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?
Good Evening Jacob
I could provide a more accurate response to your questions if more details surrounding your current products and services were available.
In general one of tge best ways to increase service and product pricing is to add value. Identify additional pain points the customer may have through surveys or feedback forms. Increase your service feature or offering surrounding the solution...without adding much more effort to the service.
Hoping all the best for you.
There are two methods - if you have a small group of customers to whom you are offering your services then speak to them individually and tell them that you are going to be raising your price to keep in line with the increased costs. However before you do that, ensure that you have a plan B ready. A plan B usually involves a tiered approach for services - unlimited vs limited hours. Study how many hours you spend and create a package around that. If your service has lots of customers, keep your initial customers at the same old price since they helped you launch, and increase the price to the new customers- however communicate the same to your existing customers- they will feel happy at the special pricing. Also, ensure your new pricing is better than your old pricing keeping in mind all factors. Usually services pricing remain constant for a year and then increase by about 10% or by the rate of inflation.
Hope this helps.
This is a common scenario Jacob, one that when well-handled can be a great boost to your business. So start by looking at this question from a more constructive point of view.
How can I attract additional clients and increase my existing customer’s loyalty by raising prices?
Work through this concept methodically and develop a plan that is easy to introduce as an additional benefit to the clients that originally proved invaluable to your start up.
1- Look into your client’s alternatives; what are their options if they were to leave you? Which of your competitors would be in the best position to shanghai your customers with a better offer?
2- Are there any clients (there usually are one or two) that you would like to see the back of? A price hike can be effective a means of culling high maintenance (non- profitable) customers that will only ever be a drain on your finite resources.
3- Review your financial projections and pricing to determine the lowest possible price structure that will cover you current and projected operating costs. Then add a workable margin to support ongoing expansion, this will be you base price not your published “list” price.
4- Compare this new base pricing model with your competitors best pricing. If you don’t know exactly what they are do some overdue comparative research and find out before you announce anything. Your new base pricing must not make the alternatives more attractive than staying with you.
5- Now inflate and set a retail/list price that will allow you to offer a significant and attractive discount (should be at least 25%, up to 50% at best), that reduces it to the original introductory price offered when you started the business (the low rate your existing customers are on).
6- Now you will have establishes a competitive “list” price and a discount structure that permits your current (foundation) clients to be offered exactly what they are accustomed to paying.
7- Let your current valued clients know that their patronage during your establishment phase is both recognised and appreciated. Now as your growing enterprise prepares to offer them even better and/or enhanced services they will be rewarded for their ongoing loyalty. They qualify for an exclusive “Foundation Client Discount” (as in 5 above), for renewing their contract for a further 6 or 12 months. This permits you to raise your pricing, and not actually make them pay any extra for an initial period. Good news, some special treatment and no reason to shop around!
8- Link this “Foundation Client” advantage to a loyalty referral program that will allow them to maintain their adventitious Foundation Client rates providing they refer two or more new customers during each contract period. New clients referred by a Foundation Client also receive something equivalent to about half the Foundation client’s discount rate, a price that is at least equal to your new base price.
9- Now you can gradually increase your list price over time (annually, quarterly or at contract renewal), whilst maintaining discount percentages (not net prices).
You can raise prices while making packages more attractive if you're a monopoly. If you differentiate your product or service enough, you can try raising prices. But if there are a couple of competitors they'll eat your market share.
Locally we now have competition from IP TV and Sat TV. When the IP TV catches on, Sat TV will be in trouble because IP TV comes with fiber internet as well. Good luck to you!
I think can help you there but, as you know, there are so many variables to be covered to create the correct picture of your business in the market. Are your packages a "gift that keep on giving" or a "one time shot" and you depend on volume? Who is your competition? Are you first into the market or third? Can you depend on your data? How variable are your costs? Does your product create user loyalty? The list can go on...
You know your business. If your product and service is high, then there should be no issues for necessary or reasonable increases.
Good communication with current clients is essential. Surprises sometimes arent favorable when raising prices.
Whoever said "Profit is bad", they are crazy, who ever said "Build a business's volume with lower pricing and the profit will come" is crazy also. I know some companies that were afraid to increase their pricing because of loyalty and the fear of losing the customer. One in particular had so many customers that he lost money servicing because he didn't want to loss the sales volume he built. Sales volume without profit to keep loyal customers is an easy death which happened to his company.
