How to raise prices for your digital products
The truth is, raising prices is hard.
It’s just never the right time. Not to mention, it’s hard to know how much to increase your prices. And how do you even go about doing it all?
Which leads to never doing it and you’re back at square one.
With all that being said, demanding higher prices for the goods and services you provide online doesn’t just increase the profits from your business but offers more freedom.
After all, you should be fairly rewarded for the value that you bring to your customers.
There’s no need to remain static with your pricing. When you first start selling digital products or services, most of us are just pricing our products based on what you see in the market or what you think will resonate at that time. But after a few years, then what?
I get it. The fear of increasing prices has some negative connotations. You’ve heard some horror stories of brands doing it the wrong way and they end up losing customers. But this doesn’t always have to be the case. By waiting for the right signs and approaching price increases in the right way, you won’t have to sacrifice customers to enjoy higher margins.
How to tell if you are due for a price increase
Believe it or not, it’s actually quite easy to figure out if you’re ready to increase prices. If you have made improvements to your product recently, then it may be time to upgrade. Here are a couple of quick checkpoints:
- New features — this is always an easy one. This could take you from a simple one plan to offering higher-tiered options.
- Upgraded Experience — something as simple as upgrading the user experience definitely can easily warrant a price increase.
- Any value-add activities that increase the perceived value that you provide will increase the amount that you are able to charge for it.
- Think things like better support, better documentation, new add-ons, new content, new training, etc. The list goes on and on.
The point is, even the smallest additions that may not seem like they merit an increase, actually do.
When in doubt, the question you need to answer is:
Does this deliver more value to my customers?
If the answer is yes, then you owe it to you and your customers to increase prices. If you don’t, you create more issues than just losing out on higher margins. You cripple your ability to scale and maintain that same level of service.
If you’ve kept the same price for a year or more, then you are overdue for an increase.
A smoother experience with the product may not seem like much, but 52% of customers would willingly pay more for a service if it meant a faster and more efficient experience for them. Up to 42% of consumers also find enough value in a friendly and welcoming service to pay extra for it. A study done by PWC surveyed consumers to find out these results, and the amount they were willing to pay extra was significant. They would gladly hand over 16% more if they were treated better as customers.
Even without improvements, keeping your pricing stagnant for a long time may mean it is time to reevaluate. Markets are changing so fast, and companies accumulate so much expertise in a short time that they are able to demand more for their efforts.
This advice follows that of top experts who advise changing prices at least once a year. Even in the competitive SaaS field, the companies that are seeing the most success are reviewing their pricing structure every quarter and making changes every 6-9 months.
One way that companies are working with this in mind is to market their initial pricing as an early bird special. These offers are sold with the expectation that prices are going to increase.
Or maybe the reason you are considering an increase is that you need to increase your profit margins. You might not be taking enough home to make all your efforts worthwhile, or you don’t have the resources to add new tools and expand your capabilities.
How to make the change?
By following a few simple rules, you will be able to charge more for your products without alienating your customers. Successfully raising prices for your digital goods will include:
- Researching what to charge
- Making a pricing strategy
- Communicating with your fanbase
- Collecting feedback and adjusting
First up — Don’t be lazy, do your market research.
Research what your competition is doing to see what the market will likely tolerate. By understanding objective (or subjective) numbers that surround your market, you will know what you can acceptably charge and where you should be at. Understanding where you fall on the spectrum for the value you provide also allows you to see what to charge.
After doing a little recon on the competition, the research should pivot to talking to customers. Asking real potential consumers what they expect to pay and what they would be willing to pay for certain goods or services in your niche. Some industries have consumers that are much more price-sensitive, and the only way to find this out is to talk with them.
NOTE — If you really want to nerd out, using tools like the Gabor-Granger technique and the Van Westendorp price sensitivity meter will help you put hard numbers on these figures.
Second — Unlock that strategic thinking.
Raising your prices won’t be a one-time event if you plan to stay in business over the long term. Finding a strategy to raise them that compliments your business model will bring some methodology to the mix and make it easier to determine pricing moving forward.
The question I get a lot is “how should I charge for this?”.
The short answer is — it depends.
Tbh, it all depends on your product and the customers you’re selling to. You may need to do some research on pricing models and pricing strategies.
Third — Proactively Communicate with Customers.
Easily the most important step. You have to be ahead of communication.
The tried and true way is to communicate with your customers about any changes being made and give them a fair warning far in advance. If you are upfront with what you are doing, then your customers are more likely to see why you are doing it, instead of seeing it as a sleazy tactic to trick them out of more money.
The more notice you can give people the better. Ideally, you keep existing customers on their same pricing. Essentially grandfathering them into their old pricing. If that’s possible, your current customers will appreciate it if you allow them time to adjust to the new rate. Give them a few months at what is now a discounted rate. At the very least, they’ll feel like you value their business.
Lastly — Get Feedback and Adjust
After you release a new price, take to time to evaluate how your customers are reacting. Ask them what they think and look at how sales numbers change. If you’re seeing some significant pushback, you may have been too ambitious. You may have to consider rolling back your rates to help you keep customers who were off-put by your changes.
Hopefully all of that was adjusted before the launch of the new pricing changes when you gave customers earlier notice.
Like I said, raising prices is hard. It’s a balancing act for sure and requires a lot of thought, strategic planning and communication.
My advice is put yourself in your customers shoes and always keep it as simple as possible when you’re going through price increases.
Follow the steps above to really get a feel for where the market stands. You should be able to quickly identify when it’s a good time to adjust your pricing. By following a systematic method for raising your prices, you won’t risk asking too much and losing customers, or having rates that are too low and losing revenue. By communicating with your customers and listening to their needs, you will be able to suavely navigate this touchy subject.
Good luck and always remember, you’re worth more than you think.
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