Price Adjustments: How to Increase Prices to Existing Customers
Monetization & Pricing
February 11, 2022
How to increase prices to existing customers? How not to lose your loyal customers in the process?
How to increase prices to existing customers: price adjustments
Increasing prices to existing customers can feel tricky, but it doesn't need to be. If done correctly, it can lead to a tremendous MRR increase! So how to make price adjustments and not lose your loyal customers?
But first things first. This articleis the 2nd part of a longer "Price Increase Playbook" blogpost cycle. We have covered the discount management and revision of your transactions in the previous section. You can find it here. In this part, we're focusing on setting the new target price for new, but most importantly, for the old customers. Say goodbye to grandfathering!
Let's assume you've already cleaned your discounting mess, and now 80-90% of your client base is close to the listing price. In other words, if your pricing page says $299 for a monthly Premium account, you don't want to have even one Premium customer paying below this price.
Important note: We're not covering the research & analytics on thewillingness-to-pay in this post. We're still in the optimization model in which we don't yet move towards the whole value-based pricing approach.
Finding the gold nuggets in your MRR
When looking at discount sealing, youusually look for clients who pay below the listing price. However, in thiscase, you need to do the opposite.
Go and scout the accounts that pay youabove your listing price and still have the regular plan. Maybe some clientspay for an additional value metric (more seats, data, upkeep), some customdevelopment work involved, and perhaps they require 24/7 support or a dedicatedaccount for which you charge.
Such clients are your gold nuggets,which provide you invaluably helpful insight into potential willingness-to-payfor the features you're already offering for granted in the broader plan.
As a rule-of-thumb, ff there are fewerthan 10% of such accounts per plan. It might be a good indicator that thediscovered features are great as add-ons, so you should hypothesize in thatdirection. If it's more than that, between 15-30%, you need to consider someexcellent potential premium plan accounts.
These clients are your benchmark - atthe initial stage, you don't increase their prices.
Fun fact from our pricing research. Did you know that only only 56% of the SaaS companies have a codified price management process in the organization? To put things into context, 65% of more traditional B2B companies have such a process in place. We have done survey research and asked 200 companies to learn the pricing challenges of SaaS and B2B companies. It's time to fight them!
Deciding on the size of priceincrease
Once you have the list, calculate the difference between regular and "gold" accounts. If it's substantial, you might need to consider creating a new plan. If it's pretty minor, then you have a gift in your hands displaying a message: "Time to increase the price for the others as well."
From this moment, you should have a relatively good overview of what is possible and what's not when it comes to your accounts. However, there are additional factors you need to take under consideration here: when was your last price increase, how often are you increasing prices, did you manage to deliver it well the last time?
If you don't feel sure about it or don't have experience in it, we suggest going for an inflation adjustment for the first time vs. the full-fledged Salesforce-like price increase for the entire customer base.
Usually, no one bats an eye for a 10% increase.
Interestingly, the higher your prices are, the easier it is to play with the percentage. To give you an example, if you increase from 49 to 59, it's a ~17% increase. If you do it from 89 to 99, it's ~10%. Keep in mind the relative numbers fallacy.
Communicating the price increase
First of all, be honest with your customers and tell them why. Don't BS them with "reasonable alignment", "adjustments", "tweaks", etc. The clear message you want to send is: "We're increasing the price by x% or by xUSD." Give your customers some time; mention it in advance. That's very important to set a specific date.
Then, explain why: list the featuresyou've developed, ideally personalize the message, e.g., if the account uses arecently developed part, use this as your advantage to prove that the overal lvalue of your tool increased. Pricing is all about creating, sharing, and communicating value. You can read more about it here.
If you're rising due to increased inflation pressure, rising development costs, mention it. Research proves that fairness plays in your favor when the price increases.
On top of that, make it a positive experience and use it as an instrument. Use this to justify the increased investment to make your product better, mention the product roadmap, send the link to the voting board, create engagement.
Also, try to use it as an up-sell initiative. "Secure your old price with annual deal" or sell more seats or whatever value metric you use. That works. Close.io did it exceptionally well:
What will happen to the customersafter the price increase?
Most likely, nothing. ProfitWell’s research proves that price adjustments don't have an impact on churn. It's the opposite. The more expensive your product is, the less likely your customer will churn. High price justifies the value but also discourages impulse purchases - while your conversion may drop insignificantly, you will reap the benefits in the lifetime value.
We did over 30 price increases in 2021, and the worst-case scenario impact we have achieved is 10% of the MRR. For instance, if you're an SMB focused SaaS with less than 1% of your revenuecoming from one client, then you're good to go. If you have more enterprise-level clients in your portfolio, you need to be more brilliant on the negotiation side.
As even scientific research proves, organizational confidence and focus are the keys to price adjustments.
Don't be afraid to ask for more money if your product delivers more and more value with every quarter.