When You Raise Prices More Than a Smidge … They At Least Look At Another Vendor

We’ve talked quite a bit about the pros and many cons of raising prices on existing customers on SaaStr.  Our general view, and experience, is that until you are fairly mature, raising prices on existing customer isn’t worth it.  It impacts your NPS and relationships.  And importantly, it will burn up a lot of internal discussion and brain cycles and won’t really matter.  Raising prices on a small group of customers today won’t move the long-term needle.  Focus that energy instead on bringing in new customers, and building new editions for your existing customers.  Find a way for them to organically buy more from you instead.

A price increase on the existing base can move the needle when you are at say SurveyMonkey’s size and growth profile … but you aren’t there today:

5 Interesting Learnings from SurveyMonkey. As It Crosses $300m in ARR.

What I think is even more important is how material price increases make your customers … look.  Look at other solutions.  And even if they don’t switch now, if they see something they like, you’ve just planted a seed.  You’ve sent them on a fact-finding mission to talk to your competitors.  When if they are even reasonably happy, they might not even have looked.

Your sales team won’t care about this, so long as they get the extra revenue from the price increase now.  Your account management team may not care either.  They may even be incented to put up prices on existing customers.  Your customer success team may care, if they are focused on logo retention.  But you might not even realize the full effects here.  As founders, you have to drive the right behavior here.

I remember the first time I experienced this at EchoSign.  We had a very early enterprise customer paying us only $10k a year.  We send him a renewal bill for $60k.  He immediately emailed me and said he was doing a demo with the competition that afternoon.

Now at Team SaaStr, as buyers, we do this a lot ourselves.  We buy a lot of non-recurring services for SaaStr Annual in particular.  Software vendors, A/V vendors, event management vendors.  And each year, as we grow and grow, some of these vendors just send us a bill for next year that is 50% or so higher.  Just because they see our growth, and they decide to unilaterally just raise prices.

We don’t pay it.  Instead, when we get a material, unilateral price increase, we immediately shop it.  We sort of have to, because the budget is so tight for Annual, Europa and Scale.  And for us, I’d say 40% of the time, we switch vendors.  The rest of the time, we end up with a headache pricing negotiation that takes weeks or even months and damages the vendor’s relationship with us.  They fall off the trusted partner list.  And we end up at the same, or lower, pricing than the year before.  So the vendor gets no benefit at all.

Is that what you want?

5 Reasons Not To Raise Prices on Existing Customers. And 2 Better Ways to Do It Anyway.

 

 

Published on May 29, 2019

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