If you’re grandfathering, you’re leaving money on the table that could be used to fuel growth and enhance your products and services. Drawbacks of the grandfather clauseįirst up, there’s the economic side. However, there are a few drawbacks that should be considered before you make a decision regarding the grandfather clause. By contrast, grandfathering could encourage these customers to engage even more deeply with your product. In short, it’s a good tool for customer retention.įurthermore, not applying the grandfather clause to your early customers could reduce the number of referrals your business receives in the early days of growth, while diluting the level of goodwill your target customers feel for your product. Firstly, it’s a great way to reward those customers who stuck with you from the early days, and perhaps provided you with invaluable feedback that enables you to improve the product. This is sometimes referred to as “penetration pricing.” Furthermore, freemium models can mean that your subscribers start out by paying $0 for your product or service.Īlthough it might appear that by grandfathering these early subscribers, you’re needlessly forgoing revenue, there are benefits to consider. It’s relatively common for SaaS pricing strategies to start off with an inexpensive price to entice new customers, before raising the cost over time. Grandfathering can have a significant impact on your business. Grandfather clauses are commonly used throughout the subscription economy and by companies in the SaaS space – but is it always a good idea to grandfather your subscribers into lower price plans? Benefits of the grandfather clause Essentially, it’s a clause that ensures your existing customers are able to stay at the same price-point they agreed to when they first signed up, while new pricing plans are applied to new customers, who are charged more. In the SaaS space, the meaning behind the grandfather clause is slightly different. In most cases, grandfather clauses are time-limited, which means that they only apply for a specific period or with certain limitations. Those organizations that are exempt from the new laws are referred to as having “grandfather rights” or having been “grandfathered in.” A grandfather clause example could be a “grandfathered power plant” that’s exempt from new energy laws and regulations. On the most general level, a grandfather clause is a legal provision that enables people/organizations to continue with activities that had been approved prior to the introduction of new laws or regulations. So, what is the grandfather clause and is it right for your business? Read our comprehensive guide for a little more information. When you’re implementing a pricing model for your SaaS business, you’ll probably encounter the term “grandfather clause” at some point.
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