Short talk (YouTube video transcript) by Jason M. Lemkin explaining four reasons SaaS companies should generally avoid raising prices on existing customers: (1) price increases raise churn (especially obvious in B2C monthly subs), (2) they damage NPS and customer references, (3) early-stage high growth makes small early revenue irrelevant later, and (4) pricing changes consume management time and distract from higher-leverage revenue work. The speaker advises prioritizing long-term, decade-long customer relationships over short-term price gains.
Chapters
I wanted to briefly talk about four reasons why probably you should not raise prices. It's a topic that can consume a ton of time on your management team with very little benefits and a lot of downsides. So let's talk about four reasons not to raise prices. The first one, which is hard to see in B2B, but our B2C friends know this is increasing prices raises churn. Period. If you talk to folks that manage 10,000 100,000 paying customers, especially on monthly subscriptions where it's much more visceral, they'll all tell you when they raise prices, especially without notice, churn goes up. Now, if your customer lasts four months like some sort of random consumer subscription service, maybe it doesn't matter. But when we're looking for 10 year customers here in SAS, we don't want anybody to churn. The second point is raising prices dramatically damages your NPS. We just finished the Saster annual and two our vendors jacked up prices 50% without asking us. The first one we canceled. The second one we're going to renew, but I canceled the testimonial and the case study and I'm no longer a reference for them. That's not what you want. You want your best customers to be your best references as well. That's how you get second order revenue. So it's just not worth it. The third one is you got to do the math. If you're growing more than 60, 70% a year, think about the cohorts, these early customers. Their revenue won't matter in five or 10 years if you're doing a million today and in seven or eight or 10 years you're doing 100 million. That million hopefully has grown through net negative churn to 5 million 7 million. But it's just not worth raising the prices. It's not going to matter in the long run when growth slows. When you're at 20%, 15% of your growth, raising prices can be hugely impactful, but just not enough benefit in the early days. And finally, it takes a lot of discussion, raising prices. Everyone wants to talk about it. Sales, marketing, product investors. It sucks up a lot of oxygen. And you could probably be doing more to boost your revenue than arguing over whether to increase the pricing. $5 per seat. So do it if you've got to, do it. But be wary. What you really want is customers that love you for a decade.
