why and how to raise B2B SaaS prices

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By Kirk Averett

When we systematically raised prices for the first time in more than ten years, it was a little traumatic. Our teams were very concerned about customer reactions. We fretted we would cause churn among our loyal customers and lose the potential benefits. While our previous experiences with narrowly-targeted increases had gone reasonably well, this felt different. After much preparation and careful execution, we rolled out new prices. We experienced a small increase in churn and a temporary dip in NPS.

We fretted we would cause churn...

Price changes create strong emotional reactions. When we are the consumer, we are seldom happy about a price increase. Some businesses seem to relish jacking prices up relentlessly. When operating a SaaS for SMBs, it can often feel easy to test different prices for new customers, but tricky with your existing customer base. Many SaaS businesses avoid changing install base prices altogether. But there are a few reasons why it may be necessary or desirable.

First, some SaaS costs naturally rise over time. Things like data storage, compute power, and licenses for 3rd party tools generally increase. Salaries and benefits need to grow to stay competitive. It is possible to knock some of these costs down, but usually only with significant projects. If new revenue growth is slower than expense growth, future cash problems are inevitable.

If new revenue growth is slower than expense growth, future cash problems are inevitable.

Second, thorough price testing over time can leave behind a mess of dozens of pricing plans. These are difficult for customer service teams to support, increase billing complexity, and generate customer confusion.

Third, as a SaaS business matures, it is common to recognize that some customer segments are unprofitable. You are paying them to be your customer!

Raising prices is difficult but doable. There are two parts: the new pricing and the rollout plan.

Raising prices is difficult but doable.

In some cases, new pricing might be as simple as establishing a new minimum spend level for your customers. The lowest revenue customers are the most likely to have the worst profit profile. Raising the minimum price can simultaneously increase your revenue while decreasing your expenses as some unprofitable customers churn away.

In other cases, you may have to establish a new price minimum for your largest customers. This change will only be feasible if they do not have a viable alternative or have high switching costs.

Creating a full new pricing table generally starts with a clear view of the product P&L, the distribution of current customers inside pricing plans, and your vision of a future state. After a new pricing table is defined, the hard part begins.

Communication is critical.

Communication during any change is critical. Because of the emotions involved with pricing changes, the stakes are higher. Internal teams need to know the what, why, when, and how of the change well in advance. Customer service, account management, and sales teams will be the front lines of explaining the difference to your customers and prospects. Equip them to be strong ambassadors.

Do everything possible to show the value associated with the price change. What features and capabilities have improved since the last time the price changed? How has customer service expanded or deepened? What future capabilities will the new price permit?

Lastly, if you have a large number of customers, consider segmenting your customers in some fashion and rolling out the change to one or two segments at a time. By breaking the increase into smaller pieces, you reduce the load on customer service teams and give yourself time to learn and adjust before changing prices for later groups of customers.