SaaStr Pro Snippet: What’s the best advice on how to handle price increases?
SaaStr Pro Snippets come from discussions that members of SaaStr Pro have in our monthly ask-me-anything (AMA) webinars with SaaS experts.
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This week’s snippet comes from a great question one of our members asked Jason Lemkin:
What general advice do you have when implementing a price increase, especially after one increase has already been implemented?
Boy, this one always stresses people out.
Be careful. The faster you’re growing the less important it is to raise pricing on your installed base. Think about that cohort; if you’re doing a million, two million, in revenue, think about when you’re at a hundred million in revenue, is it worth breaking the relationship now?
Is it worth impacting your NPS and breaking the relationship with those early customers by raising pricing? You can do it, but you need to be very thoughtful. I remember, you know, I tried this twice in the dark days the recession. I went to two of our largest customers who we had grandfathered in and I told them I needed more money when I handled personally very carefully.
I said look, we’ve added all this functionality all these new additions and I said, you don’t have to pay anything more. But if you want our new global edition, you basically have to pay five times as much and they balked at first. But, I had the conversation, and I shared all the other pricing with our largest customers to show them how they’re paying the least and said they only had to do it for this additional addition.
I did another one. I remember it was with one of our first very first like Fortune 500 customers, Qualcomm, and they paid us nothing… they had a steal of a deal because we were collecting logos from Dell and Qualcomm and others in the early days.
And we went back and did this nominal raise. And he done case studies for us, he did an internal newsletter at Qualcomm….. and he kind of never forgave us for raising the pricing. He never forgave us because we broke that social contract. So in one case I did a very carefully with a personal relationship and didn’t force them to do it, and in the other case we didn’t and we broke the relationship.
If you’re fast growing, it’s probably always worth it to grandfather in your customers. It’s probably always worth it. If you’re growing 20% a year boy price raises are the simplest thing you can do to grow your business. Look at look at companies like Adobe and into it that have exploded as they move to the cloud.
You know what the secret is for those business models? They raised their prices. Okay, Adobe, instead of selling master addition for $ 2,000, sells Creative Suite or Creative Cloud for $ 50. If you stay a customer forever, they make much more money as they hit year three. So don’t get me wrong.
Those are those are mature companies growing at a slow pace. You know, crank out the spreadsheets, fire up Tableau, and figure out how to raise prices. But if you’re growing a 100% or more a year… leave them alone, or at least create a new edition. And let them gracefully decide if they want to upgrade or if they don’t because whatever you do, once you impact the NPS, that second-order revenue just isn’t going to happen.
And the last related thing I’ll just say on this is don’t listen to your sales team here. If the sales team is struggling to hit their number, you know, what they’re going to want to do? Go back to the sales customers that are ripping them off that got the bad deal.
The easiest thing is to get a list of pricing when your products $ 499 a month or $ 999 a month and go back to those guys that got $ 99 and threaten them. I know the sound strange but I’ve seen it again and again and again. Not in the best people, the most customer-centric sales reps, but I’ve seen it often.
So here’s the summary:
- Don’t be afraid to grandfather in old customers and let them keep their price, especially if you are growing quickly
- No matter what, it’s probably worth an in-person visit to communicate a price increase.
- Strongly consider letting them opt-in to a new edition for the higher pricing
- Don’t let your sales team mistreat old customers when raising pricing
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