sample of the rate increase letter that I send out to my own pet sitting and dog walking Due to the rising cost of doing business we will be raising our rates.
When you’ve grown to love a product or a service, learning you need to shell out more money to maintain the status quo can be a bummer.
How the company approaches the price increase, however — from gathering data, to writing the price increase letter to customers, to implementation — makes a huge difference in how customers will interpret the decision.
When your company has decided to raise its prices, there are some clear do’s and don’ts that can ensure you’re putting customers first every step of the way. Here’s our playbook for managing a price rise with the utmost care, including cutting-edge research and examples of both the right and wrong way to communicate the hike in a letter to your customers.
Although a clear strategy is the backbone of any effective price increase, at the heart of a positive experience for customers is an underlying spirit of generosity.
Business leaders always have to toggle between prioritizing generosity and growth.
When it comes to pricing strategy, we recommend leaning into generosity.
Help Scout honors old pricing plans for two years, meaning that current customers don’t see any rate increase until 730 days after raising prices for new customers. Our goal is to make the transition as seamless as possible, particularly for our loyal customers. With the same ethos, we never push upgrades unless they benefit customers directly.
As impactful as raising prices can be for your bottom line, higher short-term revenue at the cost of an even higher customer churn rate is not only ineffective, it’s dangerous. Implementing a price change with a sense of generosity ensures you’re never forfeiting your integrity or the trust of customers.
When you put customers first in every decision, you build goodwill and have more leeway when you need to raise your prices. Patrick Campbell, Co-founder and CEO at Price Intelligently, explains why with the results of their company’s research:
“Across the board we found a correlation between a higher customer service rating and willingness to pay. These results may seem intuitive from an e-commerce perspective. Yet, on the SaaS side, they’re of particular interest, because customer service isn’t something we necessarily think about as a top priority in the world of software, at least in the aggregate.”
That finding doesn’t surprise us, though. Customer service has always been about maximizing value. When you demonstrate your worth in every interaction, you gain more leverage to implement a price rise that’s mutually beneficial.
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Given the intricacies of a successful pricing strategy, there’s a temptation to “wing it” and see what happens. Don’t fall for it. A price change should never be in reaction to a competitor, a customer, or even a big shift in the market.
Instead, the best companies focus on building out a pricing infrastructure, or the mechanisms that help you analyze potential pricing strategies and gauge their performance over time. According to McKinsey & Company, businesses that fail to build this infrastructure fall into one of two traps: They underestimate the power of intelligent pricing, or they choose not to invest in a critical price-testing model.
Unlike a lot of other product investments, developing a rigorous, data-based pricing strategy has a quantifiable ROI. The same article from McKinsey suggests that . No matter your business, knowing how to increase prices at your company hinges on a deep understanding of your product and its ever-changing value in a dynamic market.
The pricing process also requires deliberate, continuous testing over time. Given that, don’t refer to a price as everlasting or “forever” (something we learned the hard way!) or offer lifetime guarantees. Customers envision a lifetime as their lifetime, not the lifetime of the product.
McKinsey hints at three keys to help pinpoint how to increase your prices. At Help Scout, we’ve taken a similar approach. By planning ahead, you radically increase the likelihood of a positive outcome for everyone, including your customers.
Our intention is always to strike a balance between maximizing the value we bring to customers and sustaining the company’s momentum. These two drivers are not necessarily mutually exclusive, but the right pricing structure requires a complex, ever-changing calculation that’s derived from constant analysis of the two.
At any given time, a team of up to three Help Scout engineers is assessing pricing and packaging options with the above balance in mind. During the testing stage, our team focuses on two clear but often contrasting indicators: price sensitivity data from A/B tests and the data that underpins our intention to deliver the strongest price-performance ratio in the market.
It’s not uncommon to run more than 10 A/B tests to identify the right packaging and pricing mix for customers. No fewer than a dozen people on all sides of the company contribute to the change from the initial analysis through to customer communication. We take everything about the process seriously, and that’s the way it should be.
