How To Raise Prices To Boost the Revenue of a Newly-Acquired Business (and Your ROI) One of the most obvious yet trickiest strategies to raise revenue is to raise prices. That way, you earn more from your current customers without spending more to find new ones.
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Recently bought a business?
Then you're probably wondering how to raise revenue to boost your return on investment.
One of the most obvious yet trickiest strategies to raise revenue is to raise prices. That way, you earn more from your current customers without spending more to find new ones.
No business can afford to fix prices forever. Those that try don't last. Customers, too, if they were being honest, understand that nothing stays the same price forever, either.
However, if you raise prices without research, testing and communication, you risk losing even your most loyal customers. Let's face it: No one likes paying more — unless, of course, they perceive some added value.
The trick, then, is to find out what customers are willing to pay, get some early feedback and then frame the price rise from their perspective.
Raising prices is a three-body problem
If you want to raise revenue by raising prices while retaining your best customers, you must integrate three elements into your strategy:
They are somewhat interdependent but form the chronological stages of deploying a new pricing strategy safely.
Step 1: Define what's fair (research)
The value of your newly acquired business should be plain to you. But is this value reflected in pricing? How much do your competitors charge? Do all of your customers pay the same? When were prices raised last? What new features have launched since? Are there any enhancements in the pipeline?
The idea here is that you move away from what your customers currently pay to what they're willing to pay for your product. This is value-based pricing and only around 40 percent of SaaS businesses use this model. If this has never been done before in your newly acquired business (or only been done once or twice in the past), you're missing out on extra revenue.
Many companies use a cost-plus pricing model that's been around since the dawn of commerce. Others simply charge the same as their competitors (or a bit less, depending on their goals). The problem with both of these strategies is that they ignore your most sustainable source of revenue: customers.
Fair pricing is charging what the customer is willing to pay. But which customer? Not all have the same need for your product, so before you start gathering data, you must first identify who your high-value customers are — your ideal customers, the people for which your company adds the most value. Your best customers perceive the most value in what you do so their opinion on pricing is gold.
An analysis of your customers might also reveal alternative pricing tactics, such as a tiered or package model where some customers pay less, some stay the same, while your power users pay more.
Step 2: Refine your pricing model (testing)
Once you know what your best customers are willing to pay, it's time to test alternative pricing models. To understand the effect on your business as a whole, the test should be on a sample that represents your existing customer base. This will indicate your churn rate and also give you insight into whether your LCV (Lifetime Customer Value) will improve or deteriorate.
Let's assume you picked 10 percent of your existing customers, tested the new pricing model and gathered feedback. Your next step is to evaluate that feedback and then refine your pricing strategy and test again. You continue to test, evaluate and refine with other samples until you're confident the changes won't cause a mass exodus of your best customers and that you'll continue to acquire them at the same or better rate. There's no perfect pricing model — just the one that works.
Step 3: Give customers the news (communication)
If you know your customers well, you know how to communicate in concepts and language that mean something to them. You need to get inside their minds and sell the change as a benefit, either through an immediate upgrade, better service or to support improvements over time. You won't please everyone, but that's not the goal. Your goal here is to convince your best and most loyal customers to stay. Focus on those whom the changes affect most, or if they affect everyone equally, focus on the key customer personas identified in step two.
If you're raising prices without a commensurate change in what you sell, consider a candid message. Although customers don't care about the financial goals of your business, they do appreciate honesty, as it's a rare virtue these days. You'll win more people over with a candid explanation than telling a spurious story to justify the changes.
You might also consider compensatory schemes for certain customers. For example, fixed pricing until they're ready to upgrade, a temporary discount, a staggered price rise over time or any other mechanism that works for you. This will keep the toughest customers from fleeing or causing a scene on social media. In time, when the shock has worn off, they'll quit grumbling and might even stay in return.
Whatever you do, communicate pricing changes early. Give customers plenty of time to think about the changes, ask questions, seek alternatives and so on. They'll respect you for it and might stay in return for your consideration of their needs. Also, people can be lazy about the future whereas immediacy springs action, so avoid pushing people too early or you might motivate them to leave.
Raising prices is never easy, and pricing itself is a complex, often misunderstood concept. If you've run businesses before, this shouldn't be your first pricing review. It certainly shouldn't be your last. Once you accept pricing is as important as feature development or talent, you gain a new weapon in your revenue-generating arsenal and will quickly realize that ROI on your recently acquired business.