“Make your money by delivering consistently on expectations so your cost of renewal is near zero and they’ll stay, buy more, and advocate.” – Todd Caponi in today’s Tip 1033
Are you or your company considering raising your prices?
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Scott Ingram: You’re listening to the Daily Sales Tips podcast and I’m your host, Scott Ingram. Today’s tip comes from Todd Caponi. Todd is the author of the 3x award-winning & best-selling book, The Transparency Sale, and a top-rated keynote speaker & trainer as Principal of Sales Melon, LLC. His new book, The Transparent Sales Leader, is planned for early 2022. Here he is:
Todd Caponi: Are you or your company considering raising your prices? Well, in a recent interaction with Scott Ingram himself, he had told me that the buzz on the street is that, “Price increases. I think we’re going to see a lot of these next year.” And so it led me to this daily sales tip that before you pull the trigger, make sure you are fully calculating the subconscious unintended cost of a price increase. Here’s what I mean.
First question to ask yourself is, why are you raising prices? And if the answer is, “Hey, we’re losing money on every existing customers and can’t sustain the business under the current pricing.” Well, then you might want to disregard the rest of what I have to say because you’re essentially having to fix a past error and planning, and that needs more than a daily sales tip to fix. However, if the answer is how most of these are, which is, “Hey, we need to grow revenue. We’re providing more value to our customers so they should be paying more for what we provide.” And I’d like you to consider rethinking that mindset and your strategy.
Now, as a technology provider. And specifically, I’m thinking about this from a SaaS viewpoint, too. Attempting to grow revenue through charging existing customers more is more likely to do the opposite. You best grow margins from existing customers by setting accurate expectations and consistently meeting them. But the result is a no-brainer renewal meaning very low cost to renew and a higher likelihood of them buying more and an even higher likelihood of them advocating on your behalf.
Now, if you have to raise prices, consider grandfathering in existing customers and beginning the new pricing model on new customer acquisition. Because for every ten existing customers who accept the price increase, I’m telling you, one is going to leave, which has significant long-term value cost to your business, right? Because if they would have stayed and renewed and renewed, you’re not looking at one year you’re looking at multiple years, one will probably reevaluate and maybe more, which has a cost both in resources and in the opportunity cost of focusing on retaining versus new customer acquisition.
And there’s probably another three others that will do something that I call couch tracking, which is their radar goes on for alternative options, and they’ll be less likely to stay, less likely to buy more, and less likely to advocate while they’re in that mode, which costs you more than you can even see. I mean, essentially you’ve shaken loose those who don’t normally give renewal another thought into conscious consideration of alternatives.
Now, if the above explanation doesn’t scare you out of raising prices on existing customers, if you are anticipating this price increase to impact 2022 renewals, you better be providing notice greater than or equal to a simple calculation. I want you to think about your average sales cycle length. Take that number of days and then add 60 days to it, and you better be giving at least that amount of notice to your existing customers. If your average sales cycle is 30 days, then you’d better be providing 90 days’ notice. So the customer has adequate time to investigate alternative solutions because otherwise, you’re forcing them to pay more. They have no alternative. And what happens then? Well, you’ve just eroded the crap out of trust between you and that relationship.
Your relationship is unfixable at this point. A customer that stays reluctantly is worse than a customer who leaves, in my opinion, because those who stay reluctantly are more likely to spread the word, which also erodes your company’s reputation. Right? Negative reputation spreads more quickly than positive. Get ready to see lead flow slow down and churn go up and you’ll be like, “Oh, why is this happening?” It’s probably that.
Now, given that we’re just a few weeks from 2022 already, your customers have already established their budgets for 2022. So if you haven’t already told those existing customers, get ready for your account management team to start polishing up their resumes, too, because their job satisfaction is likely to shrink.
What do you think? I would love to hear your feedback on this, for my companies and those I advise, my advice is always and has been your best served maintaining and rewarding loyalty and getting existing customers to not have to even think about their renewal. Make your money by delivering consistently on expectations so your cost of renewal is near zero and they’ll stay, buy more, and advocate.
Scott Ingram: To get your hands on a copy of The Transparency Sale and to connect with Todd on LinkedIn where you can tell him what you think, just click over to DailySales.Tips/1033 where you’ll find those links and a couple others.
Once you’ve done that. Be sure to come back tomorrow for another great sales tip. Thanks for listening!