How to Raise Prices

That said, there are ways to raise your prices that cause the least amount of shock to your customers.

One simple option is to decrease the value metric of your plans but keep the prices the same. If today, customers get 3,000 subscribers for $49, switch it so tomorrow they get 2,500. Your pricing in dollars stays the same, but people need to upgrade to higher tiers faster.

Another option is to hide your lowest pricing tier on your pricing page. This should be relatively quick to hide, and you’ll see the impact of sign-ups relatively quickly.

The typical way to raise prices is to increase them across the board and watch your numbers to see how new customers react.

Or you could multiply your pricing by 10 to go after a new segment in your market. One of the first batches of TinySeed companies was a SaaS tool for interior design teams called Gather (GatherIt.co). It wasn’t growing as fast as it could in its early days for a couple of reasons. First, it was catering to one- and two-person architect and interior design shops, which are naturally price-sensitive. Second, its price point was only $29 a month.

It decided to pivot and go upmarket. This was a gamble because the features a 40- or 50-person architecture or interior design firm needs are much different than small shops, and Gather had to build to get there.

It took nearly 18 months of painful work, but eventually it was able to double its prices, then double them again. It churned out lower-end customers as it landed bigger ones, and now it charges ten times what it did at the beginning.

Most of the time, your price increases won’t be as drastic as Gather’s. We’ll talk about the logistics of raising prices in a minute, but first I want to discuss two potential mindsets when raising them.

There have been times when I raised prices because I knew we had to do it, and I didn’t care if it hurt our funnel in the short term. We were going to raise prices, and things would have had to go pretty far sideways for me to roll it back.

But there have been other times when I was less certain, and I proceeded with a bit more caution.

Knowing which time is which is a question for your “founder gut.” If you’re not certain, treat it like an experiment. Make the change one you can undo quickly if you need to, then watch it painstakingly every day.

Give it a couple of weeks, or maybe a month, and keep asking yourself: What are the results? How many people are coming through my funnel? What does my trial-to-paid look like?

This is what we call the “poor person’s split test.” In a perfect world, you’d split test the pricing evenly at the same time—but that’s difficult for a SaaS company. I only know of one that’s done it.

Zapier didn’t publish pricing on its public page. When you clicked the sign-up button, it was forked within the app so that half saw one price and half saw the other. That gave Zapier great data, but for the rest of us, monitoring cohorts of sign-ups at the new price will have to do.

If you know for certain that you’re going to raise prices, make this a marketable event—especially if you’ll be grandfathering in current users at the old rate. Announce the price increase ahead of time and let the world know that if they’ve been meaning to try your app, now’s a good time. If they sign up for a trial now, they’ll be grandfathered in at the old price.

If you’re going to raise prices on your pricing page, what do you do with your existing customers? Do they keep the old pricing? Do you upgrade everyone?

In a perfect world, you’d just upgrade everyone. After all, if you have a restaurant and change your prices, everyone who shows up next week to get a burger and fries pays the same new price. With SaaS, though, it’s a bit trickier.

Why consider grandfathering old customers?

• If you’re worried people might go to a competitor
• If you’re worried thousands of customers will write in angrily to your support people
• If you’re worried you’ll damage your brand and your reputation

How should you decide?

Use Rob’s Rule of 10: If raising prices for existing customers will not grow MRR by at least 10% (ideally more), it’s rarely worth considering.

The amount of headache, support burden, brand damage, and potential churn is so onerous that if you’re only going to grow by a few percentage points, it’s best just to grandfather those users in.

On the other hand, if you’re changing your pricing significantly—say, from $9 a month to $99 a month, it’s not economically viable to grandfather the existing customers. Prepare yourself for the onslaught of emails as your lower-paying customers churn out to make way for higher-paying ones.

Here are a couple of tips:

• Never promise to grandfather customers for life. Next time you raise prices, you might not want to. Or you might sell the company and the new owners don’t want to honor that deal. Lifetime deals are for one-time sale stuff, not for SaaS.
• Enterprise customers expect annual increases of 5% to 10% as standard, so build that into your contracts.

If you’re not going to grandfather in existing customers, give yourself a comfortable amount of time between announcing price increases and actually implementing them.

I recommend two to four months, depending on how difficult it is to switch away from your product. Too short, and people will feel trapped. Too long, and when the price hike does come around they’ll have forgotten and think you’re raising prices again.

One thing you never want to do is raise prices on existing customers without sending notice. That’s a recipe for angry customers.

When you announce a price increase, use this template:

1. Set the stage for the value your product offers (i.e., we’ve been around for some time, we’ve become a trusted provider in this space, etc.).
2. “We’re changing our pricing.” Let them know up front what’s going on.
3. Provide high-level justification about why you’re changing your pricing (i.e., we’ve added tons more value, we’re in a completely different space than when we launched, we’re expanding our features, etc.).
4. (Optional) Offer more specifics about whom it impacts, when price increases will go into effect, etc.
5. (Optional) Provide more justification if you feel it’s necessary.
6. “Reach out with questions.” Let them know your doors are open for questions, comments, and feedback.

For a solid example, check out CartHook’s announcement of its price increase from a few years ago (bit.ly/carthookpricing). Its announcement covers each of these six basics really well.

Another great example of how to raise your prices is Gymdesk, a TinySeed company that provides online management software for fitness and wellness businesses.

Founder Eran Galperin knew his product was underpriced at the beginning of 2021. In launching the company six years prior, Eran had priced Gymdesk below his competitors. No longer wanting a reputation as a budget product, Eran decided to raise Gymdesk’s pricing considerably, in some cases by more than 50%.

In an interview for the MicroConf YouTube channel, Eran told me about the emotional aspect of raising his prices. He’d built a personal relationship with many of his small business customers and knew how thin their margins were. He wrote an email explaining the price increase, then opted to grandfather in old customers at their original rate for a few months before moving them to a discounted plan.

“Most of our customers responded very positively to that,” Eran recalled. “Some of them even wrote back and said, ‘Congrats, you deserve a raise.’”

In the end, only a few of Gymdesk’s more than 600 customers left as a result of the price increase. The company’s MRR increased by 25%, MRR growth went up by around 70%, and its ARPA has continued to climb.

With the increased revenue, Eran was able to be more aggressive with marketing and hire four full-time team members to grow his one-person operation.