To raise prices without losing customers, first work out your break-even churn: a 10% rise only loses money if more than about 9% of revenue walks away. Then tie the rise to visible value, give clear notice, offer a cheaper option or downgrade path, and consider keeping existing customers on their old price for a period. Small annual rises beat rare big ones.
Key takeaways
- A 10% price rise breaks even on revenue if you lose up to 9.1% of customers, and on profit if you lose up to 12.5% (at a 70% margin).
- Grandfathering existing customers removes the cancellation trigger. Planet Fitness raised its $10 price to $15 for new members only.
- Tie every rise to new value and always show the cheaper option. Microsoft's A$109 to A$159 rise ended up in Federal Court over a plan it allegedly didn't mention.
- Small rises on a fixed date (Xero uses 1 July) are easier on customers than a big jump every five years.
- In Australia, a term letting you change the price without letting the customer leave can be an unfair contract term.
Planet Fitness charged $10 a month for its Classic membership from 1998.
Twenty-six years. Same price.
In 2024 it finally moved to $15, a 50% jump. You'd expect a riot. There wasn't one, for two reasons. First, the company tested the new price in several markets before rolling it out. As then-CEO Craig Benson put it, the hike came "after price-testing costs in multiple markets." Second, existing members kept paying $10. Only new members paid $15.
Nobody already paying saw a higher bill, so nobody had a reason to cancel.
That's the whole game with price increases. The rise itself rarely loses you customers. The trigger does. Remove the trigger, or give people a good reason to stay through it, and you keep almost everyone.
Let's work out how much you can afford to lose first. It's more than you think.
How many customers can you lose before a price rise backfires?
Here's the formula I wish every business owner knew. For a price rise of p (as a decimal), revenue stays flat if you lose this share of customers:
Break-even customer loss (revenue) = p ÷ (1 + p)
But revenue isn't profit. Every customer who leaves also takes their cost to serve with them. If your gross margin is m, profit stays flat if you lose up to:
Break-even customer loss (profit) = p ÷ (m + p)
A 10% rise on 400 customers at $50 a month
Today: 400 × $50 = $20,000 MRR.
Raise to $55 (p = 0.10):
- Revenue break-even: 0.10 ÷ 1.10 = 9.1%. You can lose 36 customers and still bring in $20,000 (364 × $55 = $20,020).
- Profit break-even at a 70% gross margin: 0.10 ÷ (0.70 + 0.10) = 12.5%. You can lose 50 customers and keep the same gross profit.
| Price rise | Revenue break-even loss | Profit break-even loss (70% margin) |
|---|---|---|
| 5% | 4.8% | 6.7% |
| 10% | 9.1% | 12.5% |
| 20% | 16.7% | 22.2% |
| 30% | 23.1% | 30.0% |
Keep these numbers in mind as you read the examples below. Planet Fitness and Xero both raised prices and kept growing their customer numbers. That's why underpricing is so expensive.
Run your own numbers in the Price Increase Simulator before you send a single email.
Should you grandfather existing customers?
Grandfathering means keeping existing customers on their old price while new customers pay the new one. It's the Planet Fitness approach. It's the safest option, but the slowest to pay off.
Here are your five main choices.
| Approach | How it works | Best when | Watch out for |
|---|---|---|---|
| Everyone, now | All customers move to the new price on one date | The rise is small and well justified | Creates a cancellation trigger for everyone at once |
| New customers only (grandfather) | Existing customers keep their price, perhaps for a set period | You have a loyal base and can wait | Revenue phases in slowly as the base turns over |
| Phased step-up | Existing customers move in two steps, e.g. half now, half in 12 months | The rise is big | Two announcements instead of one |
| At renewal | The new price applies at each customer's next renewal | Annual plans | Every renewal becomes a decision ("poking the bear") |
| Repackage | New tiers with more value at a higher price; the old plan is retired | You've added a lot since the last change | Customers compare old and new line by line |
That "poking the bear" line comes from one of the best salespeople I ever worked with. He hated big annual renewal events because they asked happy customers to decide all over again. A price rise at renewal pokes the bear twice.
So which pays more? Let's model it.
