How do you raise price?


11

This is follow-up to my previous question. Inspired by the answers, we did a quick customer survey. We asked the standard question "would you recommend our service to a friend?" and "what is the main reason you pay us?". We got a very positive response and a lot of useful comments. And yes, about 4 times (of 66 answers) customers mentioned low price as a reason and none of them complained that we are too expensive.

So our price is probably too low and this brings in another question - how do you raise a price?

  • Just do it! Let them know enough time in advance and see what happens. Good - doesn't need any additional investment. Bad - what is the plan B, when it goes wrong?
  • Disguise it as a feature. Add another feature to the product and make it available to everyone. Use it as a reason to raise price. Good - somewhat justified reason. Bad - needs additional investment to add that feature.
  • Add advertising. We have enough pageviews, so that we could sell some advertising. Good - don't have to raise price. Bad - needs investment to add ads support and someone to sell the ad space. Not sure this is worth it.
  • Start charging for support. We get about 4-5 support calls per day. We could set up paid number and start charging for those calls (e-mail would remain free). Good - requires almost no investment. Bad - probably not worth it. Helpful and free support was considered one of the main reasons people pay us.

These were some options I thought of, but I'm happy to hear yours.

Pricing Subscriptions

asked Feb 1 '10 at 02:23
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Tambet
215 points
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7 Answers


10

You have to pre-announce the price change for those potential customers currently trialing. Blind-siding is the worst thing you can do.

Here's the thing about raising prices: The only people who know you raised the price are existing customers. Everyone who comes to your website post-raise doesn't know it was ever lower.

So all you have to do is take care of your existing customers. Easiest way is grandfathering -- make a policy (and proactively send email about it) that they can purchase at the old price for the next 6-12 months (or forever?). They have plenty of time to decide if they want to buy more without feeling pressured or surprised, and everyone understands that sometimes the price goes up.

Said another way, no one cares that the price goes up for someone else.

Finally, it does make sense to combine the price hike with a new release. "New stuff" could imply "more expensive." But if you do the foregoing, that doesn't really matter either.

answered Feb 1 '10 at 07:50
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Jason
16,231 points
  • +1 "no one cares that the price goes up for someone else." > Potentially they'll feel even better since they paid less. – The Dictator 8 years ago
  • Thanks Jason, letting existing customers to have the current price is probably the way to go. – Tambet 8 years ago
  • +1 for Grandfathering as a reward to your early adopters. – Cad Bloke 6 years ago
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3

Idea 3 and 4 don't really solve your issue. If you can get more value from the product itself looking for others ways to generate revenue should not be the thing you try first.

When we have to change our prices our primary concern is to figure out a way to grandfather in the existing customers and if possible the new price affect only the new customers. This gives everyone a benefit in having signed up early and if you give people notice of the price increase it produces a "compelling event" to purchase before the price increase.

answered Feb 1 '10 at 02:47
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Dane
1,866 points
  • Thanks Dane, the "compelling event" is a great idea. – Tambet 8 years ago
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1

The best way I have seen to raise the price is to add additional features that really don't cost you much to implement. This seems to create a natural inflection point for increasing your products price and people perceive that they are getting more value.

The other thing to do would be to create a different terms of service contract that times out everyone at a predefined date. After that date, the terms of service would reflect a new pricing structure.

For your existing customers, it would be best to offer them a discount if they sign up for a longer term contract. Lets say that right now, you do everything monthly with no contacts. People come and go as they please. In the new model, you would require a one year or two year contact for a discounted (albeit higher price) price. This way your customers have the option to continue with no contract or sign up for a longer term of service that would be discounted.

Another approach is the honest straightforward one. Be upfront and say in order for your company to survive and provide the excellent service your customers expect, you have to raise the price. Be fair about it and lay out your case as to why it will still be an excellent value.

answered Feb 1 '10 at 04:41
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Jarie Bolander
11,401 points
  • Currently we sign contracts with all of our customers and those contracts are limitless, ie you have to give 4 months notice to terminate it (we have never enforced that 4 months period). But of course we could add "bound" contracts, so that we fix prices for next 2 years and you can't back out. About honesty - yes, probably we need to state clearly, that we can't continue offering such a great service at current prices. Options could be to offer worse service or raise price. I think most of the customers would prefer latter. – Tambet 8 years ago
  • It's probably a good idea to try to limit the contact duration just so you can refresh them. Good luck – Jarie Bolander 8 years ago
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1

First of all definitely charge more, Eric Sink says if no one is complaining about your price you need to charge more, until you start to hear some complains.

Having no experience on the subject whatsoever I think disguise as a feature is a good way to go. Some people just want to pay more, let them have it with some simple yet useful features.

Also you can make make a package with one or more new features and high priority support together. You can keep the investment low by adding simplistic features instead of massive changes and justify the price by adding extra support features.

answered Feb 1 '10 at 10:37
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The Dictator
2,305 points
  • Thanks for the high priority support idea - this could certainly be a "feature". Our customers value our support very much, so I assume they would be willing to pay something for it. We could continue doing support as we already do, just express some guarantees more explicitly in our contract. – Tambet 8 years ago
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0

Advertising may make your site look less professional, at least that's my opinion. But if you think it would fit, you could test the water by simply adding Google Adsense or a similar programme. That costs you max one hour work and within weeks you have a good idea of how many ads are clicked and what the revenue can be.
But as I said, it might appear less professional. Unless you give the users the option, a cheap subscription with ads or a more expensive one without.

answered Feb 1 '10 at 22:23
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User2387
111 points

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Six months notice of the price change for the installed base is good. Grandfathering your early customers in is a good idea, but I would not do it indefinitely. If you have more than a handful of those customers, or a channel sales force, or an unwieldy back-office system, it will become a headache to manage the special pricing for those customers.

Also, don't forget about the impact on support licenses (see Jarie's answer). As your prices go up, you will probably want to raise maintenance fees proportionately. You can offer your existing customers longer-term maintenance licenses at the current rate, so that they continue to benefit from being early adopters after the price increase.

answered Feb 2 '10 at 12:07
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Steve
41 points

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The safest way (not to lose existing customers) is to add a new optional feature, make it free for a (say) two month trial period (so every customers sees and likes it) and charge for this feature then; customers may choose not to use that feature if they are unwilling to spend more than they do already.

answered Feb 2 '10 at 21:55
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Ammo Q
561 points

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