How can I raise prices on my existing customers without losing them?
We launched our startup initially with all inclusive one-price packages for our services. As we grow, our operating costs can no longer be covered with the current prices we have set. I want to make our packages more expensive, and then offer custom pricing for customers that might not need everything we offer in our packages. Should I only raise prices to new customers, or can I raise them on my existing customers?
The Business.com team recently published a guide to How to Set a Price for Your Service that can help answer your question.
I agree with others that if you have to raise prices on your existing customers, be honest with them as to why. For example, has the cost of materials increased and you don't want to compromise the quality of your product/service by using different materials? Share that fact with your customers. They will appreciate that you aren't jeopardizing the quality of your product/service to make more profit.
Also, make sure to research your competitor's pricing before setting a price and notifying existing customers. You can use competitor's prices as a benchmark to set your prices and avoid having to change your prices again if customers can find the same quality product/service at a lesser cost.
The guide above advises you to price higher than you think you should. What this means is don't' sell yourself short or be afraid to ask for what you deserve. Hope this helps!
A better way might be to raise prices on new customers first. Then when the new customers are firmly established then you could turn to your existing customers.
Announce the increase in value and fee at the same time.
Rosanna, sorry for the late response. It hard to be too specific without getting into details regarding the specific product, but I can give a bit more detail of what I am referring to. First thing is to do the market research, knowing your competitors, and be honest about where you stand relative to your competitors. does your competitor provide a more limited scope of services than you do? Do you have some endorsements from highly respected clients or industry associations that speak to the quality of work that you have done? Has your service stood the test of time - in other words, have you done work 10, 20 years ago where your recommendations have been proven right, and the customer has seen the on-going benefits? All of these things mean that over time, the customer will benefit by ensuring that their customers are more satisfied, or that their costs over time are lower. In my case, I have a few times managed to save my customers more money upfront through my recommendations and negotiations with their service providers than my services cost. I have provided services in these fields for decades and have a track record that I can point to and have a wider scope of expertise, this can help to ensure that things do not fall through the cracks as might happen if you need to engage a number of different consultants for different aspects of the project.
Well I take that you have a load of answers already to help you raise your products prices up. So the least I could do is to tell you not to worry on making such move the market can take it. Offer another feature and another value to the existing package for your existing users justifying the new rates while make it as one of the feature for the you package for new members w/ the new price, its better to have something to offer for increasing a price than increasing it w/o offering nothing at all.
Raising your products prices higher is a detrimental factor indeed as what one of the 4Ps of marketing often tells us but that will not always be the case, say Apple for instance, selling a computer may come as a cheap price but selling the things they can do w/ it, it helps them reach their goals and achieve their dreams is as expensive as any other luxury products in the market and that is LIMITLESS, Its all about setting up a tone and giving a strong value that influence your targeted audience behavior. Well I hope that helps!
with increased prices increase services you offer to your client in a bundle
Wow thank you for all the advice. You have contributed to helping me solve a sensitive subject to most customers- pricing. I look forward to reviewing this more.
An overall minor price increase that is announced with a brief but specific reason to your existing customers, and include a statement that affirms your appreciation for their loyalty, BEFORE you apply the change is best and helps retain them, as they see it as good faith. If you see opportunity to vary your pricing model and change previous packages or set collective rates, the timing would be best for one inclusive change. Maybe your best selling services adjust only slightly, other value-added services with less demand remain as is, this might actually help attract more use by it staying at the same present rate - market that.
Great question, Jacob for you and others. So many concepts and strategies. Pricing is just one of the variables in the nine P's of marketing. People or as you explain your "existing" customers is another.
Pricing is tricky. Both in the short-term and in the long-term. Add that you're a start-up and it becomes trickier. Actually your customers and the marketplace will set prices.
In my MBA classes if we boil down everything into two major points: you need to increase revenue and control costs.
Your product, product improvements, sales force and employees play huge parts in any price increase. As Management guru Peter F. Drucker once said: “The aim of Marketing is to know and understand the customer so well that the product or service fits him (her/it) and sells itself. Price is important in this equation. And this is one of the reasons I created the Nine (9) P's of marketing. “People” or Targeting was slightly forgotten in the Marketing Mix, and is a major, significant part of the Nine P’s of Marketing.
Companies do not get potential users or customers to try a product by convincing them to love their brand. You get them to love a brand by convincing them to try and use (continue to use/repeat sales) the product or service.
Developing a strong brand is a byproduct. It comes by executing and doing the elements/parts/things/variables/ingredients/components in the Nine P’s of Marketing... right. Make sure the Product or Service is excellent. Research and Planning excellent.
Be sure your company is taking good care of your customers (People), and having the right Planning and targeting (People), the right Product or Service, right Place or distribution, right Price (here it is again), right Promotion, right Partners, and the right Presentation, with the right amount of Passion in the 9P’s of Marketing. Here to help. All the best.
Definitely start by raising only to new customers. I would say use this as long as possible. In time, there may be a turn over. If you also need to raise to current clients, do so only after one year. The longer the customer, the less likely they are to leave as a result of the price increase. Raising the price to a relatively new customer will make you look like a bait-and- -switch artist.
