In this article, I share an anecdote about customer dissatisfaction with SaaS price increases. I will explain how to measure price thresholds and offer 5 tips for increasing your prices without losing customers.
In a period as budgetarily complicated as the current one, the last thing you want to do is get noticed by your customers for the wrong reasons. SaaS providers have every interest in not increasing their pricing to avoid awakening their customers’ need to save money. In this article, I will give you 5 tips to avoid incurring the wrath of your customers if you must raise your prices.
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My story is anecdotal but reveals the relationship between SaaS providers and their customers. I use SnapEngage as my online chat solution. A few days before renewal I received an invoice for double what I had paid for the past 8 years. After sharing my astonishment with customer service, the answer came back: “We’ve raised our prices.”
Raising prices without, at the very least, warning your customers also exposes you to customer anger. It is a source of frustration that will lead the customer to rethink their relationship with you. And that is exactly what happened.
SnapEngage’s response to my complaint. The doubling of the price was not a mistake (but they had not warned me).
I am not saying that a SaaS publisher cannot raise its prices. If they do, they need to take precautions. That is what I am talking about in this article.
A price increase is a source of dissatisfaction
Whatever your sector of activity, you need to understand that a price increase is a source of dissatisfaction for your most loyal customers. Yet it is they who are the foundation of your profitability. Any action must, therefore, be carefully considered.
Too sudden an increase can provoke violent reactions and lead to churning. On the other hand, no increase at all can upset your financial equilibrium.
So, it is essential to understand
- the price thresholds you must not exceed
- the techniques you need to use to get your customers to accept price increases
These two subjects are covered in the following paragraphs.
Analysis of pricing thresholds conducted as part of market research for a SaaS product
Identifying resistance thresholds
Market research using Van Westendorp’s method can be used to identify pricing resistance thresholds (see example above). It is a straightforward way of determining how much people are willing to pay for a product or service. Four questions are asked:
- At what price does it seem too expensive?
- At what price does it seem expensive but acceptable?
- At what price does it seem cheap but of superior quality?
- At what price does it seem too cheap to be of decent quality?
These answers help us find an ideal price range. We have successfully applied this method to SaaS market research.
Contact IntoTheMinds to find out more about pricing research
Practical tips for increasing the price of your SaaS
Most SaaS products are purchased on a subscription basis. It’s a highly effective business model, provided you’re happy with it and know how to make yourself forgotten. Price increases are inevitable. Here are a few ways to reduce the risk of losing your customers.
Be transparent
Rule n°1 is to be transparent. Under no circumstances should you increase your rates without first informing your customers. Do so sufficiently in advance to allow them to find an alternative. In my case, nothing was done by SnapEngage, so I did not have time to replace it before the end of the subscription period. I felt trapped.
Communicate a monthly increase
If you have no choice but to increase your prices for all your customers, communicate an increase that seems as small as possible. Preferably use a monthly basis, announcing “an increase of x€ per month to allow …”. You can also communicate a percentage increase if this is more favorable for you.
Create transition plans
Following the previous tips, you must anticipate changes and allow customers to switch suppliers. Proposing a transition plan can take 2 forms:
- “Grandfathering”: allowing customers to keep their tariff before applying an increase at a given time (1 year, for example).
- Loyalty: offer to keep the same rate if the customer commits to a longer period and pays all at once. This plan should be favored near the end of the fiscal year when companies are looking to “break even” to reduce their tax base.
Create a legacy product for long-standing customers
For your longest-standing customers, create a specific (“legacy”) product whose functionalities will not be improved. You may lose some customers, but most will stay because they do not need to use all the features of your solution.
Limit features compared to other price plans
You can also limit the features that cost you the most while keeping the price fixed. This way, it is up to the customer to decide. Either way, you win. Either the customer pays more, and you deliver more features, or he does not want them, but your costs are reduced.
