📂 How to test new pricing (and migrate legacy pricing)

​

​

​

Today's newsletter is proudly supported by xFusion 🎉

A few years ago I referred one of my consulting clients, SavvyCal, to xFusion to get help with customer support. And after seeing first-hand just how much positive impact it had on the business, I decided to partner with them to help more startups get access to reliable, affordable customer support reps. They thoroughly train every single support rep on best practices and hold them to a high standard so you never have to sweat about your support ticket queue again. Mention "Corey" or "Swipe Files" and get 5% off your first month.

Check out xFusion →

​

📖 The following is an excerpt from my work-in-progress book, Founding Marketing. It's a (very) rough draft of thoughts, notes, and research... so feel free to reply with your feedback on what I should expand more on and what needs to be clarified. Enjoy!

Test on new customers only

The easiest and most tried-and-true way to test pricing is on new customers signing up. This is because you don’t have to put your current customer base at risk and you can mitigate changes and feedback 1-by-1 instead of in a flurry all together.

The test is simple: whatever you’re aiming to test, change only for new customers signing up and see what happens — but keep everything else the same for your current customers.

Usually a month or two is enough to start seeing some early signs of how the test will play out, depending on factors like if you have a trial, how long it takes someone to get fully set up, and then how those customers retain over time.

Like we talked about in the activation models, you’d be able to see if it wasn’t working out based on a cohort analysis.

To grandfather or not to grandfather

Once you have something you like, you can do one of two things:

1. Keep doing what you’re doing and have the new pricing only for new customers. You’d essentially “grandfather” those customers to keep their current price.
2. OR, you can roll out new pricing to some or all of your current customers as well

Traditionally, grandfathering has been common-practice for a lot of SaaS businesses, especially for early customers. Grandfathering is when you allow customers to keep their current pricing forever, so long as they keep their subscription active.

Here’s my take though:

In SaaS, the entire business model is dependent on delivering and capturing value over time. The longer a customer is with you, and the more value they get, the more money you make.

Grandfathering makes a promise early on to discount your product forever — which is the worst time to do so because you don’t know what it’ll be years down the road and how much value it’ll deliver.

In business, flexibility is key. Why make a promise that you might regret later? Say for example, in the early days you naively charge $50/month, for example. Then, you discover that your customers are getting tons and tons of value and are actually willing to pay $250/month. With this newfound discovery, you think, “that’s great… you know what I’ll do is I’ll lock every one in to paying me less!” Now, instead of generating $9,000 from each customer over three years, you generate just $1,800. Let’s say, also, that you introduce another tier at $500/month and 10% adopt this new plan after a year. You’re missing out on an insane amount of revenue.

Grandfathering has huge implications over time.

You might think these numbers sound crazy, but Intercom started at $50/month, and now many companies pay thousands of dollars a month.

So here’s what I propose, instead of grandfathering:

• Allow them to upgrade to annual to extend their time on their current pricing and respect until the next renewal
• Give them ample time before switching them to new pricing: 6 months for example.
• Offer one-time discounts for volunteering to switch over early, say 50% their first 3 months for example if it’s a price increase.

Test on small subset of current customers

Now, when you do want to roll out new pricing, always start with a small subset to experiment with.

Even if you’ve already verified with new customers that the new pricing is good, you want to work out the kinks of how to actually get everyone on to the new pricing before you blast it out to everyone and risk unnecessary churn.

I recommend taking 5-10% of your customer base and privately reaching out to announce the upcoming price change.

For every price change, it’s key to do 3 things:

• Communicate why you’re making the change and how it will positively align with the value they’re getting
• Communicate months in advance: 2-3 months is usually a good buffer time for customers to feel like they have enough notice and that you’re being respectful
• Make a generous offer: Because they’re already customer, offer a small, one-time discount, a strategy call, a bonus feature, access to new features early, a free tee shirt, etc.

Then remind customers as the date gets closer and closer that the change is coming, when the time comes, switch everyone over, and make sure you’re communicating through every step along the way.

Gradually roll out to all

Once you’ve successfully made the switch for a small subset, you’ll probably have learned tons about the right and wrong way to do things. How much communication is too little or too much. How much notice you need to give. How to frame it best.

So now when you roll it out to everyone, you can be much more prepared.

And now instead of rolling out to everyone all at once, I’d recommend divvying up your customer base into fourths or fifths and then making the switch for each one month at a time so they’re staggered.

This is really only necessary for customer bases in the hundreds or thousands, but staggering the roll out will help you handle it much more efficiently, mitigate risks, and ensure every customer is accounted for.

—Corey

​