6 steps to a successful price increase
Why price increases are necessary
Price increases allow you to stay profitable, keep up with competition, and charge for the true value that your SaaS product brings your customers.
Price increases can be scary, but they are a necessary part of running a business. The fear of losing customers means that you may have already waited too long to increase yours. But price increases are one of the most effective ways to increase profits.
And there are costs to not increasing your prices over time.
You’ll become less profitable over time
You’ll fall behind the competition
You’ll have an unsustainable business in the long term
Luckily, there are six steps that can help you approach price increases with confidence.
Know your numbers
Think ahead but keep it simple
Inform your team
Time the increase right
Inform your customers
How to implement a price increase
A successful price increase is a combination of planning, communication, and analysis.
Plan a price increase
Planning helps you identify your goals, set a timeline and plan for contingencies.
When planning a price increase, it's important to identify your goals ahead of time. Some questions you should ask include:
What are our goals for the price increase?
Do we hope to increase revenue? Keep up with the market? Increase profit?
How will this increase impact our business? How many customers could we lose?
Once you have a clear understanding of your goals, it's important to set a timeline for the increase and plan for any contingencies. This will help ensure that the price increase goes smoothly and achieves your desired results.
Communicate a price increase
Communication helps you educate your team and your customers about the new pricing and its benefits.
Your team should be aware of the price increase first and then prepared for any potential pushback from customers. Step 3 goes into how best to prepare your team.
A successful price increase depends on communicating effectively with customers so that they understand why there has been an increase in prices and how it will benefit them in the long run—whether that’s by improving quality or providing additional services.
You should also provide information about changes to your service or product. For example, if you are raising prices because you’re adding more features or increasing the quality of your products, highlight these benefits. Step 4 provides detail on how to best communicate with your customers.
Analyse a price increase
Analysis allows you to measure the effectiveness of your price increase and determine any areas for improvement.
But analysis ahead of the price increase also contributes to the chances of success. Looking at past price increases is one way to do this. Compare the following factors before and after any price increase.
Step 1 goes into detail.
1. Know your numbers
Before you can implement a price increase, it’s important to know your numbers. This includes:
Analysing data from past price increases to understand the impact on revenue, profit, and customers.
Forecasting the impact of a price increase on revenue, profit, and customers in the future.
Understanding what competitors are doing regarding pricing, promotions, and new product launches (and how this will affect you).
Learning what customers are willing to pay by surveying them or asking for feedback when they purchase from you.
Analysing past increases can help you understand the short- and long-term impact of price increases on your business. Did customer lifetime value (CLV) change? How many customers did you lose, if any? Did you customer acquisition cost (CAC) change?
Look past initial responses and across a longer period to determine the full impact. If there was a revenue hit but it was temporary, that’s a good sign.
Take this information and use it to forecast out an impact on the current price increase you’re planning. Is there a revenue maximizing standpoint after which further increases don’t mean additional profit?
After you’ve analysed and forecasted based on internal data, look at external data. Are you competitors increasing their prices? How are they communicating these increases? How much are they increasing their prices? If they’re not increasing, why not?
And lastly, implement a continuous feedback loop with your customers. Are you surveying them and asking for feedback on your offer, the value they derive from it, and even how much they’d be willing to pay for additional features or services your considering?
For help on running customer value-based pricing surveys. Reach out.
2. Think ahead, but keep it simple.
After you’ve forecasted the potential impact of your price increase on revenue and customers, focus on the long term: How will this decision affect your overall business goals?
Whether you’re adding a feature or making any other change to your product, it’s important to think ahead. Could the feature release be timed at the same time as a price increase to drive an increased value prop message?
What your ideal price level? Do you need one increase or multiple to get there?
How will this increase impact future increases?
Can you plan ahead by two increases and forecast their impact on your business?
The best way to ensure that an increase in price doesn't hurt your business is by thinking about how customers might react before implementing it. A large, rip off the band-aid, increase only one time may have a greater impact than two smaller well-timed increases. But they could get you to the same price. Pricing is a continuous journey, so treat it like one.
3. Inform your team
Before you tell customers about the price increase, it’s important to communicate it internally with your team first.
This means communicating with both sales and support teams so that they can prepare for any potential challenges or concerns from customers.
There are a couple of strategies to make the internal communication successful:
Announce the price increase to your team in advance
Pick internal champions that are responsible for project managing the change
Address the team’s concerns around customer retention
Prepare a communications plan with answers to expected customer challenges
Give your team plenty of notice about the impending price increase. This will give them time to prepare for customer questions and concerns. It will also give them time to adjust their sales and support strategies to accommodate the change.