Some companies follow all of the above advice, then drop the ball instead of running it across the finish line. If you’ve ever been taken aback by a sudden price hike, you know what I mean. It doesn’t matter how much thought a company puts into a price increase if they can’t communicate with empathy and transparency, and way in advance.
Research shows customers perceive a price rise as fairer when the company communicates the change directly. The breadth of the explanation needs to match the significance of the price increase — i.e.,
We’ve learned to be painstakingly deliberate about every aspect of the communication around price changes. Our team starts by sending a price increase letter to customers via email and in-app notifications six months in advance. We strive for transparency and empathy, giving customers all the information they need to make an informed decision.
Here’s a look at two examples of letters to customers about a price increase from totally different organizations and contexts.
We’re writing to let you know about a pricing update that affects your account.
Starting July 1, 2018, your subscription price will be $60 per month, plus tax where applicable. This increase will take effect on your next billing date on or after July 1, 2018.
We’re constantly introducing new features and improvements to QuickBooks. You can always visit our blog for the latest updates but here are a few highlights:
Automatic Sales Tax: Get custom rates automatically added to invoices based on location
Contractor Self-Setup and E-filing: Easily gather contractor information and efile 1099 forms
Projects: Stay organized and track profitability project by project
Progress Invoicing: Get paid faster by invoicing in installments across the lifetime of a project
Desktop App: Faster access to QuickBooks Online via your desktop
For more on the pricing changes, visit our FAQ page. Other questions? Give us a call at 844.832.2902. We’re happy to help.
— Your QuickBooks Team
What QuickBooks did wrong in this price increase letter to their customers:
I’m writing to inform you of a 5% increase to the cost of membership, which will take effect as each membership comes up for renewal, beginning on February 1, 2017. This modest adjustment — our first since 2010 — equates to an additional $10 per year for Young Patrons, $11 per year for Young Patron Family Members, $15 per year for Individual Members, and $16 per year for Life Members, Family Members, and Proprietors.
By restricting the amount of the increase — and by continuing to subsidize more than 80% of the costs of membership — we seek to keep the Athenæum affordable. Even after the scheduled adjustment, a year of access to everything the Athenæum has to offer will cost less than such “optional necessities” as high speed internet access, gym memberships, and newspaper subscriptions.
The circumstances prompting this change are compelling. Simply put, our costs are growing at a rate poised to outpace our income. (To read an overview of the Athenæum’s financial position, click HERE.) In order to provide the services, spaces, and collections that our members rely on, and so that we may continue to evolve and excel, we must take meaningful steps to grow our revenue. To that end, we are launching a multipronged effort to increase our sources of support. The membership rate adjustment is only one of several such initiatives. Others include:
Redoubling our fundraising efforts. Currently, many members do not contribute to the Annual Fund, perhaps because we have failed to explain the essential role that such contributions play in underwriting nearly one quarter of our activities. By communicating more clearly the value of every gift — in all amounts — we hope to double participation in the year ahead.
Raising the price of Proprietors’ shares to a rate more consistent with their historical values.
Increasing, ever so gently, the number of corporate event rentals.
Instituting (by mid-2017) an admission fee for visitors from the general public. (Of course, our members’ guests and affiliates of sister organizations and of the museums in our reciprocal admission network will continue to visit free of charge.)
Piloting an hourly fee-for-research service intended to assist scholars unable to travel to Boston to consult rare materials.
We will monitor each of these initiatives closely — so that we may refine and pursue those that prove to be successful, and discontinue those that are not.
All of us at the Athenæum feel grateful to be able to rely on your support. By coming together at this critical juncture, our community of curious, open-minded thinkers will continue to pursue knowledge — as we find it written on the page and displayed on the walls, onscreen, and face-to-face — here, in this oasis for reflection at the heart of our bustling city.
Elizabeth E. Barker, Ph.D.
