This ONE Thing Will Grow Your SaaS Faster Than Anything Else...

0:00in this video I'm going to tell you about the one thing that will grow your SAS faster than anything else and that one thing is pricing pricing is the biggest lever in your SAS business having invested in more than 150 SAS companies I've seen it over and over again that when a Founder raises their prices they see their growth accelerate and to give you just one recent example of that take a look at this graph from a Tiny Seed company that asked to remain anonymous but he generously offered to share this graph with his Revenue growth and a couple milestones in his company getting into Tiny Seed and how it

0:33accelerated his growth and then look at that increase after he raised his prices so in this video I'm going to talk about why this works and then I'm going to talk to you about how to think through a price increase and how to raise prices well but I want to give you one more example of a Founder who raised his prices and dramatically accelerated his growth the company is jimes at Jim desk.com and the founder is Iran galperin I quoted Iran in my book The SAS Playbook about his experience raising his prices for for gym desk so Iran had been running gym desk for 5 or

1:036 years its Gym and Fitness Studio management software during that time he had built it into quite a force that had a significant foothold in the market and through some encouragement from our tiny SE pricing Playbook he decided to raise his prices pretty significantly in some cases by more than 50% and often this decision is much more about emotion than it is about flipping the switch technically it's not that hard to raise your prices but that fear of a backlash from customers that you built a relationship with is really scary and so Iran raised prices and I have a quote from him he said most of our customers

1:34responded very well to the price increase some of them even wrote back and said congrats you deserve a raise in the end only a few of gym desks more than 600 customers left as a result of the price increase the company's mrr growth went up by 70% and its average revenue per customer has continued to climb with this increase in Revenue Iran was able to really accelerate the growth of the business so with the graph that I showed you and the story about Jim desk I hope I've intrigued you enough to think about pricing and the idea that most of us are underpriced and if you

2:04stick around till the end of this video I'm going to tell you the mistake I see many timid Founders make that renders the rest of the advice I'm about to give you kind of pointless the fact is most of us underprice our product we don't think it's very valuable we put a few months into coding it and then we say well I think I could charge $20 a month when in fact this may be worth $200 a month or $2,000 a month to the right customer Tiny Seed I've mentioned it a couple times it's the startup Exel Ator that I run at the beginning of many of

2:31our batches I will ask who here thinks they are underpriced and usually somewhere between 2/3 and 80% of the founders raise their hand so something that I talk about a lot is increasing pricing the first thing I want to talk about is why is it so effective there's a number of factors that are in play here but often times as you raise prices if you're able to go up Market you will reduce turn which gives you a healthier business but even if you don't go up Market when you raise prices the first order effect is that you make more money if you raise prices 20% even if you have

3:01some cancellations you're probably going to make 15 plus% more per month if you raise prices 50% as some folks wind up doing you dramatically increase the amount of Mr coming in and you increase your growth at the same time assuming you aren't pushing your prices too high there is a point where you can push them too high and start losing market share but it's very rare that Founders get there and frankly you'll know it when you see it if you raise your prices too far it's going to be pretty obvious pretty quickly and you will be able to roll that back so the first order effect

3:30of raising prices is you have more money to invest into staff into marketing or maybe to pull out into your pocket just to be more profitable but the second order effect of raising prices is you can invest in so many more marketing approaches the higher your budget so there's a whole swath of marketing approaches that are unavailable at a $500 annual contract value that become available at $7,000 a year and so things like cold Outreach or doing in-person events or even doing a heavy sales driven process they just don't make sense when you're charging 500 or $1,000 or $1,500 a year so the first order effect is you have more money but the

4:09second order effect is you can feasibly grow your business faster because your pallet of marketing approaches that can work become so much more I often get asked how often should I consider raising prices and depending on how fast your Market moves you should revisit your pricing every 6 to 18 months I'm not saying make changes that often but at least revisit your pricing compared to your competition and ask yourself is anyone complaining that we are too expensive you should be losing a small number of deals to people who say you're too expensive otherwise you're usually underpriced now let's talk about how to increase prices there's a couple really

4:44simple ways to do it that many people may not even notice and then there's the more comprehensive way that we'll talk about in a second about notifying all your customers but one simple option to increase prices is to decrease the value metric of your plans but keep the prices is the same so for example today if customers get 3,000 subscribers for $49 a month you can drop that number down to say 2500 subscribers or 2,000 subscribers for the same price so the pricing amount stays the same but people need to upgrade to higher tiers faster another option is just to hide your lowest pricing tier on your pricing page

