Jeanne Hopkins loves a good price increase, or so she told us during her talk at SaaSFest. As your product advances, your value proposition changes. As your value proposition changes, your customers’ perceived value changes. Seems logical, no? So why isn’t your price point changing as well? Most likely, it’s because you’re scared your small business will lose customers.
Jeanne challenges that assumption by reminding us of the four P’s of marketing: product, promotion, place, and pricing. Each one is integral to a good marketing strategy but pricing is an extremely effective measurement of continuous communication of value to customers. As a marketer in SaaS, it’s impossible to not constantly be measuring your performance whether it’s through tracking site visits, monitoring content and social media engagement, or studying MQL to SQL conversions. A great indicator that your marketing is working and that your product’s value is being perceived by your customers is pricing.
Most companies don’t spend enough time, if any, thinking about their pricing strategy. Jeanne shared that the average SaaS company spends merely 8 hours on pricing. That’s it. When Jeanne was tasked with increasing the bottom line for her team as the suite of products they offered advanced in their offering, she realized she had two avenues to achieve this: through increasing pricing or increasing market share.
After spending some time researching the potential impact of each option, she went with pricing. Raising prices is one of the most effective ways to increase profits. As Jeanne set about laying the framework internally and devising the plan for external communication (that is, communicating with current and new customers), she developed a plan on how to increase prices without affecting customer satisfaction, which she shared with us at SaaSFest. Let’s go through it.
How to implement a price increase
Implementing a price increase is sometimes direly needed, but how do you do it without alienating your loyal customers?
Step 1: Research past increases
As Jeanne advises, do your due diligence and gather as much information about how your pricing structure has changed over time. It may be difficult to find that data but it’s worth it. You want to give yourself a chance to learn how customers have adjusted to price changes in the past. Also, you want to know what prompted previous changes. Was it due to product changes? Was it arbitrary? Take time to understand how the price hikes affected your customer base, your sales team, and your overall revenue. You may discover that although some customers churned, LTV rose and CAC declined which is a good indication for a successful implementation of higher prices.
Step 2: Develop internal champions
You can’t put the weight of enacting a pricing change on a single person, whether it’s you, your marketing director, or some other team member. Building a team of internal champions will make sure the process goes smoothly and will ensure that momentum isn’t lost during the transition to a premium price.
Step 3: Communicate internally with all teams
You don’t just want to inform your marketing team of the pricing changes. You want to educate your sales team on how the increase in prices will affect them. Oftentimes, your sales team will begin to ask about discounting or offering lower prices to long-term customers as they’re going to look for easy wins to keep current customers and prospects in the pipeline.
This is a great opportunity for you and your team of internal champions to remind them of how the value proposition has evolved and that the new pricing is a reflection of the improvements made or new features added to your product. Further, you want to start the internal communication process at least three months ahead of the effective date for the price change. This gives the sales team time to equip themselves with the right message for the best customers and can actually help conversion of current prospects as there’s now a deadline for current pricing.
Step 4: Communicate with your customers
Create a communication plan for how you will introduce the new pricing scheme to customers. The better prepared you are, the easier it will be to stick to your plan and successfully increase prices. This is the stage where some people will want to cave and employ discounting or other weak retention tactics. Don’t give in! You’ve developed a superior version of your product. You’ve enhanced it in order to give customers, both present and future, and an even better customer experience. Creating a solid action plan on how to increase prices beforehand can help you stay on track.
Stay committed to your new value proposition. Communicate it thoroughly to your customers. Listen to their pain points about the change if they bring them up. We all can admit that no one truly likes a change that doesn’t feel justified. However, your new pricing scheme is a great chance to reconnect with customers on the value of your product and just how much better it is today than a year ago. Remind them that you will continue to work hard to earn their continued patronage.
Step 5: Stay steadfast in your mission
Delivering on value is core to a successful SaaS business. Steps 2 through 4 are all about communication. Step 5 is a battle cry for your business. You’re not working day in and day out because you don’t love your product or your customers. You’re working to develop and provide a superior product that is unrivaled within your market. Just as you adhere to your internal mission of becoming the leader within your industry, you should adhere to your value propositions and your decisions regarding pricing.
The above steps are what it takes for a successful implementation of pricing changes. As Jeanne notes, it will be so tempting to cave when one of your largest customers calls to say they’re dissatisfied with your decision to increase prices. Again, here is where you listen to their grievances. Why are they actually unhappy? Ask enough questions to get to the bottom of it and keep coming back to the improved features or the entirely new features. Show them how the improvements of your product or service will make their lives even easier than the previous version of your product or service. Prove to them that your mission is to continuously deliver a superior product and that the pricing changes are merely a reflection of this.
Not sure where to start on how to evaluate your current pricing, start here.
Price increase FAQs
How to increase prices?
Here are some of the best ways to increase the prices of your product(s) without triggering high customer churn:
- communicate with your customers transparently
- provide a meaningful explanation for the price increase
- choose the best timing to increase prices
- regularly change and increase prices (when necessary and justified)
- amend your marketing strategy to highlight improvements in product quality
When does the price of an item increase?
A price increase can occur for several reasons. Quite often, an increase in pricing happens due to an increase in product demand. Furthermore, small business owners may be faced with the rising costs of raw materials, which affects the spike in overall costs of production.
How to tell customers about the price increase?
The way you approach the price increase announcement can affect how your customers receive the news. Communicate transparently and provide a justified explanation of why the price increase was necessary. Contact your loyal customers directly and send a price increase letter well in advance. Explain your reasoning and remind your customers that higher prices mean a higher quality of products and services.