Stanford Calderwood Director
What the Boston Athenæum did well in this price increase letter to their customers:
Reading these two contrasting price increase letters, you can feel the difference in the effect they would have on a reader. The missing pieces in the QuickBooks letter add up to the sense that the company cares less about its customers and more about its revenue. The detail and tone of the Boston Athenæum letter add up to a sense of gratitude for their transparency.
When you craft your own price increase announcement to customers, communicate with honesty, humility and appreciation, which pays major dividends.
Every day, businesses put enormous effort into gaining the trust of customers. You don’t want to throw it all away with a 2% price hike. Approach raising prices with the highest level of attention and expertise that your company can afford. With a clear focus and dedication to digging into the details, you’ll be able to optimize a strategic price rise without risking the customer relationships at the center of your success.
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Liz writes about business, creativity and making meaningful work. Say hello on Twitter or through her website.
sample of the rate increase letter that I send out to my own pet sitting and dog walking Due to the rising cost of doing business we will be raising our rates.
It can be nerve-wracking to send a price increase letter to your current clients. However, you're unlikely to lose many customers over a modest rate increase. To increase your rates without causing clients to reassess whether to do business with you, be straightforward and focus on adding value rather than justifying the increase. If you have a particularly valuable customer, consider issuing him a temporary extension of current rates.
Be direct and keep the letter simple. Your client's time is valuable, so don't beat around the bush. A short salutation, a statement that you will be increasing your prices by a certain amount on a specific date, and a note thanking your client for his business is really all you need. Don't apologize for the rate increase or ask for client input on the matter. If your client senses that you're tentative or unsure about the increase, he's more likely to push back and ask to keep his current rates.
You don't need to spend much time, if any at all, justifying your reason for the rate increase. The truth is that your customers aren't interested in the fact that you haven't increased rates in many years, that you're behind on bills, or that you're working extra hours to make ends meet. If you do want to justify the increase, stick to a simple phrase like, "Due to the rising cost of doing business, I'll be increasing my rates" or "To keep my prices level with the market, I'm increasing my rates."
Rather than justifying the rate increase, consider adding value to your services to soften the blow of the rate increase. If you're increasing your prices because your products have improved in quality, explain how additional product features will benefit the client. If you've learned a new skill or can provide an extra service that doesn't take much time, include that in your letter. For example, a bookkeeper might say something like, "Since I've obtained enrolled agent status, I can now file your tax return on an annual basis for no extra charge."
Give your clients a good amount of notice before sending the rate increase letter. Your client has probably experienced rate increases from other suppliers and vendors, but some departments need time to request a higher budget or need an approval from management to pay higher rates. Ideally, give your client at least a few months notice before raising rates. If the customer is particularly valuable or you do a lot of work for him, offer him an extension on the rate increase. For example, you could say, "My rates will from x amount to y amount on January 1st. However, since you're only of my most valued clients, I'm offering you a complimentary extension of current rates until March 1st."
by Adam Juda on Tuesday, January 2, 2018
A company that raises its rates must make a decision. Should it grandfather its existing users into the old pricing scheme, or should it demand higher payments from both new and existing customers?
Many firms prefer the former, because it looks inherently safe. They grandfather existing users because they think that existing customers will balk at paying higher prices. Keeping their prices low will prevent them from going elsewhere.
Grandfathering prices is anything but safe in the long run. It simultaneously erodes a firm's potential profitability but, at the same time, it reduces firms' incentives to maintain high levels of customer satisfaction amongst the existing customer base. It also serves as a public admission that the firm's new pricing far exceeds the value delivered.
Fortunately, there are many tools to soften the sting of a price increase. One of the most effective is the price increase letter. It's exactly what it sounds like: written notification that prices will go up.
A price increase letter has to accomplish far more than announce that a vendor is increasing its prices. It must convince the existing customer base to accept the change in prices too.