Grandfathering vs everyone-now over 12 months
Starting point: 400 customers at $50, 3% monthly churn, 15 new customers a month. The new price is $55. For the everyone-now option, assume an extra 4% of customers leave when the rise is announced.
| Month | No change | Everyone to $55 now | New customers only at $55 |
|---|---|---|---|
| 1 | $20,150 | $21,311 | $20,225 |
| 6 | $20,835 | $22,186 | $21,253 |
| 12 | $21,531 | $23,073 | $22,296 |
Moving everyone earns more, even after losing 16 extra customers. Grandfathering earns less but carries almost no risk. If you're not confident in your value, grandfather. If you are, move everyone with good notice and a reason.
My usual answer sits in the middle: move everyone, but give existing customers a longer runway or a first-year discount. Canva did this when it repriced Teams in 2024, offering $300 for the first 12 months before the full $500 for an affected five-person team.
Model your price rise before you announce it
See the 12-month MRR impact and your break-even churn in the free Price Increase Simulator.
How do you tell customers about a price increase?
Badly handled price rises have a pattern. The email is vague, the new number is hidden, and the cheaper option is missing.
Good ones follow five rules.
- Lead with what's changed in the product. Slack folded AI into its paid plans in June 2025 and lifted Business+ from $12.50 to $15 per user a month. The AI was the reason, and it was visible on day one.
- State the new price, the date and what it means for them. "From 1 July your plan moves from $50 to $55 a month."
- Show every option. Keep, change plan, or cancel. If there's a cheaper plan, say so.
- Give real notice. Xero gave Australian customers at least 60 days when it moved them to new plans in 2024.
- Make it easy to ask questions. A named person or a reply-to address beats a no-reply email.
Rule 3 is the one that gets businesses into trouble.
The plan Microsoft allegedly forgot to mention
In Australia, Microsoft bundled its Copilot AI into Microsoft 365 consumer plans and raised the price. The Personal plan went from A$109 to A$159 a year, and Family from A$139 to A$179.
On 27 October 2025 the ACCC sued Microsoft in the Federal Court. It alleges that Microsoft told about 2.7 million auto-renewing subscribers they could accept the higher price or cancel, without clearly telling them about a third option: a "Classic" plan without Copilot at the old price. The case was before the court as at October 2026.
The lesson isn't "don't bundle AI and raise prices." Slack and Canva both did that. The lesson is: if a cheaper option exists, put it in the email.
There's a set of ready-to-edit price increase email templates if you want a head start.
How often should you raise prices?
Little and often. Customers handle a few dollars every year far better than a big jump every five.
Xero is the model here. It raises Australian prices on 1 July each year. In 2026, Ignite went from A$35 to A$37 and Grow from A$75 to A$78. For fiscal 2026 its average revenue per customer rose 23%, with price rises cited as one driver. (Nobody cancels their accounting software over A$3 a month. They'd have to move years of data first.)
Professional services are catching up. A 2025 benchmark of 219 US accounting firms found 80% planned to raise prices by an average of 5% to 10% in 2026. Two-thirds of firms that raised prices in the past year either lost no clients, or lost some but kept profitability stable.
My suggestion:
- Review prices every year on a date your customers can predict.
- Raise premium tiers first. Those customers are the least price-sensitive. Disney+ has put its biggest rises on its ad-free Premium plan, while its ad-supported bundle with Hulu stayed at $12.99.
- Keep your entry price stable while you reprice legacy accounts, so new customers aren't scared off.
If you're not sure how much room you have, test it. Start with willingness to pay research, or do what Planet Fitness did and try the new price in one location or channel first.
How did AI change the price increase playbook?
Two things happened in 2025 and 2026.
First, AI became the reason. Slack, Notion, Canva and Microsoft all used AI features to justify higher prices, and Xero kept bundling AI into its plans as it raised them. Notion retired its $10 AI add-on and bundled AI into its $20 Business plan. That's a price rise dressed as a feature, and it works when the feature is genuinely useful.
Second, "same price, less included" became the new price rise. GitHub moved Copilot to dollar-based AI Credits from 1 June 2026 and kept plan prices the same. Developers summed it up as "You will get less, but pay the same price." Figma enforced AI credit limits from 18 March 2026 after a period of free use.
If you sell credits or allowances, treat any cut as a price increase. Announce it, explain it, and give notice. Most of the backlash in AI pricing came from quietly shrinking what a plan included, not from headline price changes. The packaging guide covers how to design tiers you won't need to claw back later.
What are the rules for raising prices in Australia?
