Thoughts on startup marketing, software, and technology

How A 400% Price Hike Actually Led to More Business

Published July 23, 2014 - 0 Comments
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One the biggest mistakes I made in the beginning with TribeBoost was with pricing.

I priced the service much too cheaply. Not just slightly either…but ridiculously so.

It was so cheap that we were losing money on every client.

That is right, not just some of them, but all of them!

Looking back on it, the good news is that we learned a ton from every customer along the way.

Thankfully I came to my senses eventually and raised prices to a level where we were not working for free.

Why do we do this to ourselves?

For me there were a few challenges.

We were the first company in the world offering Twitter audience growth management as a service (at least as far as I ever could tell).

I had no direct model to look at for pricing ideas.

But really that is just an excuse. It was mostly due to a lack of confidence.

I did not have faith that people would pay any more than the ridiculously low original monthly fee.

I sold myself short.

Are you doing this to yourself right now?

This is something we all struggle with. I am convinced that even “successful” entrepreneurs struggle with it from time to time.

This is a hurdle you need to jump before achieving success with your new business.

You need to get to a point where you feel comfortable asking for money and asking for what you are worth — and not just the bare minimum.

Raising Your Price

I had to get over my fears to do this and it was a real struggle.

After some heavy thought and reflection on the value we were providing with TribeBoost, considering our server expenses, our labor costs, etc. — it was crystal clear that a drastic increase was in order.

We raised our rates by 400%!

In the back of my mind I wondered if this was too drastic and maybe even reckless.

I was worried that new client signups would dry up (and almost expected it).

But I also realized that our price had to drastically go up to be profitable and sustainable. In knowing that, I was able to muster up the courage to go forward and stick with the new price.

Sink or Swim Time

To my amazement our first month actually had a 50% increase in new clients!

The next month held steady, as did the one after that.

Our 400% price increase had no negative impact on our new customer growth and actually increased business.

This to say the least was not what I was expecting.

A Year Later — Another Price increase

With the results we provide for our clients (and all of the time and effort we put in to produce those results) — it was clear that the old price was just not fair anymore.

This time only a slight change was in order. But I was as nervous as when upping the price by 400% .

We raised the flat rate monthly fee of TribeBoost from $99.95 per month to $119 per month.

I know psychologically being under $100 is probably pretty huge and $99.95 just has a nice not too expensive feel to it.

Part of me wanted not to mess with the pricing and just keep it as is. We were growing at a very heavy rate and with an amazing consistency.

Why rock the boat?

Again I thought in the back of my head, “That is it, you will get no new sales. You had a good thing going and you just killed it!”

But once again the price change did not scare away customers. Our rate of new signups is just about the same as it was before.

But one thing did change.

Our conversation rate went up.

The percentage of our new clients that stay on past the free trial period (and thus become paying customers) went up…and went up significantly.

For the prior 3 months our conversion rate from trial to paid customer was:

  • 59%
  • 50%
  • 51%

After this most recent price hike:

  • 59%
  • 77%
  • 65%

The next month is nearly completed and right now we are at 70% retention. So this trend is still holding true.

How is this possible?

My theory is that the quality of clients goes up as you increase your price. Those that are not passionate about your mission will stay on the other side of the fence.

When you increase your prices, the clients that are not certain about the need or value of your service are more likely to view it as “too expensive.”

Those that value what you do and appreciate your mission are not driven by price. As long as your pricing is fair, they are going to jump over the fence to come onboard.

Higher Prices = Higher Quality Clients

Working with new clients the past few months has been better too. They are more engaged, more enthusiastic, and are just more fun and easy to work with.

I am also seeing more new customers upsell to extra accounts and doing it more often and more quickly in the relationship.

Lessons Learned

1. Don’t sell yourself too short. Sure you want to provide your clients a great deal. You always should provide more value than you are charging, but try to find a fair balance.

2. As your service or product gets better and more valuable — increase your pricing. This is always a nerve-wracking process. Just try not to panic and remember that you are providing a great service and bust your tail for your clients.

3. At the end of the day…it is the results that your clients care about. Make a difference for them, help them achieve their goals and succeed. If you do this, most clients are going to happily pay you and pay you handsomely.