Let's take a look at a few items that increase the effectiveness of a price increase letter:
It's important that vendors demonstrate that they do not enjoy raising prices. Shoppers do not like greedy companies or those that use their market power to force higher prices upon their loyal buyers. For that reason, it's important to demonstrate that any increases in price are not only heartbreaking to the company, but they were implemented only as a measure of last resort.
It's often beneficial to deflect the blame of a price increase onto a third party. Doing so will help in three major ways:
Some writers will feel pressured to provide a financial analysis, but this level of detail should be avoided. It is often simply best to explain the situation without delving into the minutiae. Not only will this lead to a simpler narrative, but it will allow firms to raise their prices well above those warranted by the reasons disclosed.
Most customers have some degree of price sensitivity. The more prices increase, the more likely a given customer will start looking for a new vendor. Therefore, it is essential to convince customers that the vendor (or its offering) is superior, preferable, or in some way more desirable than the alternatives.
A firm's original price structure can act as a terrible foe when it raises its prices. This is because the old price list acts as a price anchor in customers' minds. It's important to demonstrate that the value delivered by the firm is well in excess of both the original price and the newly revised price.
Many small business owners attempt to distance themselves from their price increases. Otherwise, friendly and approachable business owners become emotionally distant when discussing changes to their pricing. They feel guilty, embarrassed or fear the retribution of their customers, and believe that an increased formality will somehow shield or protect them.
This temptation should be avoided at all costs. Bad news should always be delivered in a personal way.
Language speaking to the length or intimacy of a business relationship will help reinforce the bond between vendor and customer. Depending upon the size of one's client list, personal anecdotes relating to each customer can be woven into the narrative and drive the existence of a personal relationship home.
Impersonal phrases like the following serve as strong signs that the messaging of the letter is too antiseptic:
Firms should attempt to put a positive spin on any price increases. The best way to do this is to demonstrate that the customer will be better off in some way, once the increase in prices takes effect.
Vendors should avoid the temptation to describe specific increases to their offerings' value propositions in order to justify an increase in price. Such discussion will prompt customers to ask a very dangerous question:
Is this newly bundled offering worth the difference in price?
For this reason, it may be best to remain vague and appeal to emotion.
Offering a personal communication channel to the sender will make people feel more highly valued and more connected to the firm's management team. Even though the vast majority of customers will never bother to make contact, the fact that communication channels exist will provide a big boost to customers' feeling of a genuine relationship.
Now that we understand what needs to be included, are there any items that shouldn't be included?
I've read through a number of such documents and I see a handful of mistakes that keep appearing.
I once received a price increase letter that contained the following: "we will continue to monitor our increasing costs and will adjust our prices accordingly."
This language is dangerous and will likely lead to increased customer attrition.
It does nothing but elevate the fear on the part of customers. Rather than softening the blow of a price increase, it magnifies customer uncertainty by alluding to price increases that have not yet been put into effect.
Customers who are willing to accept the current price increase but are fearful of additional increases will be motivated to examine marketplace alternatives.
A well=written price increase letter will convince customers that it is not worthwhile to investigate alternative providers. After all, the more customers search for alternative vendors, the more likely they are to find an offering that better matches their needs and budget.
Firms that take a bold stance by writing something akin to "feel free to price shop our offerings" may believe that their bold language signals great confidence. In reality, it merely increases the odds that existing customers will open communications with other vendors. In other words, such language will deliver a group of highly qualified leads to one's rivals while, at the same time, reduce the vendor's own potential revenue.
It is important to remember that a price increase letter is intended to convince readers that a price hike is worth accepting. Closing with a statement like "I hope you'll continue to stick with us" will only serve to weaken a vendor's credibility and convince readers that other options are worth investigating.
Vendors shouldn't just send their letters as soon as they are written. There are a few other matters to consider.
If a vendor would benefit from increased cash flow, a price increase letter can help immensely. Any firm that announces a price increase, but allows prepayments at the existing rates, will likely enjoy a strong infusion of revenue. Many customers will see such offers as desirable discounts and a no-brainer.
