♖ The perils of pricing

Hi Friends,

Last week, Marcos (our CEO) hosted an internal roundtable with one simple prompt:

"Why do smart founders think pricing is easier than it actually is?"

I've heard this mindset from prospects "We can handle pricing internally. We'll use AI, run the data, raise prices, and roll it out."

Halfway through our internal session with the team, I found myself frantically taking notes. The clarity Marcos and others brought was something I wish I could've heard years ago when I was making these exact mistakes.

So I'm sharing it with you.

Context on Marcos: 25+ years in tech pricing. Ex-Head of Pricing at Vista Equity Partners (the PE firm behind 100+ software acquisitions). Author of Street Pricing. He founded Pricing I/O in 2019 and has built an amazing team that's now transformed pricing for 400+ software companies."

Today, I'm breaking down what we discussed: the 5 different ways pricing drives revenue growth—from price increases to expansion to churn—and why most teams haphazardly pull just a few levers.

Lever #1: Price Uplift

When companies say "We already raised prices," what usually happened is a blanket percentage increase across all customers.

Marcos explained: "Most companies raise prices carte blanche... they get about a 3-4% bump."

But value-based price uplift is different. "When done systematically, companies can get 15%-30% bump when done the right way."

Where does that additional uplift come from?

Understanding what different customer types will actually pay. A mid-market customer might absorb a 15% increase without blinking, while a startup-focused segment needs a 5% approach. Aligning features with differentiated value. Fixing legacy deals where customers are locked into outdated pricing from 2018.

Flat increases capture only a fraction because they treat all customers the same, when they demonstrably aren't.

Quick self-check: When was the last time you raised prices, and did you segment the increase by customer type?

Lever #2: Expansion Revenue

Most companies dramatically under-monetize their existing base.

"If you have five products and 5,000 customers and the average is 1.2 products per customer, well, there's an opportunity to penetrate and cross-sell that base a lot more."

The reason expansion underperforms is structural:

Too many features stuffed into base tiers. No real add-on strategy. Unlimited usage where it shouldn't exist (like API calls with no usage caps). Missing usage limits and unclear pricing for overages. Overly generous bundles that leave no room to upsell.

Real example: A $60M revenue infrastructure company had unlimited API calls in their base tier. By adding usage caps at 250K calls/month and a clear overage pricing structure, they captured $1.8M in expansion revenue within two quarters without a single customer churning over the change.

Why teams miss this: Packaging decisions pile up over years. Internal teams are too close to the product to be objective. No one owns packaging end-to-end.

Quick self-check: What percentage of your customers use more than one of your products or modules?

Lever #3: Discount Reduction

Discounting is where money leaks the fastest, and where leaders underestimate the impact the most.

Marcos shared a story: "A salesperson told me, 'Isn't any revenue good? I could discount 99%—it doesn't cost us that much to have an incremental customer.'"

This mindset is common because:

Reps are compensated on bookings, not margin. Leaders prioritize new logos over healthy economics. Volume discounts are guessed ("20% off for 100+ seats sounds right?"). Term discounts are arbitrary. Bundles hide value.

"If you can take discounting from an average of 30% to 18%... that's where a lot of the ROI comes from."

Discount reduction isn't about saying "no discounts." It's about replacing random discounting with strategic discounting: structured guardrails ("annual deals get 5%, multi-year gets 15%"), correctly built volume tables based on actual cost-to-serve, clear separation between discretionary and earned discounts.

This lever often delivers the fastest payback—sometimes within a single quarter.

Quick self-check: Pull your deals from last quarter and calculate your average discount rate. If it's over 20%, start here.

Lever #4: Win Rate Uplift

Pricing affects win rates because broken pricing creates confusion during discovery, long explanation cycles, packaging misalignment with your ideal customer profile, and discounting as a crutch.

"A simpler pricing model with a better right-sized offer will sell more and sell faster."

Improving win rates compounds across:

Pipeline velocity. Rep productivity. Discount discipline. Sales cycle length.

Leaders consistently underestimate how much pricing complexity slows down deals—especially in mid-market and enterprise motions where procurement teams are involved.

Quick self-check: How many times does your sales team say "it depends" when prospects ask about pricing?

Lever #5: Churn Reduction

Churn doesn't change instantly, but pricing deeply influences it.

Pricing influences churn by:

Setting the right entry plan (not overselling features they won't use for 6 months). Eliminating feature bloat that slows adoption. Reducing time-to-value. Creating downgrade paths (so customers don't cancel entirely). Removing overstuffed legacy plans. Improving renewal uplift consistency.

"If you create too steep of a hill to climb... it ends in churn. You can fix and right-size a lot of that."

Churn reduction delivers ROI over years 1-3, not months 1-3—though you'll see early signals in your 90-day retention metrics. For investors and boards, churn improvement is the ultimate valuation driver.

Quick self-check: What percentage of your churned customers downgraded first versus canceling outright?

Why Internal Teams Only Capture a Fraction

Leaders don't underestimate pricing because they're careless. They underestimate it because pricing sits at the intersection of product, finance, sales, marketing, customer success, executive alignment, and investor expectations.

No one internally has the bandwidth, neutrality, or structure to own pricing end-to-end.

"It's not just about pulling the lever—it's about knowing how to do it."

Internal efforts often miss:

Segmentation (who pays what and why). Packaging architecture (which features go where). Customer research (what they'd actually pay vs. what you think). Competitive strategy. Renewal uplift modeling. Cohort analysis. Discount governance. Behavioral pricing patterns.

That's why internal teams often capture only a small portion of the potential ROI.

Where to Start

Not sure where to begin? Here's your action plan:

If your average discount rate is over 20%: Pull every deal from last quarter. Calculate the average discount. Build a simple policy: annual contracts get X%, multi-year gets Y%. Train your team. Watch margins improve within 90 days.

If less than 30% of customers use multiple products: Audit your packaging. Identify what's bundled that shouldn't be. Create clear add-on pricing. Launch expansion motions to your existing base. Target the highest ceiling for growth.

If you haven't raised prices in 18+ months: Segment your customer base by size, industry, or use case. Test willingness to pay through conversations with 10-15 customers. Roll out differentiated increases, not blanket ones. Capture immediate revenue uplift.

Most pricing changes capture a fraction of the available value because they only pull one lever. The real opportunity is systematically addressing all five.

As someone who tried the DIY route at Mercatus and later brought in expertise, I've seen both sides.

If you get pricing right, the rest of your business gets easier.

If you get pricing wrong, everything else gets more expensive.

'Til next time,
-Ali

P.S. Wrestling with any of these levers? Hit reply. I read every response and I'm happy to share what I'm seeing across the industry.

P.P.S. After 31 straight weeks of writing, I'm taking next week off to enjoy Thanksgiving with friends and family. See you in December.

About Me: I'm Ali, VP of Growth at Pricing I/O. I write about strategy, GTM execution, and building winning teams. Based in Houston, father of two, and still believing the Texans will make the playoffs this year.