I had a question from somebody recently about raising service prices. They had customers going back almost 20 years who were all on the same price plan, so the company didn’t know what to do. They were concerned that they could not raise prices without losing a bunch of customers.
There’s a couple things to look at. First off, if you’ve had customers for 20 years, you’re probably not going to raise prices by such an egregious amount that you’re going to lose a bunch of them unless you’re seriously undercharging now and thus losing money. If you’re still losing money after 20 years. it’s hard not to wonder what’s wrong with you, or with whoever is funding you. I’m guessing that’s unlikely. I didn’t look at this company’s books, but if I had, I suspect that they’re doing okay and could be doing a lot better if the pricing and their price structure made more sense.
In this case, the company offers software as a service, but the conversation really applies to almost any service that has subscription style pricing – and many could use this who don’t. Sure, there are some exceptions to the “any service” thing, but you have to look for them and there remain an awful lot of parallels across industries.
Keep your shirt
First off… these customers don’t expect you to lose your shirt for 19 years just so they can do whatever it is they do with your software (service, etc). If they expect that, they’ll disappear when you make these changes and frankly – that’s a good thing. However, I don’t think that’s necessary. And while it’s reasonable to think “With the whole COVID thing and all the economic impacts, I can’t afford to get rid of customers”, you can always afford to get rid of customers who are resulting in a net loss.
It’s our nature to not want to let these folks go and perhaps to assume we’re going to lose 80% of our customers when we make a change like this. The reality very rarely works that way. If by raising your prices by a reasonable percentage, you lose 80% of your customers, were you really providing them with anything of value? If not, you probably would have lost them already. All they have to do is be reminded by their bank or card statement that they’re paying you every month and wonder “Why am I still paying for this?” Poof, they’re gone.
Look to the future
Let’s say you’ve got 500 customers at $39 a month and you’re at least somewhat profitable in that scenario and it’s clear that for whatever reason, you need to restructure your offering, your pricing, etc. Your existing customers – especially the oldest ones – are the wrong place to start because they very likely bought for a different reasons than people buy from you today. Shocking, I know. Ask them. Things change.
Start with the folks you really want to sell to TODAY. What mix of service features, benefits, pricing, price tiers, timeliness, etc will produce the value proposition that makes the purchase at your new price into a must have purchase? How are your current prospects segmented? If it’s the same as your existing customers going back to day one, great – but if it isn’t, then these structure of the entire deal you offer might need a review.
Look hard at the value proposition. Does your service save time? Does it prevent waste? Whatever it does, there’s a savings or profitability improvement involved. This should make it easy to arrive at a reasonable price that says “Buy me!”.
Of course, there are still those existing customers, so the problem isn’t completely solved. Over the years since those customers started using your service, you’ve added features and benefits. Despite that, it’s likely some of them are not being used by your existing customers. One approach is to quietly disable / remove those services from the service – at least for those not using it. If the feature didn’t exist when they bought and they haven’t used it since you added it, they won’t miss it.
Features of this type – when they do become important to a customer – can be a mechanism to transition them to a new pricing structure. Of course, there are a number of ways to handle this, but none of them depend on alienating your entire existing customer base. Focus on the future and over time, give the existing customers a chance to jump aboard.
Mark Riffey is an investor and advisor to small business owners. Want to learn more about Mark or ask him to write about a strategic, operations or marketing problem? See Mark’s site, contact him on LinkedIn or Twitter, or email him at [email protected].