition discount to mitigate churn and brand damage.

Q: How does a grandfathering policy affect key SaaS metrics?
A: Grandfathering can temporarily suppress the average revenue per user (ARPU) and lifetime value (LTV) for your legacy cohort. However, by reducing churn, it can improve overall LTV for the business. It complicates cohort analysis, but this can be managed by tagging these customers correctly in your billing system like Stripe.