Choose a few team members to be project managers for the price increase. These team members should be responsible for communicating the change to the rest of the team, addressing their concerns, and answering questions.
Be prepared to answer questions on customer retention. How far will you go to retain customers, how many customers are you willing to lose due to the increase, which ones? Will you offer any exceptions? Is so, how will they be managed.
Your team should have a plan for how to communicate the price increase to customers and address any questions or concerns. A communications plan outlining how to answer expected price challenges will ensure that the message is unified across the organization.
Ensuring that your team is on board is one of the prerequisites to ensuring that your customers have a good experience, and the price change is carried out successfully.
4. Time the price increase right.
Now that your team is aware, you want to time your price increase right. There are several timing options that reduce friction.
Increase at the same time as a new product or feature release
Increase at the beginning of the year with new Annual Prices
Increase at contract renewal
Increase when the wider market has also increased (responsive increase)
If you’re launching a new version of your software, or even just a new feature, at the same time as a price increase, customers will associate the increase in price with the added value.
Increasing prices at the beginning of the year allows for easier integration into annual budgets. The concept of annual prices also normalizes the changes as it aligns them with a passage in time.
You can also increase the price at contract renewal. If you have customers on an annual or semi-annual contract, you can use the renewal date to increase the price. This is a time that customers are already primed to discuss pricing and consider the value your product brings them.
Responsive price increases are increases that help you keep up with competition. They should not be used as a rationale in communication but general upward market movements give the most price sensitive customers less options if all competitors have also increased their price.
The best-case scenario is that no one notices the change at all—but even if they do notice, there are ways to minimize backlash by announcing price increases well in advance and communicating them properly with your customers.
5. Communicate the price increase to your customers
As part of the communications plan you should include the details of how you’ll communicate your new pricing to your customers.
Your customers do not care about your costs, so do not draft a message explaining how your suppliers have increased prices and therefore you have to as well.
Here are some best practice rules to follow for your price increase message.
Focus the message on the additional value you’re bringing to your customers. Your product today is better than your product last year, tell them why.
Know your audience. What channels are they most likely to respond to? Email is king for price increase messages because it allows for back and forth but makes it less likely and less costly than telling customers individually over the phone or face to face.
Use customer-centric language when communicating price increases. Not “increase in our costs/prices etc.” but “increase in value to you”
Have a clear call to action (CTA) that is not costly. Direct customers to a webpage with more information instead of directing them to contact you about the increase.
Focusing the price increase message on the additional value you’re bringing to them can help ease the tension by focusing on the positive.
Let your customers know that you’re grateful for their loyalty and that you’re committed to providing them with the best possible product. Explain why the product today is better than it was a year ago – did you add new features? Did you upgrade the quality of support?
Choose the highest value add and include it in your message. The message should clearly communicate that customers are getting more for their money.
If no new features are being added, emphasize that the price increase is necessary to ensure that you’re able to continue providing the same high level of quality and service. Show your customers that you’re being transparent and honest with them and that you’re still offering a great value.
By focusing your price increase messaging on the value you’re bringing to customers, you can help ensure that they understand and accept the increase, and that they stay loyal.
Need help drafting the message? Reach out.
Now that you’ve got the message drafted and ready to send out, make sure that you follow the number one rule of price increase communication.
Notice, notice, notice.
Give customers notice! Do not introduce price changes 24 hours in advance. Give customers enough time to digest the increase, adjust their budgets or change their spending habits accordingly.
If most of your customers are on rolling contracts, one to three months in advance is best practice depending on your industry.
If your customers are on annual contracts, consider the full length of time that it’ll take for the increase to permeate to all customers.
6. Review, review, review. Evaluate the impact of your increases.
In addition to measuring how much your price increases affected revenue, it’s also important to evaluate what impact those prices had on customer engagement and retention.
Consider the amount of customer pushback you got, and what the pushback was about. Did you make exceptions? How many?
Consider what effect the price increases had on the competition. Did they respond to your increases with increases of their own? Did your customers switch to one of your competitors as a result of your price increase?
The better you execute steps 1-5, the more successful your increase will be. Stay committed to your new pricing.
Lastly, plan ahead. Draft a lessons learned document and use it for your next price increase.
Taking a step back and looking at the big picture is always helpful. When it comes to price increases, it’s important to remember that there are many factors at play. While increases are never easy decisions for any business, they can be made easier if you follow these six steps:
Know your numbers
Think ahead but keep it simple
Inform your team
Time the increase right
Communicate effectively with customers
Evaluate the impact