When Should I Raise Prices?

I recommend revisiting your pricing every six to 12 months because if you’re like most founders, you’re probably charging too little.

Most founders think that the biggest reason to raise prices is to make more money, and that’s a good reason to do it. More money means you can hire more people, spend more on marketing, or take home more profit.

But there is a second-order effect that most people miss. Across all SaaS marketing approaches (which I talk about in the next chapter), maybe five are available if your ARPA is, say, $20 a month. If you charge $500 a month, it’s closer to 10. And if you charge $5,000 a month, you have every SaaS marketing approach at your fingertips.

So it’s not solely about making more money. It’s about providing you with more options to grow your business.

It’s not technically hard to raise your prices. You change a number on the pricing page and make an API call, and there you go. You doubled your prices. It’s the emotional part that typically makes it hard for most founders.

Some tell me, “If I raise my prices, I’ll make my customers angry. I’ll completely crush my business. I’m going to take it too far.” Or they’ll push back by saying, “I can’t just raise prices to infinity, right? At some
point I’ll get too high for my market or where my product is at.”

Yes, you will probably make some customers angry. No, you’re probably not going to crush your business—and you can always roll back pricing if you find out it’s a mistake. It’s possible to raise your prices higher than what the market will bear. But more founders err on the low side than the high side regarding pricing.

When you talk to customers who are churning or prospects who aren’t converting, you’ll inevitably hear from someone that your product is too expensive.

Dropping your price is rarely the answer when it comes to product-market fit because pricing is such a huge lever in the business. But those customers might still be right.

It may be that you are overcharging for what your product currently does. When I launched Drip, it was just an email capture widget that sent out an email sequence. I charged $49 a month and kept getting feedback that it was too expensive.

I could have dropped the price to $19 or $29 a month, but I didn’t want to build a cheap tool. I wanted to build a tool that was an easy sell at $49 a month.

I call that “aspirational pricing,” and I used it to push me to keep improving the tool until it was worth what I wanted to charge for it.

A lot of founders underprice their products because they don’t want the rejection. They don’t want to hear people complain.

Some people are going to complain about your pricing no matter what—but it’s incredibly tough to build a business when you’re underpriced. Instead of dropping your price, one approach is to figure out what you need to build to make your tool worth what you are charging.