Hey, 👋 Scott from The Sales Mastermind here.

Today’s edition only takes 4 minutes.

Without exception, every Founder I have worked with sets their prices too low (myself included).

Raising prices by as little as 5% can double net profits. Imagine what 20% across the board would do.

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Today, we'll cover:

• Story Time
• Lessons of Raising Prices

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Story Time

When I started working with a SaaS client their sales org sold ~30% annual contracts, paid upfront, and ~70% monthly contracts, paid monthly.

And the product took about 3 months to reach the moment of first value.

As you can imagine, over half of paid-monthly clients were churning before their second payment.

This means 35% of all new customers would pay for a single month, receive a lot of time, effort, and energy from our sales and onboarding teams, and then not pay for a second month because the product hadn't provided any value yet.

Monthly contracts were killing the business by investing time and marketing dollars into "customers" who churned.

So, we made a change. From now on we would only sell annual contracts, paid upfront.

Since we were making such a dramatic change, we also decided to look at overall pricing.

Firstly, we decided the "Starter" price would move from ~500/month to ~900/month, paid annually.

The minimum payment went from $500 for one month to $10,800 for one year, which made a MASSIVE difference to cash flow.

Next, we explored the inclusions and limitations of each plan to include only what the customers actually needed. This is called "rebundling."

For example, the current Starter plan included 10,000 records while less than 10 customers (on any plan) used more than 2,000 records.

So, we set the limit for the Starter plan at 500 records, and customers could buy extra bundles in increments of 500.

We also looked at which features should be gated to higher plans. In today's economy, for example, this would mean moving AI features from the lower to the higher plans.

After all the rebundling was complete, we had three new-look plans - Starter, Professional, and Enterprise.

It was time to roll them out.

For any new leads, they only saw the latest plans.

Current leads who had not signed up yet were given a deadline to sign and keep the old plans or, if delayed, to pick one of the new plans. The deadline gave us our best month ever in terms of new customers and new revenue.

We also implemented standardised discounts for new customers:

• 5% for a 2-year contract, 10% for 3 years
• 5% for being a reference customer (agreeing to co-marketing and taking limited calls when new customers asked to speak to a current customer)
• 5% for choosing Professional over Starter, or Enterprise over Professional

For existing monthly contracts, we rolled the plans out on a 1-by-1 basis, with the Founder directly talking to our top customers and the Customer Success team talking to everyone else.

Monthly customers were encouraged to shift to annual with a 20% discount on the first year, or full price on the new plans at the monthly rate.

Most chose annual with a discount.

The Customer Success team informed existing annual customers 3 months before their renewal that they would be on a new look plan next year. The Founder was also involved in top customer conversations.

All in all:

• From start to finish the rebundling took 3 months
• Total revenue approx doubled over the following 12 months
• Lifetime value exploded (because 35% weren't churning after 1 month)
• The average contract value almost doubled on an annual basis
• Upfront payments pulled a lot of cashflow forward
• And the number of new customers who signed each month stayed the same as in the previous period.
• In other words, my client onboarded the same number of customers each month, and each new customer was paying almost double what they used to pay, and each new customer paid upfront for the year.

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Lessons of Raising Prices

I wholeheartedly believe underpricing is one of the worst things a founder can do.

It may make a couple of sales easier, but it will come at the expense of long-term business success.

I have personally been involved in raising prices enough to know that the results almost always follow this pattern:

• More top-line revenue
• Less customer churn
• More revenue per customer
• And a happier Founder

However, increasing prices are not a magic bullet. They only work if you:

• Have a proven way of generating consistent leads
• Can consistently convert leads into paying customers
• Have enough long-term paying customers to prove there is long-term value
• Can afford to invest the time today for a result that might take 3 months to 2 years to play out fully

Also, small businesses can only raise prices so far before they outgrow your current, proven lead generation and sales techniques. And, without a dedicated pricing team, you can only justify investing in rebundling about every 2 years.

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In summary, if it has been over 2 years, raise your prices.

• If you're worried that it'll turn away customers,
• If you're afraid you'll lose existing customers
• If you're not sure how to rebundle or change terms or
• If you just want to talk about your pricing and why it's terrible

Let me help - book a call here.

We'll spend 25 minutes solving your problem, and if you want help beyond that, I'll charge a reasonable rate.

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Until next week,
Scott Cowley

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