Answer by Jason M Lemkin, ceo & co-founder of the web’s #1 electronic signature service, www.echosign.com, acquired by Adobe, with over 1.1 million customers and 18m users including Facebook, Google, Dell, Twitter, Oracle, Groupon, Nasdaq, NYSE, Dow Jones, S&P, American Express, Yelp, Time Warner Cable, BT, GE, Citrix, LivingSocial, Pandora, and thousands more. Also served as VP, Web Biz Svcs at Adobe and grew business to $50m+ ARR at 11/30/12, projected to be $100m+ in 2013.
Two thoughts, one direct and one indirect.
First, let me tell you in my experience at least, raising prices on customers often angers them. It’s OK to do it indirectly, by adding more seats / users — no problem. Or upgrading to a site license. But just asking someone paying $10k a year to pay $20k the next year for the same product = anger. In my experience at least. You turn your advocates into prisoners. Don’t do that. You’ll lose all the second-order revenues and elective upgrade opportunities. Not worth it.
In my experience at least, the best technical way to raise prices for existing customers without too much friction is to add new editions.
Create a bundle of new features (not old ones) and charge more for that going forward. This doesn’t anger existing customers and provides a graceful way to raise prices over time. We did this in the early days as we moved our list price per seat from $12/mo to $36/mo or more over time by adding enterprise editions. It worked fine. The early folks that paid $12 or less for the most basic edition … still do to this day.
Far more importantly: I think at some level, raising prices on past customers can be a borderline waste of time if you are still in high growth mode. Save the raises for new customers as of Date X.
Why? Let’s say you are growing 100% a year, net of churn. That’s probably 120% before churn. Those old customers from 1 or 2 years ago? They just don’t make up that much of your customer base anymore. You can’t make as much money raising their prices, over time, as you think. The $12/month customers I referenced above? I bet they are 0.1% of our revenue base today …
Rather than raise their prices 10-20-30% and risk their ire … better IMHO to just consider drawing a line in the sand and raise prices for new customers, as of tomorrow. Grandfather in the old ones if you can.
And do raise prices for your new customers, once you are post-Traction and certainly post-Scale.
Unless you are selling salt, or paper … your product probably isn’t really a commodity. After 1, 2, 3 years … your SaaS service is probably a lot better and more valuable product than when you started. So don’t be afraid to raise prices on new customers, over time. You’ve got the mini-brand, the reference customers, the enterprise features. Just be careful on existing ones.
You want to do this:
And not confuse it with this:
How do you increase the price of a SaaS product without angering customers? – Click To Tweet
This question originally appeared on Quora.
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