When should you price higher?

When should you price higher?

We hold this truth to be self-evident: Most (OK, all) for-profit businesses want to make more money. If you price higher, you can do that. But oftentimes companies are reluctant to price higher, fearing customers will flee to a competitor. In what contexts could you consider pricing higher? We’re here for you.

Perception: Oftentimes, having higher prices gives the perception to prospects that your services are going to be more valuable and do more for them. One thing we’ve seen is companies from smaller, non-business hubs cities or areas. If you come from a smaller locale, you sometimes need to price higher to convey that you’re “a big boy.” The big caveat with perception and higher pricing is that you need a delivery team to back it up. If you price higher and then can’t deliver, you won’t retain, and there goes ARR.

Longer engagements: Some services and products just take a little bit longer to see results. If you price low and people aren’t seeing results, the low price makes it easier to switch. If you price higher, a new customer will likely stay with you at least for the first full contract because the higher price means they psychologically don’t want to bail on that investment. If you know you need six months for any true ROI to come through, price higher and set a 12-18 month initial agreement. There might be some hiccups along that arc, but if your service is delivering, you can retain at a slightly higher price.

Filtering: Pricing higher helps you eliminate price-only “tire-kickers,” which frees up your sales guys (or outsourced sales team) to focus on higher-value prospects and potential long-term customers. That all drives ARR better than a bunch of short contracts with tire-kickers.

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Profitability: If your service can deliver for prospects, pricing optimization is the primary lever to adjust for more profitability:

When should you price higher? 1

Bundle in more options: Companies will sometimes price higher to include more options, instead of the “Well, if you want that, you need to pay more…” approach that can turn off customers.

Uniqueness: A lot of decision-makers in SaaS can sometimes drink their own Kool-Aid and think their product has better tech than anything on the market. In reality, it probably does not. Much of the tech is very similar in SaaS and companies get ahead on pricing, product-market fit, internal management, and branding. Salesforce is Salesforce for a variety of different reasons, and the quality of their tech is probably not in the top five of that list. If you are legitimately unique, you can price higher.

Ease of use: We live in a world where everyone thinks they are insanely busy. As such, if your product or service actually saves legitimate time or makes someone less busy — ease of use, ease of delivery, ease of implementation, etc. — you can justify a higher price.

A note on increasing price: Should you increase your price for existing customers? Not really. Increasing prices in an existing business relationship tells that something’s broken in that relationship. It’s no longer a win-win situation and the price is just a symptom. If you increase your price with an active customer (monthly retainer, service fee, hourly rate, …) your customer will likely take this as a trigger to evaluate the relationship also from his perspective (is the value you bring still worth the price?) and he is also very likely to take a look at his alternatives: your competitors.

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