Raising prices is the most effective way for growing SaaS startups to increase revenue. A study of Fortune 500 companies found that increasing prices by 5% results in a 22% jump in operating profits.
Should You Raise SaaS Prices?
For SaaS startups that depend on customers sticking around the prospect can be daunting. The last thing you want to do is irritate your loyal customers. Yet the second-to-last thing you want to do is leave money on the table because you can’t bring yourself to raise prices to charge what your product is really worth.
When evaluating on your SaaS pricing strategy, take heed of our advice below in which we explain how to raise SaaS prices, when to do it, and how often SaaS companies should do so.
How to Raise SaaS Prices
One method of not angering your existing customers with a price increase is to exempt them from it — only raise your prices for new customers. Depending on your SaaS pricing model and growth rate, the effort of migrating those early adopters to new pricing may not even be worthwhile financially.
It’s quite possible it will seem worth it, however, and you’ll decide to raise your prices across the board, even for your existing customers. If you do, you can follow the advice below to make the process as smooth as possible.
At Stacking the Bricks, they make the point that customers’ anger about adjusted pricing may be more about the way you raise prices than about the new prices themselves. A firestorm about price increases likely reflects negatively on the manner in which you’ve communicated and implemented the change. They wrote:
“Turns out it’s not so hard if you don’t act like a jerk ;)”
“Just give it to people straight: We’re increasing pricing. Here is what it will be. Here is how it will affect you. Let us know if you have questions. Thanks.”
Offer incentives, discounts, and adjusted plans on a case-by-case basis to both ease the transition and take the opportunity to increase future revenues.
“You should still proactively identify customers who will see especially steep increases and have an account-by-account plan to retain them,” says Kyle Poyar, VP of marketing strategy at OpenView Labs.
“Typically if they’ll see a price increase beyond 50%, a best practice is to stair-step them so they gradually move up to the new rates rather than swallowing it all at once.”
Poyar also recommends allowing customers to choose from a set of options regarding value and price. Such options include retaining their current plan at a higher rate, downgrading their plan to remain at their current rate, and providing a time window in which they can commit to getting a discount if they bump up to a better plan. This helps customers feel they are part of the process and can retain some control of their pricing levels.
Another tactic is to add incentives to help people see the price increase as an opportunity.
When Close.io did a price increase, they offered existing customers the option to add new user seats within the next 14 days at original pricing. After 14 days new seats could only be added at the new higher prices. This led to a big increase in seats, which boosted the company’s average customer lifetime value by over 10%!
When to Raise SaaS Prices
As for when to increase SaaS prices, Poyar emphasizes that it’s important for prices to align with the value of your product. If your product’s value has become mismatched with what you’re charging, it is time to raise prices.