5:19this should be relatively quick and what you'll likely see is you'll get a few fewer trials or new customers but more of them will be on the higher price plans those are not comprehensive ways of raising prices across the board but there are simple things that you can test out if you want to dip your toe in the water and start to get comfortable with the idea of raising prices so now let's dive into what it looks like to raise prices well across the board you have to make a decision of whether or not you're going to grandfather existing customers or not and for the sake of

5:46this example let's assume you're not going to grandfather existing customers in that case you're going to want to notify customers and give them months between announcing and actually implementing the price increase I recommend two to 4 months depending on how difficult it is to switch away from your product so if you make it too short people will feel trapped and they'll be angry if you make it too long then when the price hike does come they'll have forgotten about it you know do the famous Netflix thing where you announce it a year in advance everyone gets mad and then a year later everyone gets mad again when you actually raise prices if

6:18you are going to grandfather in existing customers at their current price points raising prices is pretty easy you just go to your pricing page and you raise them for new customers and you you should probably let your existing customers know we have raise prices but in loyalty to you we haven't raised them on existing customers this time don't commit to never raising prices on these folks but it's a lot easier if you're going to grandfather and I'll talk a little more about that at the end of the video but if you are not going to grandfather you're going to raise it on everyone across the board then I have

6:45five key things that you need to communicate in the email or blog post or whatever other announcement that you make to your existing customers so let's walk through these points of what I would include in the email or the blog post number one set the stage for the value that your product offers in other words we've been around for a long time we've become a trusted provider in this space ETC number two just call it out we are changing our pricing let them know right up front what's happening number three provide a high level justification about why you're changing pricing so for example we've added tons more value

7:16we're in a completely different space than when we launched we're expanding our features ETC number four this is an optional step offer more specifics about whom it impacts when price increases will go into effect Etc and provide more justification if you feel necessary and finally item number five is let people know to reach out with questions let them know your doors are open for questions comments and feedback in almost all cases the hardest part of raising prices is the emotional toll that it will take on you as a Founder it's getting over the hurdle of just mentally saying I am going to raise prices cuz actually doing it technically

7:49usually isn't that hard and lastly as you're thinking about raising prices you have to think about grandfathering or not so in a perfect world you would just raise prices on everyone because for example if you had a restaurant and you changed your prices then anyone who shows up next week to get a burger and fries pays the same new price but SAS is subscription so it's trickier so you have to think about a couple reasons why you might want to grandfather existing customers into your existing prices the first is if you're worried people might switch to your competition or just leave you all together if you're worried about

8:19thousands of customers who write in angrily to your support people or if you're worried that you'll damage your brand and your reputation so how do you decide whether to grandfather or not I'll tell you that in just a minute I want to let you know about the Companion podcast to this YouTube channel it's called startups for the rest of us and I release 52 episodes a year much like this YouTube channel startups for the restof us.com if you want to check it out we're approaching episode 700 it's all about building launching and growing your SAS company I answer listener questions I do solo Adventures where I

8:49Riff on a topic that should apply to you as an entrepreneur and I interview Founders who have been where you want to be you can find startups for the rest of us anywhere greater podcasts are served so my recommendation for deciding whether to grandfather or not is to use what I call Rob's rule of 10 Rob's rule of 10 says if raising prices for existing customers will not grow your mrr by at least 10% ideally more it is rarely worth considering cuz the amount of headache the support burden the brand damage the potential churn is so onerous that if you're only going to grow by a

9:21few percentage points it's best just to Granda those users in and I'll be honest in some places I think I did a conference talk where I mentioned Rob's rule of and it's the same thing and I've kind of gone back and forth between 10 and 15 it's somewhere in between those numbers so 10 is an absolute minimum and I think by the time you're going to grow your Mr by 15% you should really think about not grandfathering and raising on everyone and while raising your prices is the biggest lever that you can pull in SAS I talk to Founders All the Time who are worried that increasing their

9:51prices will blow up their entire business and not in the good way that you're thinking about if you want to hear more in-depth advice on this topic including exact step that I have Founders think through when they're raising their prices watch this video I'll see you next time