The bottom line is you need to do what you have to. Provided you are efficient in your operating of a business.
I wish yo the best of success, Gil
I have had this same issue due to rising costs of applications that we were using for our business. I simply let my existing clients know that due to rising costs on our end, we needed to raise prices. That being said, I would offer them something as a thank you such as an extra month or two or some other service. New clients of course would pay a higher price but you want to be sure your existing clients feel valued and appreciated. Most will understand that you need to cover your costs. I assume there was no agreement that locked in their price for a certain amount of time? Hope this helps.
From my point of view, your current customers are your guarantee for the future. I would not raise prices for them, you should even work on the customer loyalty.
1. For new clients I would indeed increase the average price of the package, by rising the price of each single service/good, on which I would apply a discount by unit, the more the customer buys.
Today : 100 for a package (5 units of service, 20 for 1 unit)
Tomorrow : 30 for 1 unit, 26 for the second, 23 for the third, 20 for the fourfth, 18 for the fifth, if of course the previous one is bought. Total is 117. This allows you to raise your margin by unit sold.
2. Try to sell new services/products to your existing customers, you don't have to produce/design it yourself, you can make a partnership with another company and get a commission
3. Sell/package/market ! Find simple, transparent, powerful arguments why you products are the best and diserve their price. No need to invest a lot of money though
It depends - your existing customers? Is there a big price difference between what they purchased and what you want to raise things to? If so, I would do a special price for your existing - raise it but not all the way - in another words - let them know what is happening and why -
Then I would make them feel special - because you are our long standing clients, because you believed in us when we started our business, (however you want to word it) you can explain that they will have a slight increase - make them feel that they are still getting a good deal - then explain that as of a certain date the new package pricing and custom pricing costs will take effect. (but it won't include them as they are your long standing customers)
I am just shooting from the hip here - but I think you get the picture - if you have a significant price increase and you increase your long standing clients to the new price range - you will loose some - but if the increase is half of what you are charging others - they will feel that they are still getting a deal and stay with you.
It is about loyalty - when I raised my rates by $5 an hour - I didn't loose anyone - I gave them two months notice and explained why - and this was the first raise that I had done - it worked fine - but I do know if I would have raised my rates more - I would have lost them - but for the new clients coming on board - they had the rate of $15 per hour higher then what I was charging - the new ones didn't know the difference -
THREE CONCERNS IN RESPONSE TO YOUR QUESTION: When you talk of making your price 'more expensive' it implies the very definition of expensive: ( the new price is beyond a prospective buyer's means.) When you speak of custom (made or done to order for a particular customer.pricing,) It implies you have been over charging them and plan to just do it in a different way. YOU ASK: "Should I only raise prices to new customers, or can I raise them on my existing customers?" The entire inquiry seems self serving to me. Perhaps you should set a time frame. Announce that until now, the fees you have been charging are no longer sufficient to cover the investment you have been making. Effective, July 1, 2016, the pricing and its structure will be changing to ensure they continue to get the best value for a reasonable cost.. In the meantime, ask them to provide you with insight and recommendations based on there experience with your organisation. You get my drift. I wish you well...
Dealing with pricing as a startup is always challenging and one of the most important activities.
Here are some tips I've learned over the years:
1) You actually want to raise your prices enough so that you are losing some customers. If you raise your price and keep all of your customers you are still too low. In fact, I remember with one business we did some analysis and found that with one inexpensive package we were loosing a lot of money so we raised the price by 400% and expected that we were going to lose 90% of those customers... which was actually great because we were losing money on all those customers.
2) Keep your pricing simple. If you start putting a lot of different packages together it quickly becomes a) unmanageable on your part and b) hard to understand from your customers point of view.
3) Sometimes business focus too much on lost customers and ignore their existing and most profitable customers are. Identify who your most profitable customers and model your pricing after them.
4) Conversely, and an extension of point one, find your unprofitable customers and fire them. This last point is very hard for entrepreneurs as you want to make all your customers happy, however, once you start the habit of clearing out the dead weight it will enable you to focus more on profitable customers.
Most existing customers will accept a small price increase, if they value your service and you explain the reasons. Bigger increases can probably be made with new customers.
If you increase your prices and are still competitive, keep going. You do not set prices - your customers do! They will never to pay more, but if they are really happy with the value, won't protest.
But there is another way to raise revenue - additional products and services. Maybe you increase the range of packages you can provide, or start offering other services as well, which can be ongoing or one-off.
