# The pricing lever *The lever nobody models.* --- You're building next year's plan. Three scenarios on the table: grow volume, cut costs, add headcount. You've modelled each one, stress-tested the assumptions, argued about conversion rates and hiring timelines. The board deck has a slide for each. You didn't model pricing. --- Your software business does £10m in revenue with a 20% operating margin. That's £2m of profit on an £8m cost base. A 5% price increase on the existing customer base adds £500k of revenue, with no new customers to acquire, no new staff to serve them, no incremental infrastructure. The cost to implement it is a pricing update and a communication plan. Nearly all of that £500k drops straight to the bottom line. Profit goes from £2m to roughly £2.5m. A 25% increase in profit from a 5% price change. --- The same £500k from volume means about fifty new customers at £10k ACV. Winning fifty customers means generating two hundred qualified opportunities at a 25% close rate. That takes SDRs, account executives, marketing spend, onboarding capacity. [[Paying for growth|Fully loaded acquisition cost]] runs to perhaps £12k per customer, so £600k to win the business. Net contribution in year one is negative: you spent more acquiring them than they'll pay you this year. The same £500k from cost cutting means removing 6% of an £8m cost base. Most of that base is people. Six percent is headcount, capability, institutional knowledge walking out the door. The savings are real, but so is the damage. The price increase delivered the same bottom-line impact with a fraction of the effort and none of the collateral cost. --- Customers will leave, goes the objection. In practice, well-executed price increases on sticky software products see 1-3% incremental churn. On a £10m base, 2% incremental churn means £200k of lost revenue. Net impact after the increase is still £300k to the good. And the numbers tilt further in your favour every year, because price increases compound. Next year's base is £10.3m, not £10m. The year after, you're compounding on the higher number. Compare that to volume growth, where you're paying acquisition costs again every year, or cost cutting, where there's a floor below which you can't go without breaking the business. [[The churn ceiling]] works in pricing's favour here: recurring revenue businesses with genuine [[Switching costs]] can absorb small price movements without meaningful churn, because the cost of leaving exceeds the cost of paying a bit more. --- So why does everyone model volume, cost, and headcount, but almost nobody models price? Pricing sits at the junction of product, sales, and finance, and none of them own it. Product sets the list price and forgets about it, sales trades it away to close deals, and finance buries it in the forecast as a blended assumption. Nobody is accountable for pricing as a discipline, so nobody runs it as one. Raising prices also feels confrontational in a way that volume growth and cost cutting don't. Most businesses lack the infrastructure to test it: contracts need aligned terms, systems need to invoice cleanly at different rates, sales teams need consistent guidance on what's negotiable. Without that infrastructure, pricing changes feel risky, so they get deferred. --- [[TransDigm]] acquires sole-source aerospace parts and reprices them based on what it costs the customer if the part isn't available. When your alternative to paying the price is grounding an aircraft, the willingness to pay is very high. TransDigm's operating margins consistently run above 40%. The parts aren't expensive to manufacture. The [[Value stick]] stretches enormously when there's no substitute. [[ASSA ABLOY]] built a global position in access control through decades of acquisitions, using market leadership in each niche to sustain premium pricing. Once your locks, access cards, and security infrastructure run on their platform, the cost of switching exceeds the cost of any reasonable price increase. Neither is a model most businesses can copy. But you don't need TransDigm's lock-in to raise prices. You need visible product improvements, clear communication of value, and consistent delivery. That earns the increase. Lock-in just removes the need to earn it. --- Go back to your plan. You modelled three scenarios. The fourth requires no new customers, no new staff, and no new capital. A 5% annual increase, compounded over three years on a base that's also growing, delivers more cumulative profit than any of the other three. And unlike volume, you don't pay acquisition costs again each year. Unlike cost cuts, there's no floor. It was the only scenario nobody put on a slide. ---