Preparing for a pricing change
In the beginning, we mentioned a two-fold problem most businesses have with pricing: not putting enough thought into it, and never changing it. If you decide to change your prices regularly, you can't ignore the first problem. Pricing changes are a fantastic growth lever, but only when great care is taken when pulling that lever. Below are some tips to help you prepare for your change in pricing.
1. Know your market, do your research
Market research and analytics is where you'll likely spend the most time. In fact, if there are too many people involved in the process, you can get caught up in a feedback loop that forces this step to take longer than it should. Setting deadlines is a good way to help prevent that and avoid hitting what we call "analysis paralysis." Five weeks or so is a good target for this step in the process. As you begin to regularly change and optimize your pricing, you'll find that much of the market research you've already completed can be reused along with updated research reflecting new pricing changes.
2. Use value-based pricing
You may know that we have a bias toward value-based pricing, particularly for SaaS companies, but not without merit. Value-based pricing is highly effective because it's based on what your target customer is willing to pay—it's based on what they think it's worth. Value-based pricing allows you to be able to price higher than your competitors and continue improving your product. And because of the consistent communication you're having with your customers, you're building impactful relationships. And all this can translate into higher retention.
3. Check in with what existing customers think
Customers aren't usually going to be thrilled about a price increase, but many of them will be honest if you ask them about the value your product brings them. Customers also appreciate honesty and directness. Don't use open-ended questions. Ask them direct questions about your biggest concerns, as well as what questions they have. Understanding how your actual customers think or feel is crucial. This is also best accomplished by choosing a select group of your customers, rather than blasting out a survey to all of them.
4. Understand the impact of your new pricing
You can implement legacy pricing with existing customers, so they're not affected by the new pricing. But it's still a good idea to run an analysis to see how existing customer segments would be impacted by higher prices. If you notice that one customer segment is hit especially hard by the price increase, be sure to reach out to them and maybe offer a transition discount to ease them into the pricing change. This can also help ensure that the pricing structure you've settled on is indeed the correct one.
5. Build a communications plan for your price increase
Price changes can be confusing and frustrating for your customers, so it's crucial to have a communication plan in place. Giving your customers as much information as possible right from the beginning when it comes to increasing prices, and giving them resources to find out more on their own is vital. But you must also ensure that support staff and anyone else who deals with customers fully understands the new pricing, so everyone is communicating the price change honestly, effectively, and correctly.