How to raise SaaS prices without losing revenue

Most founders who raise SaaS prices worry about the wrong number. They worry about how many customers will complain. The number that matters is how many customers you can lose before the rise stops making you money, and it's usually far more than you'd think. A 10% price rise pays off as long as you lose fewer than about 9% of your customers because of it. Here's the maths, a worked example, and how to do it without a wave of cancellations.

The break-even rule

When you raise prices, two things happen at once. Every customer who stays pays more. Some customers leave who wouldn't have left otherwise. The rise pays off if the first effect is bigger than the second.

The break-even point has a simple formula. If you raise prices by a share r, you can lose up to r ÷ (1 + r) of your customers and still take the same revenue.

Anything under those figures and the rise earns you more. Anything over, and you'd have been better off leaving prices alone.

A worked example

Say you run a SaaS product with 200 customers paying £30 a month. That's £6,000 of monthly recurring revenue (MRR). These numbers are hypothetical.

You raise the price 10%, to £33.

• To match £6,000 at £33, you need about 182 customers. So you can lose 18 customers to the rise and break even.
• If 10 customers leave, you have 190 paying £33: £6,270 a month, £270 more than before.
• If 25 leave, you have 175 paying £33: £5,775 a month, £225 less.

Most price rises for a product people genuinely use land nearer the first case than the second. But "most" isn't "yours", which is why it's worth working out your own break-even before you announce anything.

Count the right cancellations

Only the extra cancellations caused by the rise count against it. If you normally lose 4% of customers a month and you lose 6% in the month after the rise, the rise cost you about 2%, not 6%.

That means you need to know your normal churn first. Look at the last three to six months: how many customers cancelled each month, as a share of the customers you started the month with. If it jumps around, use the average.

And watch the next two or three months, not just the first. Some customers leave when the new price first hits their card, not when you announce it. Annual customers only feel it at renewal.

Who to raise prices for

You don't have to raise everyone's price at once.

• New customers only. The safest option. Existing customers keep their price (this is called grandfathering), and the new price applies to sign-ups from today. Revenue grows more slowly, but churn barely moves.
• Everyone, with notice. The fastest option. Give at least 30 days' notice, longer for annual plans, and check your terms say you can.
• Everyone, over time. Move existing customers to the new price at their next renewal, or after six months. A middle path.

If you're nervous, start with new customers. You'll learn whether the new price hurts sign-ups before you touch anyone's existing bill.

How to announce it

Most of the churn from a price rise comes from how it's announced, not the size of it.

• Say it plainly. "From 1 November, the Pro plan goes from £30 to £33 a month." Put the numbers in the first sentence.
• Say why, briefly and honestly. What you've shipped this year, what's coming, what it costs to run. One short paragraph. Don't apologise.
• Give a real notice period and a date.
• Offer a way to lock in the old price, such as switching to an annual plan before the date. It turns a price rise into a cash boost, and annual customers cancel less.
• Make it easy to ask questions. A reply-to address that a person reads.

Don't bury it in a newsletter, and don't announce it in the same email as an outage apology.

What stops a price rise working

A price rise is a bet that your product is worth more than you charge. It goes wrong in predictable ways:

• Customers who were already on their way out. A rise gives them a reason to leave now. Check cancellations were steady before the rise, so you don't blame the price for churn that was coming anyway.
• A product people don't use. If a big share of your customers haven't logged in for a month, fix that first.
• Your biggest customers. If three customers make up a third of your revenue, talk to them before the announcement, not after.

Work it out before you announce it

The break-even table tells you where the line is. What it doesn't tell you is where your customers are likely to land, which depends on your churn, your customer spread and how many of your customers pay annually.

The free SaaS price increase calculator works out your break-even and a likely outcome in a minute, no account needed. If you'd rather test it on your real subscriptions, Scenario connects to Stripe read-only and lets you ask "what if I raise prices 10%?" before your customers ever see a new number; you can try it on a sample business in the live demo.

The takeaway

Work out your break-even before anything else: a 10% rise pays off as long as it costs you fewer than about 9% of customers. Know your normal churn so you can measure the real effect. Start with new customers if you're unsure, announce it plainly with the numbers up front, and watch cancellations for two or three months, not one.