Navigating price changes for a SaaS product can be a delicate balancing act, especially when aiming to grow revenue without alienating your existing customer base. SaaStr founder Jason Lemkin offers clear, actionable advice on this common dilemma, advocating for a strategy that prioritizes customer loyalty.
Lemkin’s core philosophy, shared in an April 2022 tweet, suggests a stark contrast in impact:
Raise prices on existing customers,
Doesn’t help if you are growing quickly.Just makes them unhappy.
Raise prices on new customers,
Forces you to deliver more value.Often makes everyone more happy.
— Jason ⚡️SaaStr.Ai⚡️ Lemkin (@jasonlk) April 7, 2022
The SaaStr Stance: Don't Upset Your Loyal Customers
Lemkin’s primary recommendation is straightforward: generally, avoid raising prices for existing customers. He argues that the short-term gains from such a move are often negligible compared to the potential long-term damage.
Consider a rapidly growing startup, for instance:
- $100k in revenue Year 1
- $1m in Year 2
- $3m in Year 3
- $5m in Year 4
- ...and so on.
For such a company, a price increase applied to new customers yields far greater impact and avoids customer dissatisfaction. While a price hike for your established base might offer a quick, albeit small, bump to your Monthly Recurring Revenue (MRR), this benefit is often a one-time occurrence and ultimately immaterial in the grand scheme of rapid growth. The substantial influx of new revenue and customers will quickly overshadow any minor increase from early, grandfathered users.
The Dangers of Alienating Existing Customers
The real danger lies in the potential fallout from upsetting your loyal customers. Losing their trust can lead to a cascade of negative consequences:
- Loss of Referrals: Existing customers are often your best advocates. Angering them can halt valuable word-of-mouth marketing.
- Reduced Second-Order Revenue: Referrals and positive sentiment contribute to future sales and expansion. Jeopardizing this can significantly impact your growth trajectory.
- Damaged Reputation: All the hard work invested in building a high Net Promoter Score (NPS) and Customer Satisfaction (CSAT) can be undone, potentially driving customers away.
This isn't to say that raising prices for existing customers is never an option, but it should be approached with extreme caution and consideration. Treat your earliest supporters with the respect they deserve. If a price adjustment is unavoidable, consider offering an extended grace period—perhaps an additional six months or more—on their old pricing as a token of appreciation. These early adopters took the biggest risk by betting on your product when it was new; acknowledging their loyalty can go a long way.
Avoid Price Hikes as a Last Resort
Lemkin also strongly advises against raising prices simply because growth has slowed or because your team is out of new ideas. While it might offer a temporary boost, such a move fails to address underlying issues and can further alienate the very customers you rely on most during challenging times.
For more insights on this topic, SaaStr offers additional perspectives:
5 Reasons Not To Raise Prices on Existing Customers. And 3 Better Ways to Do It Anyway.
