Impact Pricing Blog

Rules of Thumb for Price Increases

This past week while delivering a bootcamp to several companies, I articulated something out loud that I don’t think I’ve ever said or written before.  How big should a price increase be to existing customers?  

For the sake of argument, let’s assume the value you deliver to a customer far exceeds the price you charge.  In other words, there is plenty of room to raise prices. Of course, there are many factors like competitive alternatives and switching costs, but what if you think you could double the price.  Should you?  

First, customers hate price increases.  Period!  (or exclamation point?)  I often say, “Blame costs and they will hate you a little less.”  But that doesn’t answer our question.  

Here is my rule of thumb: 

For price increases up to 10%, they will hate you.  Some of your customers might say something, but you probably won’t lose many, if any at all. It’s a prompt for some to look at competitors, but the hassle of switching is almost certainly not worth it.

From 10% to 20%, they will hate you a lot.  You need a great communication strategy and a strategy on how to handle customers who threaten to leave.  You can honor the old price, or delay the price increase. You will likely get some pushback.

Over 25%, you may piss them off so much they will go out of their way to punish you. You must be positive your customers have very high switching costs. They are stuck with you. (Stuck is the ultimate in sticky.) Your relationship with these customers will worsen. They will speak badly about you to others. Do you care? They will no longer give you the benefit of the doubt when deliberating about your intentions. You are causing your customers pain.

I love it when my clients or students say they want to raise prices by 100%.  It shows they believe in their value.  But I caution them not to do it all at once for existing customers.  I usually recommend a 15-20% a year increase for several years.  

Please be clear. This is for subscriptions or recurring revenue only. If you think you can get away with doubling your price on new customers, do it now! They don’t know your old price.

How do you think your buyers respond to price increases?  What are your rules of thumb?  

Share your comments on the LinkedIn post.

Now, go make an impact!

Tags: price, pricing

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