Pricing power is one of the most overused phrases in investing.

A company raises prices 8%.

Investors call it pricing power.

Then volume falls 6%, customers demand discounts, sales teams offer concessions, and margins barely move.

That is not necessarily pricing power.

It is a price increase.

The real test is what happens afterward.

Can the company charge more while keeping the customer, protecting volume, and improving the economics of the relationship?

That is what I care about.

Running service businesses changed how I think about price increases.

Raising the price is easy.

Getting the customer to accept it without damaging the relationship is harder.

A customer can respond in several ways.

They can accept the increase.

They can complain but stay.

They can reduce the amount they buy.

They can shop competitors.

They can demand something extra in return.

Or they can leave.

That is why I do not look at pricing in isolation.

I want to know what happened to the customer after the increase.

The strongest version is simple:

Price goes up.

Customers stay.

Volume holds.

Margins improve.

That tells me the product or service is worth more to the customer than the company was previously charging.

It can come from a strong brand, switching costs, regulation, network effects, or physical scarcity.

Or it can simply come from being deeply embedded in the customer’s workflow.

But the financial evidence should eventually look similar.

The company charges more without destroying demand.

Suppose labor, insurance, fuel, and other costs rise 6%.

The company raises prices 6%.

Customers stay.

But the company may have only preserved its economics.

The more interesting business is one that can raise prices above its own cost inflation because the customer still receives plenty of value.

That is where pricing power starts becoming a compounding advantage.

A company earning a 20% margin that consistently raises prices slightly faster than costs can expand profit much faster than revenue.

Over a decade, that matters.

When I am trying to determine whether pricing power is real, I look at:

1. Price increases

How much is the company actually raising price?

Not total revenue growth.

Actual price.

2. Customer retention

Are customers staying?

For subscription businesses, retention is often the cleanest evidence.

3. Volume

If price rises 8% and volume falls 8%, I want to understand why.

That does not automatically mean the increase failed, but something changed.

4. Margins

If pricing is real, it should eventually show up in gross margin, operating margin, or cash flow.

Otherwise the company may simply be passing through higher costs.

5. Concessions

This one is harder to see.

Are salespeople discounting elsewhere?

Is the company adding service?

Are payment terms getting easier?

Is customer acquisition spending increasing?

A headline price increase can disappear quickly if the company gives the economics back somewhere else.

This is where I would change the common framing.

I do not need zero churn.

Sometimes losing customers is exactly the right decision.

Waste Connections is a good example.

In 2025, core pricing increased about 6.5%, while unit volume declined 2.8%. At first glance, that could look like weak pricing power.

But some of the volume decline was intentional. The company was shedding lower-quality business and choosing not to renew certain low-margin contracts. Management described the shedding as margin-accretive. Adjusted EBITDA margin still reached 33.0% for the year.

I would rather own a company that raises prices, loses unattractive business, and improves returns than one that keeps every customer by underpricing the service.

Churn has to be judged against economics.

MSCI provides a cleaner example because it actually reports retention.

In the second quarter of 2026, its consolidated retention rate was 95.3%.

Its Index business retained 97.5% of recurring subscription revenue.

MSCI also defines new recurring subscription sales to include price increases, alongside new contracts and expansions.

That combination interests me.

High retention tells me customers are staying.

Recurring growth tells me the revenue base is expanding.

And price increases are contributing to that growth.

It is not perfect evidence (we cannot isolate every dollar of growth that came specifically from pricing) but it is much closer to what I want to see.

The easiest price increase to reject is for something the customer does not really need.

The hardest is for something embedded in how the customer operates.

Think about a financial institution that has built models, systems, reporting, and employee workflows around a particular dataset.

Switching is not just about paying a competitor less.

The customer has to retrain people.

Reconnect systems.

Validate the new data.

Rebuild processes.

Accept operational risk.

The economic cost of switching can be much larger than the subscription price.

That gives the incumbent room to raise price.

The same principle shows up in very different industries.

A landfill near the waste stream.

A benchmark inside an investment product.

A payment network accepted nearly everywhere.

A mission-critical piece of software.

The product differs.

The common thread is that replacing it creates friction.

Nearly every management team will tell investors it has pricing power.

I care much more about the numbers.

If management says pricing is strong but retention is falling, I pay attention.

If price rises but gross margins fall every year, I pay attention.

If revenue grows because the company keeps acquiring customers while existing customers leave, I pay attention.

If volume falls after every price increase, I want to understand why.

The best evidence of pricing power is often boring.

Customers keep paying more.

And they keep coming back.

A company can have pricing power for years and then lose it.

Competitors improve, technology changes, customers consolidate, or regulation intervenes.

A premium product becomes commoditized.

A cheaper substitute becomes good enough.

That is why I do not treat pricing power as a permanent characteristic.

It has to be re-underwritten.

One of the first places I would expect moat deterioration to show up is in the relationship between price and customer behavior.

The company raises price.

Customers suddenly push back.

Discounting rises.

Retention slips.

Volume weakens.

Margins stop improving.

That can be an early warning that the moat is not as strong as it used to be.

When a company tells me it has pricing power, I want to be able to answer four questions:

How much did price increase?

What happened to customer retention or volume?

What happened to margins?

Why did customers accept it?

The fourth question may be the most important.

If I cannot explain why the customer keeps paying more, I probably do not understand the moat well enough.

Pricing power is not the ability to send customers a higher bill.

Almost any company can try that.

The advantage is being able to raise the price while preserving the relationship and improving the economics.

Sometimes that means almost no churn.

Sometimes it means intentionally losing customers that were never attractive to serve.

What matters is the result.

Price goes up.

The best customers stay.

And the business becomes more valuable.