Price Increase
A price increase clause allows a supplier to raise its fees during the contract or at renewal, subject to conditions such as notice, frequency, and a cap.
What it does
Fixed prices erode with inflation and rising costs. Suppliers therefore reserve the right to increase them. The clause states when an increase can take effect (annually, or at each renewal), how much notice the customer gets, and how the new price is set.
The most common mechanisms are a fixed percentage, a link to a published inflation index such as a consumer price index, or an open right to increase to the supplier’s then-current list price. Some clauses cap the increase at a percentage, or at the index rate plus a margin. Better clauses pair the increase with a customer right to terminate if the increase is unacceptable.
For SaaS and subscription contracts, the clause is closely tied to auto-renewal. The increase usually applies from the start of the next term, and the customer’s ability to reject it depends on whether the notice arrives before the non-renewal deadline.
Example wording
The Supplier may increase the Fees once in any twelve (12) month period, with effect from the start of the next Renewal Term, by giving the Customer at least ninety (90) days’ written notice. Any such increase shall not exceed the percentage change in [named consumer price index] over the preceding twelve months plus three (3) percentage points. If the Customer objects in writing within thirty (30) days of the notice, it may terminate this Agreement with effect from the end of the then-current term without penalty.
Risks for SMBs
Uncapped increases. “The Supplier may revise its prices at any time” gives an SMB customer no protection against a large increase, especially once the customer is dependent on the product and switching is expensive. Insist on a cap or an index link.
Notice that lands after the exit window. If the non-renewal notice deadline is 90 days before term end and the price increase notice arrives 60 days before, the customer learns of the increase after it has lost the right to leave. Require price notice to arrive before the non-renewal deadline, or a specific right to terminate in response to an increase. See auto-renewal.
List price references. A right to increase to the “then-current list price” means the customer’s price is whatever the supplier publishes. Discounts negotiated at signing may vanish at the first renewal. Fix the discount as a percentage off list, or fix the price with an indexed increase.
Mid-term increases. An increase during a committed term changes the deal the customer signed. Refuse mid-term increases, or limit them to pass-through of specific third-party costs.
Supplier-side traps. An SMB supplier that fixes prices for a multi-year term with no increase mechanism is carrying all inflation risk. Even a modest index link protects margins.
Index choice. A consumer price index is a rough proxy for a supplier’s costs, but it is public, verifiable, and acceptable to most customers. Question obscure or supplier-chosen indices.
Common variants and negotiation points
- Cap. A middle ground is the index rate, or a fixed percentage such as 3 to 5%, whichever is lower, once per year. Customers with leverage ask for a fixed price for the initial term.
- Timing. Increases only at renewal, never mid-term, with notice at least 30 days before the non-renewal deadline.
- Right to terminate. A customer right to walk away in response to an increase above an agreed threshold is the fairest protection and is often accepted.
- Most favoured pricing. Larger customers sometimes ask that their price will not exceed what similar customers pay. Suppliers usually resist, and it is hard to verify.
- Pass-through costs. Where the supplier’s costs depend on third parties (cloud hosting, licences, freight), allow pass-through of documented cost increases only, with evidence.
Related clauses
- Auto-renewal: the mechanism that locks in an increase if notice timing is wrong.
- Payment terms: the fees the increase applies to.
- Termination for convenience: the exit that makes a price increase negotiable.
- Notice: how price increase notices must be given.
This page is general information about a common contract clause. It is not legal advice and does not account for your jurisdiction, industry, or the specific contract in front of you. Talk to a qualified lawyer before relying on it.
Tracking renewal dates, notice periods, and other contract obligations is what Trackado does.