This is general information as at October 2026, not legal advice. If your contracts are standard form, have them reviewed.
Unfair contract terms. Since 9 November 2023, using an unfair term in a standard form contract with a consumer or small business can attract penalties. For a company, the maximum is the greatest of A$50 million, three times the benefit, or 30% of adjusted turnover during the breach period, according to the ACCC. The Australian Consumer Law's examples of terms that may be unfair include one that lets a business vary the upfront price without giving the customer the right to terminate. So if you can change the price, the customer should be able to leave. See unfair contract terms.
Misleading conduct. The Microsoft case above is about what customers were told. Be complete and accurate in price-rise notices.
Subscription-trap rules from 1 July 2027. The new rules add disclosure duties and ongoing notices at times set by regulations. Reminders before renewals and price changes are expected, but as at October 2026 those regulations hadn't been made. Build price-change notices into the same reminder process. The Australian price increase rules guide has the detail.
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When is raising prices the wrong move?
Sometimes the honest answer is "not yet."
- When churn is already high. Fix retention first. A price rise on a leaky bucket just speeds up the leak.
- When you haven't delivered anything new and costs haven't moved. Customers can smell a rise with no reason.
- When a competitor has just undercut you on the same job. Compete on value or packaging first.
- When your contract doesn't allow it. Wait for renewal or renegotiate.
But if you've held the same price for three years while adding features, your costs have risen and customers rarely mention price when they leave? You're almost certainly underpriced.
What to do next
- Work out your break-even churn for a 5%, 10% and 20% rise.
- Pick one of the five approaches above.
- Write the email: what's new, the new price, the date, every option.
- Check your terms (and, in Australia, the unfair contract terms rules).
- Set a date next year for the next review.
Then ask yourself one uncomfortable question: when did you last raise your prices, and what have you added since? If the answer is "years ago" and "a lot," you have your answer.
Frequently asked questions
How much notice should I give before a price increase?
Give enough notice that customers can act before the new price hits, and follow what your contract says. A common practice is at least 30 days for monthly plans and well before renewal for annual plans. Xero gave Australian customers at least 60 days when it moved them to new plans. In Australia, check your terms and get advice if you're unsure.
Should I apologize for raising prices?
No. Apologizing suggests you're doing something wrong. Explain what has changed, what customers get, when it starts and what their options are. Be warm and direct. Save apologies for genuine mistakes, like Cursor's 2025 rollout, where the CEO said the company didn't handle it well and offered refunds.
Does a price increase count in net revenue retention?
Yes. Net revenue retention includes expansion from existing customers, and a price rise on the existing base is expansion revenue. That's why NRR can look strong in a year of price rises even when usage is flat. Track price-driven and usage-driven expansion separately so you know which one is doing the work.
Can I increase prices in line with CPI?
Yes, if your terms allow it and you tell customers clearly. A CPI-linked clause makes rises predictable and easy to explain. In Australia, make sure the clause is transparent and doesn't let you change price without giving the customer a way out, and get advice on standard form contracts.
What if customers complain publicly?
Expect some, and reply calmly with the facts: the new price, what's included and the cheaper option. Don't reverse in a panic. Canva raised US Pro from $144 to $180 a year in July 2026 and reverted to $144 six weeks later, which cost credibility. Decide your plan before you announce, then hold it unless the numbers say otherwise.
Is shrinking what a plan includes a price increase?
To customers, yes. Cutting an allowance at the same price is a price rise per unit, and it often causes more anger than a headline increase because it feels hidden. GitHub's 2026 Copilot change drew the line 'You will get less, but pay the same price.' Announce allowance changes as openly as price changes.
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Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- Planet Fitness raises membership fee for first time since 1998 (CBS News, 2024)
- ACCC: Microsoft in court for allegedly misleading millions of Australians over Microsoft 365 subscriptions (27 Oct 2025)
- ACCC: Businesses urged to remove unfair contract terms ahead of law changes
- Report shows shift in pricing for accounting firms (CPA Practice Advisor, 21 Aug 2025)
- Canva hikes team subscription prices by 300% (Fortune, 3 Sep 2024)
- Slack June 2025 pricing and packaging announcement
- Devs sound off on usage-based Copilot pricing change (Visual Studio Magazine, 27 Apr 2026)
- Xero: New changes to Xero's plans in Australia from July (1 May 2024)
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.