MBA1356 Grandfathering Your Customers, Revisited

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Hey O. Welcome to the Hundred Doll RBA Show. Because the more you know, the more you grow. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the $100 MBA, a complete business training and community online. And in today's lesson you will learn all about grandfathering your customers. This is a topic we're revisiting grandfathering your customers. Why are we revisiting it? Because as your business grows you need to consider other strategies, other options. What is grandfathering anyway? Well grandfather that when you change prices or plans in your business or services, you honor the current price that your customers are paying. So they're locked into that price and they don't have to pay the new increased price. Say for example, come this fall I sign up for Apple TV plus new subscription that starts at $4.99 if a year from now they increase that to $10. If they decide to grandfather me in, I would not have to pay $10. I would pay my original price of $4.99. Some subscription companies, SaaS, businesses reoccurring payments or recurring services will grandfather customers to avoid conflict and backlash. But it's not always the best choice for the business we'll explain why and when you should steer clear from grandfathering your customers. We get into all that and more. So let's get into it. Let's get down to business. I mentioned about a couple weeks ago in a previous episode, I had the privilege and pleasure to meet Patrick Campbell on a call. Patrick Campbell is the founder of ProfitWell. If you have reoccurring payments in your business, a SaaS business, a membership site, any site that you charge your customers month over month or year over year, check out ProfitWell. It's a free business insights tool to calculate all your metrics. Patrick is a master when it comes to pricing, plans, packaging and we are in the exploration, discovery phase of redoing our pricing and packaging for our software webinar Ninja. So we got on a call with him, we discussed our options and the topic of grandfathering came up. Now, when you're starting out, when your business is in its first year or two and you really have not taken a huge market share, then grandfathering is going to really do minimal damage in the long run. Meaning that if you give your customers that original price they paid for it, didn't increase their prices. When you increase prices, you should be okay, and it's probably a good gesture for your founding members. But as your business grows, you need to be mindful of your market share. How much of the market have you gobbled up already? This is going to require some analysis, some competitor analysis. Let's say, for example, you provide customer service software and you have four other competitors. So it's you and four other major competitors. If you dominate, if you have 40% of all users that are interested in customer service software already, that means you only have about 60% of the market cap. And of course you will not have 100% of the market cap. That's called the monopoly. It's illegal in most countries. But even if you had half of all the market share, which would be an absolute dominant position to be in where all your other competitors are splitting up the other half, that means you only have really 10% of your potential that is left to acquire. If you increase prices and you do grandfather your users, the longevity and the sustainability of your business is at risk because you can't continue to grow and provide the services you need, especially as your economy starts to scale. So where are you in the marketplace? Do you have 5% of the market share? How much more potential do you have to take? This is a good indication of if you should grandfather or not. As you can see, this is a numbers strictly Business decision here. It's great to make sure you please your customers and to give them the price they signed up with and keep them locked into that price. But if it's going to cost you your business, where you don't grow, you can't expand, you go bankrupt or even or have your lunch taken by the competition because you're not making enough profit, that's a problem. But if you still have a lot to go, then grandfathering can be an option for you. Luckily, we still have some to go in our market share, but if we did not grandfather, it's not the worst thing to consider. And really, you have to do the math. A good example of this is Carthook. They recently increased prices and did not grandfather their customers. They lost some customers in the process, but the customers that stayed and continued to use their product because they were happy with the product and paid the new price, the profits from that greatly outweighed the loss from the customers that left. This is a lesson in you're not going to please everybody. And at the end of the day, you need to do what's best for your business to thrive. Remember, you got employees, you got bills, you got expenses. You need to make sure you're on top of it and you are growing again. This is your business. For most of you, this is not a charity organization. And of course you're not forcing anybody to say they can leave if they like. Now, I would definitely check out Carhook's blog. They speak about this change very transparently and the way they deliver, it's great. They actually give their customers fair warning before the change and they make the transition pretty easy. Grandfathering your customers is not about treating them right or being a nice CEO. This is a decision that you need to make for your business's survival. If you can't afford to do it, great. But still, do the math. Which one's better for the business to do. To grandfather or not to grandfather. These are tough decisions, but the numbers don't lie and they help you make a better decision. Run the numbers and whatever you decide to do. Communicate, communicate, communicate, communicate clearly and often to your customers. What's happening, what changes are going to happen, how it affects their accounts and help them in that transition as much as possible. Whether you don't grandfather or you actually do, make sure there's clarity on what's happening. Even for those you are going to decide to grandfather your users when you increase prices, make sure that's clear that, hey, everything is not going to change when it comes to their prices. This is what your plan is going to be. This is the options you're going to have. Make sure it's super clear to them and they have opportunities to ask questions and get answers quickly. Communication when it comes to money and your customers is critical.

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Giving your customers their original price for their membership is always the nice thing to do. It's always the thing that's going to make everybody happy. But your job is not to make everybody happy. Your job is to build a great product service that serves your customers best. And you can't do that if you're not making enough profit and growing rapidly. So make sure you're doing the right thing. Run the numbers so you know that you're making the right decision for your business so you you can serve your customers properly so you can give them the best product and services so you can serve those that value what you offer. Thanks so much for listening. Shout out to Patrick Campbell. Love you dude. See you soon. Check him out and his wonderful product profitwell.com they have a great YouTube channel too. Pricing Page Teardowns is one of my favorite shows on their YouTube channel. Give them some love and hit subscribe over there at YouTube. Before I go, I want to leave you with this. As a leader of your business, your job is to make tough decisions. That's really your job as CEO. That's really your job as a leader. You make the tough decisions to hire the right people to fire the ones that don't serve your business and decisions like grandfathering. No one said it was going to be easy, but hopefully it's worth it. And if you're listening to this show, I'm pretty sure you know it is. Thank you so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at Capella Eduardo.