How do you do this?
Analyse your customers and think about what else they need that you can provide (or JV with someone else). They already like doing business with you, so you're in pole position.
For example, Amazon didn't stop at books, because they realised that their competitive advantage was in distribution.
By all means raise your prices, or cut costs if you can (but don't over do it). But the biggest gains will come from additional revenue sources.
There are 3 areas of focus in business: Price (value), Service and Quality. You can excel at any 2 but not all 3. If price was the only reason they went with you then you may have a problem. However, if you have increased or improved your service or quality then attaching a price increase is not such a problem. However, if you are going to increase your price (your benefit) but not improve on quality or service, then your customers may feel you are just ripping them off. Increase their benefit with yours and they will not leave you.
You don't say what is the service, so it's hard to speculate. I've been in the consulting business my entire career, and what I learned is each time I raised my fees I engaged a better class of client, i.e., bigger clients who are not afraid to spend money.
If you are providing excellent service, are in front of your customers always (so they know you) and have a good relationship, you shouldn't have an issues raising your rates. And if you do, either you did not meet one of these criterium or you would lose them anyway.
And don't apologize for raising fees - it's a cost of business.
When I was raising the rent on my units, I sent out a letter saying the increase was going to go into effect in 3 mos, giving them ample time to get used to the idea or make other arrangements. My renters appreciated me giving them advanced notice and an opportunity to make other arrangements if they wanted to leave.
Certainly offer the new pricing to the new customers.
If your packages are on a subscription (continuous revenue payment), then it's best to wait until your current customers have expired their current contract before changing any prices on them. If your subscription-based pricing doesn't have an "expiration date" - and you want to increase your current client's payment - best give them some type of a "grandfather-in period" (a period for them to get used to the idea of paying more). For instance - announce your new features and plans for increased pricing to your current clients (via personal phone call). Assure them that you value their business and as a token of their loyal business, you would like to extend their original price for another 6 months (or how ever long you wish). Then set a meeting at 5-6 months out to see how they want to proceed: a) continue at their original price with less features or b) be billed at the new price with all the features. If budget is a concern with your current clients, this allows your current clients to keep on their budget using your custom-package method.
You can also use this opportunity to ask them for referrals. If their friends also purchase your products by a time-limit, they can also get in on the original pricing (for a limited time). Promote the savings their friends will gain by joining/purchasing today.
I would also consider a larger compaign announcing your plan to raise your rates in order entice a few more people to sign up at the lower price. Implement an expiration-date strategy in the future, that makes people aware that the price will go back to the normal rate after XX date.
Without reading some of the other comments, I think it is important that you realize that you don't set prices, the market does. You can pick a marketing strategy, do you offer more for more or less for less. Your pricing has to align with your strategy, if you are offering a better product or service than your competitors then you can absolutely raise the price. This is your value proposition. But if you are offering the same product or service then they can get anywhere else then raising your price will be devastating. The point I am trying to make is you don't raise your prices because of your cost structure, you set your price to the market and your value proposition.
Hey Jacob. You've gotten great answers. You're raising prices because you have to, I presume, based on the goals you have for your business and/or your personal standard of living.
1. Communicate these changes and the value received through the services
2. Listen and Gauge their responses to your communication so that you can tweak and adjust the communication in step 1.
3. Tier your services- hard to do. But maybe find a way to deliver a fraction of the same service at the previous price just so that you're effectively getting paid the same amount based on reduced inputs. If they want the premium service, they can pay more.
Long time customers when presented with the value and results of your services will respond well especially when they see that they are still paying competitive prices to your company.
Show them value. Send a mass email with their next invoice. Show them the benefits. Explain why costs increase and what it will bring them in return.
People who leave will shop around and many will return if they were happy with your service only after seeing that service from someone else doesn't match the quality or value of yours.
We raised prices on customers of 5 years just a little and doubled our base price on new customers. We told our old customers that we were only raising their prices a little because we appreciate their loyalty but still need to cover our expenses. We also showed them our Publicly available pricing page on our website so they could see that they are getting a true discount on our service(s).
If you posed it properly when you started "These prices are for a limited time only." Then you have all the rights to raise the prices. If not you have two choices: 1) Give the current customers the current prices with a special code per customer and tell them that it is for a limited time. 2) Raise them for everyone and expect some backlash. But you can't, either way, continue to loose money. people don't like change and that is just part of human behavior.