Before you consider raising your prices, have you made every effort to streamline what you do? Is there a smarter more economical way to do what you are doing? And if you determine that you are as proficient in your operations as you can be, then turn to raising your prices to new customers first, then if there are any activities that you have added to your service since the original customers had come aboard, then properly address the additional activities as the reason for your increases, but space it out over time in % increases. Ex. If you have to raise each customer $2.00, announce a $1.00 increase immediately, two months a $.50 and in another two months $.50. Most customers have enough common sense to understand that increases incur, but I warn you, if you increase prices, raise it enough to cover your operations for at least one to two years. You do not want to come back short term looking for another increase!
In my opinion, if you need to raise your pricing, I would suggest changing the original menu, adding more benefits, and sending out a notice that there is a new package that will be offered. If your existing clients are happy with you, most likely they will be willing to pay a little more for a better package. Also, I think the customized packages is a great idea, that way each client can pay for only what they really need.
The problem with raising prices is that most don't raise the "perceived value" with their customers. They think you are trying to just make more money with existing value. So the simple message is...create more value and you can raise prices. Easier said than done in most cases.
Here's another alternative to consider...and it works famously in today's market. Find new ways to save them TIME. Time is the most valuable asset people have today...we feel we have less of it and are bombarded by tons of noise to take it away from us. Give it back to your audience. How? That's where you come in with added value.
Offer them better information, more content to help them do their job better, improve their life, and a host of other ideas that will eventually save them TIME. Do this and they will be happy to pay you more...in fact most will think you are undercharging and be more than willing to pay more for your services.
Hope this helps...
Add minor services. I would make them optional. Your early adopters are your cheerleaders. If you cannot identify new client opportunities, you haven't made a sacalable, repeatable business.
You have to add a service or something to add value to the package so a customer only see the better not the more expensive
This is a time where you need good number modeling skills to go along with sales skills. I agree with the comment where the new customers are a no-brainer. Run the numbers on existing customers. You can make some assumptions that with price increases you will have points where you lose customers but that doesn't mean pricing increases don't still make sense. You can re-package things and highlight what your customers say are high value items (with you prioritizing high value/low cost). Everyone who hears an honest, "we can't continue with our start up pricing because we won't be in business so we've got to increase X %). From there understand emotions, 3% - reasonable, 5% - explain, 10% - sweat it. You only have 2 variables, how much and how many and if your business depends on both you need strong strategy skills and good communication to build the former and grow the later.
Jacob, Price increases are a fact of life. Like taxes, they always go up.
Some companies have a pricing policy from which they will automaticly send out notices every 6 mths with small % increase. Others do it once a year, but it has a bigger impact.
DO NOT Shy away from price increases. You have already outlined the reason for the increase. Power, rent, transport costs, materials and wages all go up.
You can apologize for the inconvenience, but not the fact that you have to ask for more.
Work out your strategy, Provide for at least 1 months notice, state that it relates only to new orders, that way your customers are not having to go down the chain asking for more.
Identify your customers who are not using the full package, contact them with a more tailored made package.
Do not custom each client, but have a standard reduced package.
If from your client history you can see that maybe you can provide 2 -3 levels then develop that.
1) Basic introduction package.
2) Standard Package
3) Professional Package - What you are currently doing.
Make sure you cost each one and that with each level you include something that will really provide value added product and pricing.
Do the same for each package. This way the client can see the value of the upgrade to your highest package which is what you are currently doing.
This way if they want to move along your scale, they are still deciding on your product / service.
I hope this is helpful to you.
One way, may be to offer your existing customers the choice when their contract comes up for renewal. They can stay on their current plan or pick from your new options. From your question your operational cost will determine if this is viable or not. From a customer experience point of view it will show you value them.
Hi everyone, always a difficult situation...I think for me as customer experience practitioner your clients must see the value that you provide in your service. My experience has shown that most customers are willing to pay more for a quality service that is reliable and consistent.
Hi Jacob, that's an interesting question and one that entrepreneurs agonise over. The reality is entrepreneurs are too timid to put their hand out and ask to be paid a fair amount for their services. If your fees are too low you will go out of business. Similarly, if your fees are too high you also will go out of business. It therefore is a fine balance and you need to listen to the feedback from the market to determine the appropriate fee level. To achieve that feedback I have two suggestions for you to consider.
1. A good consulting friend of mine sets his fees based on the "Blink test". Put simply, if they blink when you state your fee you have set it at the correct level. If they don't blink you are giving your services away too cheaply.
2. I reset all client fees annually and when I raise the fees to the new level I expect to loose about 10% of my client base. If I loose less, my fees are too low. If I loose more, my fees are too high. Now in setting the new fee, I test the higher fee on clients I win throughout the year, between fee resets. If my fee is too high I my conversion rate drops. If my fee is too low I have a 100% conversion rate. While fees should not be an issue I look for an 80%-90% conversion rate.
In regards to charging differential fees. Yes, provided you offer different services.