rising prices ahead

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How your startup can raise prices without pissing off your customers

It goes without saying, especially for startups, that you need to engage your customers. Like, really, actually engage them, especially when it comes to things like customer support, technical glitches, billing issues, and so on.

Thing is though, this sort of engagement is passive and reactive. If you really want to one-up your competition, go one step further: be proactive, be preventative, and include them in your startup’s most crucial decision-making moments. Like raising prices.

Here’s how to do it. And why.

Suppose you’ve got a startup with two payment tiers: free, and $10 per month. But soon you realize that not only are you worth more than $10 per month, but you need to charge more to cover your costs; say $15 per month. It may not sound like much — after all it’s still just fifty cents per day, right? — but obviously it still amounts to a staggering 50% increase. And that’s not a small change.

Even so, price changes are not an unusual thing; companies change prices for their products and services all the time. Just the other day, for instance, I received my eleventy billionth price bump in the past several years for my 24 Hour Fitness membership. Technically, I’m supposed to be locked in at a so-called “legacy” or grandfathered price point since I’ve been a member since the early 2000s, and to be fair, at about $24 per month it’s still a great deal. But it’s been slowly inching up, without warning, and certainly without any open discussion about, you know, whether I’m actually okay with this inexorably increasing price.

Thing is though, it’s easy for a large, established company like 24 Hour Fitness to get away with such things. For a small, young, and unestablished startup? Not so much. So what to do, then?

So there’s two ways this could play out: (1) you unilaterally decide to execute the price change, and simply notify your customers by email ex post facto; or (2) you decide to open a dialogue with your customers and ask them whether they’re ok with this change.

Option One is what most startups do, for a few obvious reasons: first, if you feel you need to raise prices, then what’s the point in discussing the matter; and second, it’s hugely impractical to email all your customers, even if it’s only a few hundred — let alone a few thousand, or more. Besides, have you seriously ever heard of a company emailing its customers asking permission to increase prices? You might as well as Cookie Monster whether you can take away some of his cookies.

cookie monster

SOURCE: Sesame Street

Option Two, meanwhile, is what most startups do not do, for a few equally obvious reasons: first, if you feel you need to raise prices, then asking your customers whether they’re okay with the increase is just plain pointless at best, and stupid at worst, since they’ll certainly never agree to pay more if given the chance; and second, it’s hugely impractical to email all your customers, even if it’s only a few hundred — let alone a few thousand, or more (this sort of discussion cannot be an automated, scripted email).

So what’s the best course of action? If you go with Option One, congratulations, you’re not totally nuts. Unfortunately however, you would be totally wrong.

Raising prices on your customers — especially by 50% — is a brutally delicate thing to pull off; and chances are, you’ll only get one shot at it. Unfortunately, it’s also an especially risky thing to do, and truth be told, most customers will probably not be okay with it, unless your startup happens to provide a service they simply cannot live without. No virtual cows or another selfie app, then.

Raising prices without warning then — let alone discussion — is a surefire way to piss off and lose many of your customers, especially if you’re an early stage startup, even more so if your experiencing technical growing pains or other bugs.

Utterly paradoxically and counterintuitively then, this is precisely the reason you need to open a dialogue with your customers so that you can explain to them the situation, and literally ask them whether they’re okay with the price increase.

Naturally, since we agreed above that your customers will probably not be okay with any price increase, opening the door for them to just shut you down surely seems like a foolish, pointless waste of time.

Except that it isn’t. It turns out that something truly amazing happens when you’re open, transparent, and honest with your customers; when you turn what would ordinarily be a unilateral decision into a bilateral one.

It levels the playing field. It enables your customers to sympathize with your position, and therefore to understand not only where you’re coming from, but why you need to raise prices. And in so doing these things, it effectively disarms your customers so that they stop seeing you as just “another faceless company,” and instead makes them see you as people, just like them.

And lest you think this is all just foolish theory and philosophical nonsense, well, I’m here to let you know it isn’t. Because we just did this very thing last week with our own startup, and if you check back in a few days, you can read all about it, and learn what worked, and what didn’t.