The Counterintuitive Pricing Advice I Keep Repeating to SaaS Founders

0:00One pricing decision turned a $683 customer into a $68 customer. This is for the same product, the same [music] founder, 10 times less valuable. Here's what happened. Neil Magnuson cut his price from $99 to $19 a month [music] hoping to grow faster. His churn nearly doubled. The customers he attracted stuck around for 3 months instead of 9. Neil's conclusion, cheap prices brought browsers, not operators. I'm Rob Walling. I've invested in more than 240 SaaS companies, [music] and I've seen this exact pattern play out over and over. When your numbers aren't working, every instinct tells you to lower the price. [music] I'm going to show you why that instinct

0:42is wrong and what to do instead. Let's start with the math. Neil's tweet exposes something that most founders never stop to figure out. When he dropped his new price to 1/5 his old price, he had a 10x collapse in lifetime value. He went from $683 LTV to 68. His retention tells the same story. 8.8 months of customer lifetime at $99 versus 3.1 months at 19. That's a different customer. It's not just a different price. So, to replace 100 customers at $99 with those $19 customers at the same revenue, you'd need about 11 times as many. And if Neil's experience is like all the other experience I've seen of folks having

1:26lower prices, these $19 customers cost more to support and to serve. This $19 business is more expensive to run, and it actually makes less money. Dropping your prices feels like it will instantly improve conversions. Sometimes in the short term, it does. Maybe your new sign-ups or your new trials go up, but usually in almost every case I've ever seen in 20 years of doing this, it just makes the whole business worse. And lowering your price is a trap because your price isn't just a number. It's usually a filter. And when you set it too low, you filter in exactly the wrong kind of customers. Lower prices attract

2:05price-sensitive buyers. These are people looking for cheap software, not a real in-depth solution. These are the folks that are going to churn the moment they see another solution come along that's a dollar or two cheaper. Higher prices attract buyers who've already cleared a mental hurdle. They've convinced themselves it's worth it before they sign up. And higher prices tend to attract business buyers. You've heard me rant about this, about how you shouldn't sell to consumers, that businesses are going to be lower support, they're going to pay more, and they're going to stick around longer. A $99 a month tool for a business is a rounding error. But once

2:39you drop your price to $19 a month, many businesses won't take you seriously, and many consumers will then sign up for the tool, and you can see the churn difference of almost a 9-month lifetime versus 3.1. At $19, a lot of people are just going to come along and kick the tires. But at $99 a month, it's a thought process. It provides just enough friction that people can be more

3:02committed to trying out your product. These buyers who expect more from you expect more from themselves, and they show up and actually try to get on boarded versus logging in, poking around, and bailing. And almost inevitably, customers who pay you less money are a higher support burden. These are the folks that are less technical, they don't use as much software, and they need a lot of hand-holding just to get set up versus the business down the street where someone, you know, maybe they're a developer, maybe they're an IT person, but it's a business that has some resources to throw at learning a new tool. Almost inevitably, having that

3:40higher price is going to lead to better customers and fewer complaints. So, I run a B2B SaaS accelerator called Tiny Seed, and when founders join, one of the first things we look at is their pricing. We go through pricing reviews at our kickoff retreat that we hold twice a year, and more often than not, the conversation goes the same way. Most founders anchor their price too low from day one, often out of fear, not out of strategy. They often anchor it to their cost of doing business, how much it costs them to do something versus the

4:10value it provides to your end customer. They assume a lower price removes friction. What it actually removes is the signal that the product is serious. The advice is usually, not always, to charge more. But 80% of our new incoming batches of founders have some issue with their pricing. Either they're too low, or their value metric, which is the number like subscribers or seats, that goes up as customers pay them more, their value metric might have an issue, it might not be correct. So, if you charge more, not only do you make more money, you get better customers as well, and then you have more money to market

4:47and sell your product. Across hundreds of tiny seed companies, underpricing is one of the most consistent and correctable problems that I see. Raising prices is usually on the table earlier than founders think, and the founders who do it are usually glad they did. But you might be thinking, "Well, where's the ceiling? I can't just raise it indefinitely forever, up to infinity

5:06dollars a month." And you're right. There usually is a ceiling within a particular customer type, but in my experience, almost zero founders ever hit that because they're too scared to increase their monthly price. And I often get asked, "Have you ever seen someone raise their prices and then lower them again?" And across the literally hundreds and hundreds of companies that I have seen increase their pricing, I believe I know of two, maybe three, that have raised them too high and have decided later on to drop them. One really great example of someone raising prices and completely changing their business is Jimdo. And Iran Gerpott, the founder of Jimdo,

5:46raised his prices, I think it was back in 2021 or 2022. He later sold a majority stake of his company for $32.5 million. He's a mostly bootstrapped company who only took money from Tiny Seed. And he and I had extensive conversations about how to rework his pricing, and he raised them pretty significantly. I don't remember the exact numbers, but between 50% and 100% was my memory. I write about this in my book, The SaaS Playbook, and he talks about how he hadn't raised prices in the previous 5 years of running his business, and it's more about the fear and anxiety of raising them that keeps you from doing it. And so, he and I had

6:21a few calls, and he did an amazing job of raising prices. He had some existing customers that he did work with to help make sure it was affordable, but it completely changed the growth trajectory and the churn trajectory of his business. In a minute, I'm going to break down the difference between raising prices and going upmarket. Most founders don't know the difference. But first, if you're trying to figure out where your pricing fits into the bigger picture of your business, the unit economics, the ICP work, the positioning, pricing is one of the core topics I go deep on in my book, The SaaS Playbook. And this is where I talk about

6:55the story of Auren Galperin raising prices for Gymdesk. This book covers the frameworks I've developed from building and investing in more than 240 SaaS companies. You can grab a free chapter at saasplaybook.com. Before you touch your pricing page, you need to answer one question. Are you raising prices within your current customer segment, or are you trying to move to a different one entirely? Those are two completely different moves. So, path one is raising your prices within a segment. It's the same ICP, same use case, just more money. 10%, 30%, can be a 50% increase if you're underpriced. Every segment has a ceiling, I mentioned this earlier, on

7:31what they'll pay, and you'll be pushing toward it, not past it. This is where you often think about running it as an experiment. You change the pricing page. You leave existing customers alone. You don't change the pricing, and then you watch conversions for a few weeks or a few months. If your sales-led, you start quoting the new price to new prospects first, and you see how everybody responds. And then, if that pricing works and your business is healthier, then later on you revisit your existing

7:57customers. Path two is going upmarket. So, this is where you're not raising prices, you're changing customers entirely. So, where a hobbyist podcaster might pay $25 a month and a business podcaster might pay $75 in your current pricing, maybe you raise all your prices to $500 and $2,000 a month. You're going after broadcasters. You're going after large podcast studios. And this is where you might be deciding that just going upmarket and doing more of the enterprise sales thing is going to work better for your business. So, when you do this and you 10 or 20x your pricing, it's really nice to have one or two customers already in

8:33that tier, right? Already paying you, because their needs are going to be different from your existing customers paying you that $25 or $75 and going upmarket means you're going to definitely be more sales-led, and your product might need to evolve in ways that you didn't understand, but you can build a much, much healthier business with even lower churn and a higher lifetime value, and more of an ability to pay for marketing and sales. If you want the full playbook for how to actually execute a price increase, how to grandfather existing customers, how to communicate the change, and what to say, I have a whole video that walks

9:07through a framework I've developed that handles all of that. [music] Check that out next. If you found this video helpful, please give it a like and a subscribe. Thanks for watching. I'll see you next time.