Most SaaS and online services companies can improve growth and profitability through pricing and versioning strategically, but many fail to seize that opportunity. How do you know when it’s time to raise prices? And how can you ensure that your price changes improve—not damage—your company’s position in the marketplace?
There are real risks to raising prices if you don’t approach it strategically. For example, if you increase prices by 10% across all markets, product categories, and tiers, you may risk over-pricing and lose sales—not only in areas where prices may now exceed a threshold but also in markets where greater increases would have been justified.
So how do you determine where and how much to raise prices? The key is understanding the use case and relative value you deliver to your customers for each combination of market, category, and tier. This is done by analyzing past sales transaction detail, customer usage data, and customer value. It’s a data-intensive process that requires both expertise in data science as well as business strategy, but the payoff can be significant.
Are you in a position to raise prices?
If you:
- Have a one-size fits all offering/pricing structure or a tiered/versioned pricing structure that differs by market and category (improvements can be had in both cases).
- Believe there are customers/segments/products where you could be charging more and possibly where you should be charging less (or where the offering doesn’t fit), but don’t know how to validate your instincts.
- Know you need to do a more precise analysis but there are major challenges to identify the right data or getting the data needed.
Then you can improve your bottom line, you just need to know how. A successful price change should start with strategy and move into operations. If you are embarking upon this effort and need guidance and analytics support, give us a shout! Info@profitwisehq.com
[Stay tuned for my next post: Designing the Strategy for a Price Increase/Price Change.]
