Especially in the world of startups, the need to change business models is common. How you announce those pricing changes can help or kill your business.
Five Tips on Announcing Pricing Changes
It's no shock to you, if you've read some of my posts, that I think the need to tell the right story when announcing pricing changes is critical. After all, I write about pricing, business, and storytelling. So this is one of those places where everything comes together at once. And even though we know pricing is critical and how we announce those changes is important, most of us let fear and stress lead us into telling the wrong story the wrong way.
So here are five tips to help you when you're preparing to make your next business model or pricing change.
1. Don't bury the lead
Because of our own fear and insecurity, one of the most common mistakes we make is to announce a pricing change along with 5 or 6 other items. It's like the old advice when giving a performance review—“sandwich any negative correction between two compliments.” It didn't work there and it won't work here.
A business model change or a pricing announcement needs to stand on its own. Make it the main point.
And be clear about it. If you need an FAQ (frequently asked questions) section for your announcement, you're not making things clear.
If you are locking in the price for existing customers, for example, make that clear, “If you an existing customer, this pricing change won't affect you.”
If you are changing the features that are tied to plans, or changing plan pricing, explain the change directly. Use a chart if you have to (your old price >> your new price).
2. Explain your rational and who you're impacting
Back in 2009 and then again in 2012, the site NearlyFreeSpeech.net had to change their pricing. Their particular announcement in 2012 is a brilliant articulation and example of how to not only explain your rationale but also who is being impacted. Read the whole announcement, but here is one part I especially like,
We need to take steps to either rein in a few cases of excessive usage or recover enough money to cover the costs of the resources we must allocate to them. Here are some of the numbers:
- The median size of a MySQL process is about 5.2 megabytes.
- Over 90% of all MySQL processes are less than 40 megabytes in size.
- For the first time in our history, the top 5 MySQL processes are all over 10 GiB in size.
- The largest 10 (not 10%, just 10) of MySQL processes use almost 34% of the total space.
- The largest 1% of MySQL processes use almost 65% of the total space.
Something is wrong if two people are paying the same for MySQL but one is using (literally) thousands of times more than the other. And obviously, we need to fix that. But we need to do that in a way that has absolutely no impact on the people (i.e. almost everybody) whose usage is both reasonable and within our expectations.
When people realize that they're in the 1%, they are often shocked. They had no idea. And they can act to either pay up or align themselves with the announcement (or leave). What's more important, however, is the 99% of the people who may not be impacted. But if they didn't understand the context and where they sat, they might have been enraged for no reason.
I see this a lot. People get angry even if they're not impacted. Not because of the actual change and its impact, but because of how the news is presented. Often without this kind of data, and without a clear articulation of impact.
So make sure you're doing the hard work of collecting the right data so that you can explain yourself well.
3. Increase value for the customer
Sometimes these changes are announced with a focus on long-term sustainability.
I appreciate that a company wants to be around a long time. I also appreciate that a company may find out, later than they want, that their current business model isn't working.
But those perspectives are internal perspectives. It's like writing in your journal—it's nice but it doesn't motivate anyone but yourself.
So review your announcement with some external folks to have them review it from an external (or customer) perspective. If you haven't articulated any way that you're increasing value for the customer, then it's time to rework the announcement.
I once worked with a company that was preparing theirs. It was a straightforward explanation of the increase of rates with an articulation of how the money would be spent. It was an excellent internal memo, but the perspective wasn't all that helpful for an external audience.
As we reworked the announcement, we focused on the change from the customer's perspective. In this case, it included several different components—each that made the lives of the customers better and support for their issues faster.
4. Create multiple paths to profitability
In another case where I got to help a company with their announcement, a quick review of their internal data suggested that some people were paying more than anyone ever expected or wanted them to.
The truth is that pricing is tough work. So if you review enough of your data, you may find several places for optimization.
What am I trying to tell you when I say create multiple paths to profitability? I'm saying that your focus shouldn't just be on raising your prices. Sometimes it means creating lower-priced options (that may also be profitable).
Let's imagine you sell a product for $75. You want to change the price to $99. What I'm telling you is that you may also want to create another version at $45 (but cut out an expensive part like product support from that offering).
Now when you go to tell the story, you can highlight that 40% of your customers (or whatever number is true) never contact support. So you're lowering the price for them by offering a new $45 product without support. And you're changing your other product price to $99, which will include it. If you want to add an additional feature or bonus, you can even introduce a higher-priced product at $150.
By creating multiple offers, and making sure each one is profitable in its own way, you can announce a price increase while giving people options. And every time you introduce a lower-priced option, you're creating an alternate path they'll appreciate.
Just make sure it's still profitable for you, so you don't have to worry about sustainability.
5. Shape your announcement into a single narrative
I once stepped into a surgeon's office filled with fear about a broken wrist. He jumped around from fact to fact. He mentioned when I would need to return. He mentioned mobility. He mentioned the names of the bones that were broken. And when it was all done, I thought I might be better in 6 weeks. It was only six weeks later, at my next appointment, that I found out it wouldn't be better for two more months.
Don't create that kind of experience for your customers when announcing a pricing change. Don't jump from topic to topic. Don't toss out a fact here and another one there.
If you do, the likelihood is that in their lack of understanding they will get frustrated. And when people get frustrated, they complain. Everywhere. To everyone.
So work on your announcement so that it has a beginning, middle and end. If you're trying to resolve an issue, then make the narrative clear that it is the enemy, not your clients.
I once read an announcement that said, in essence, “you make money so why shouldn't we?” Suffice to say, that wasn't really the right way to explain a change and there was a lot of revolt.
The better you shape your story, the better people will embrace it. In both the cases referenced above where I got to work on pricing changes with other companies, their customers embraced the changes. I know the same is true over at NearlyFreeSpeech.net.
One Last One: Reach out directly to key customers in advance
I know I said I would focus on five tips, but I wanted to share one last bonus tip. If you have a key group of customers, or partners who regularly bring you customers, make sure you don't catch them by surprise. I have been in the place where I'm the one bringing customers to the table as a partner and it has put me in a really difficult place to be caught without any context or knowledge. It's not fun and it makes it really hard to explain it to prospects when I don't have any information.
So find your key partners and your key customers and reach out to them in advance. Prep them. Work with them. Have them review your announcement for perspective (and tone).
Bonus: My Pricing eBook
Did you know I've written an introductory guide to product pricing? I have. And it's available on this site for $15. If we were to do a Clarity call, the same material would cost you $600. Check it out!