Has raising your prices ever not worked out?
I'm always reading posts about how raising prices worked out wonderfully and new users skyrocketed. Has anyone experienced the opposite, where raising your price didn't work out?
My startup, KidGenius, is in the $1/month club. Most of our competitors are more expensive and so I've always wondered if we charge too little. However, we've had customers come on board specifically because we are cheaper. So I wonder how many customers we would lose because we aren't cheap, but then wonder how many customers we lose because we are too cheap.
Yes. With one company I founded, we started off at $300/year.
After 3 months we were selling at $3000/year. The value of the product hadn't changed significantly, we just had better social proof and a better understanding of the value to the customer of the problem we were solving for them.
Another three months later, we tried $5000/year. This priced some of our SMB prospects out of becoming customers and delayed the sales cycle enough that it worked out better for us medium term to go back to the $3k/year.
Trying the $5k pricing didn't burn any bridges though, so I'm happy we tried it.
Thanks for the reply. Did you grandfather people into the plan they had signed up for?
Sort of. We didn't feel it was fair to force them to pay 10x after year one. Instead, we let them continue on the original plan and, as we developed new features, explained that these new features were only accessible for the 'full price'. There wasn't much resistance (although I think one or two stayed at the old price).
Dude, you're everywhere helping. Tell me you wrote a book/blogged about your experiences, haha
Ha. I think that kind of thing is better left to the real experts ;)
To quote patio11, "If you're a geek you're undercharging".
From what I've read and seen increasing your prices;
I don't know how true this is for parents but it's a common attitude among Saas consumers.
We wrote a post of our whole pricing journey so far: https://www.indiehackers.com/@sarah/saas-pricing-lessons-from-4-pricing-changes-2bcd2bc3de
In attempt #3, we outpriced a lot of people. As a fairly new company, it was important for us to capture more customers vs. higher paying customers. We learned a lot by trying it so no regrets! Better to know than wonder what if…
Your article is actually what got me thinking about pricing. I had never heard of the Van Westendorp method before. It's quite interesting and I have shared that (and your article) elsewhere since reading it.
Oh nice, thanks for reading. We've haven't been successful with using data to inform our decisions but I can definitely see it being helpful at a larger scale.
I made this error with FinMod. I started off with offering the product at $5, and when I acquired my first few users, I increased this 5x to $25. This yielded no new conversions and so I had to drop it back to $5 after which users started coming through again.
This lack of new users at $25 surprised me because I think, even at that price, the product is under-priced because of the sheer value it provides. Current users have even asked me to increase the price.
The conclusion I've come to is just that I wasn't attracting the right users. So, I'm going to try a new experiment and push the price up to $10 whilst focusing on the founders/hackers who will benefit from this the most.
It's almost like you need A/B testing with prices, however, I'm sure you couldn't do it simultaneously as some users might be mad if they found out that some people were offered your product 5x lower at the same time.
Anchoring with a high price that's on a discount is one approach to A/B testing prices. In other words, you say "It's normally $50, but here's a coupon for 50% off - valid this week only!" Cycle through different sales and you get a feel for the price elasticity. Note that the discount does mess with the outcomes a little, since people will anchor at the high price and may buy just because it's a deal.
Good suggestion and it's a way to do some form of A/B testing of pricing. I'm a bit wary of offering discounts though, as I feel a huge factor for people is the discount alone (as you alluded to). Additionally, a few people buying at full x price seems better validation than many more buying at the discounted y price.
You are absolutely right that buying full price is better validation than many more buying at the discounted price. The A/B testing option is more useful for determining the overall price elasticity. Another approach is to start high and experiment with adjustments over time - getting the right price is challenging, but worth the long-term payoff.
Nick Kolenda has some great resources on this for others interested in diving deep on pricing: https://www.nickkolenda.com/psychological-pricing-strategies/
Thank for the link! And good tip about elasticity. Will consider this for sure!
How well will A/B Price testing sit with the FTC or similar agencies is other countries? I remember Amazon got sued for this a long time ago.
That's a good point and something I'll try more of as I continue to test this. Possibly with varying versions of the product to avoid that controversy. Thanks!
Interesting to see this not work out even at such a low one-off price. I guess you could be right about attracting the wrong type of users, but this is an interesting data point either way. Good luck with your experiments.
Thanks. I'm continuing to better understand users and soon will launch it as a SaaS product, which I think will deliver a lot more value. So will see how it goes!
That depends on the market. If you are in a elastic market demand for your product will change more when there is a price change. The opposite is true for an inelastic market.
What does your buissness do and i can tell you what i would advise
We have designed and built software to help daycare centres manage their day to day and better communicate with parents. (kidgenius.daycareiq.com)
Ok so, first, is there a lot of competition? ie substitute goods/services for this product.
second, is this something that these daycares need a lot? or that It is so beneficial that they would really want it?
If your answer to the first is no and to the second is yes than i woudl go ahead and raise prices, by how much? thats kined of up to you although... If you have some sort of data on price and the amount of demand/quantity sold you may be able to calculate teh exact price.
However if the answer to the first is yes and the second no then no do not. if to the first is yes and second yes also then maby but you shoudl do more reaserch if thats teh case.
Probably a yes/yes situation, but that's more my opinion about the second yes. Obviously I think daycares need this (or other software) but I don't work on that side of the industry. We've had 0 churn in a year and a half, so that tells us our product is well received by our customers. That helps argue for the 'yes' side of things.
I'm always thinking that it's easier to lower the prices than raise them. For my SaaS I'm thinking of offering a big discount (like 70% off for this month) and then gradually lowering the percentage of the discount (monthly) as I get closer to the price I had in mind.
I think the inverse is true. The natural path for a SaaS that is either growing or receiving a tech investment (ie additional features) is for it to become more valuable, as long as the product has some utility. So it's perfectly reasonable to increase the price.
The only time you might reduce the price is if you made a huge error in evaluating the value of the product and overpriced from the start, and so didn't get any customers.
Also, be careful with discounting so heavily. If you believe you should be charging 70% less to attract customers, just change your pricing to reflect that (ie start at 30% of your current price). Then, gradually increase the price but warn customers and others about this (unless they'll be grandfathered).
This also gives you the benefit of PR as anyone that isn't using your product but has you on their radar will pay attention once they know you're raising your prices.