Vendors should avoid sending all of their price increase letters at once. It's often better to send a few out at a time. Not only will this practice reduce administrative burden on a firm's office staff, but it will provide early feedback as to whether the messaging was sufficient before damage is done to a large segment of the existing customer base.
No matter how well written a justification letter might be, there will be some customers who become enraged and demand concessions. Firms that bow to such pressure will erode their pricing power, because word always gets out.
Customers are becoming trained to tell vendors that they will go elsewhere unless their prices are reduced. Many of these threats are completely empty. Nevertheless, as customers learn that an individual firm will bend to threats, the number of demands for price reductions will assuredly increase.
There are many ways to write a price increase letter, but examples are always helpful.
Remember, however, that the style and content of such a document will depend upon a great many factors including the industry, nature of the offering, and the firm's relationship with its customers.
This letter serves as legal notice that your rates will increase by 10% as of January 4th. Please be advised that your next bill will include the revised charges.
A careful analysis has informed us that our rates are among the lowest in the nation. As such, we've modified our pricing.
Respectfully,TapRun Industrial Services "The company that cares"
Fred and Wilma,
Thank you so much for trusting us with your pool service for the past five years! Being able to spend my days keeping families like yours safe and happy has been a dream come true.
Unfortunately, the cost of pool cleaning supplies keeps going up, and to continue providing you with the highest levels of service, I'm being forced to raise my prices by six dollars per cleaning.
This isn't a decision that I made lightly, and I know that it isn't something you'd want to hear. Nevertheless, I've worked hard to provide you with the absolute best prices that I can.
The increase will help us ensure that we're able to continue to use the safest and most environmentally-friendly chemicals for you and your family.
If you have any questions or concerns, please don't hesitate to reach out to me by email or phone.
Thanks for your support, and I look forward to our continued relationship.
Founder, TapRun Pool Cleaners
email: [email protected]phone: 404-555-xxxx
Raising prices for existing customers can be scary and dangerous, but it is often essential to a firm's bottom line. Price increase letters can reduce this risk and should be considered an important component of any pricing change.
Do you need some help with your pricing strategy? Contact me, and I'll help you fix what's broken.
Act now. My prices might be going up in the future!
Sample letters to announce a price increase. We have made every attempt to avoid the increase, but we refuse to compromise on quality. This is our only.
Telling your customers about a price increase is one of the toughest emails that you’ll send. What if all your customers get angry and leave? Hello anxiety! You might be hesitant to bring it up at all — just change the pricing page and hope nobody notices, right?
Of course, the reality is that customers will notice and get confused and angry. Failing to be up front about pricing, of all things, is no way to treat people.
Appcues — a Boston-based startup that helps software companies create personalized in-app onboarding flows — recently increased their pricing across the board to better align it with the value provided to customers. Instead of hemming and hawing, they emailed every person who’d ever signed up for Appcues to tell them about the change.
Appcues co-founder Jackson Noel describes the deliberate goals they had for their pricing emails approach:
- Communicate the adjustment clearly to both customers and prospects
- Inspire urgency in the sales process
- Avoid pissing off our customers (and/or being compared to a cable company)
It worked. Not one angry response or customers lost (and only 12 unsubscribes).
More than that — these pricing increase emails ended up capturing 263% more sales, leading to Appcues’s best month ever. Here’s how they did it.
Appcues sent different emails to two different segments to notify them about the new pricing plan. The email on the left went to current customers, while the email on the right went to everyone who signed up for the app but wasn’t yet a customer.
With something like a pricing change, you want to be clear from the start. In these emails:
The less straightforward you are about what customers may construe as bad news, the more credibility you lose. By being up front, you earn your customer’s respect and maintain the trust required to develop a long-term relationship.
One huge insight that the Appcues team had was to treat the news as a sales process. They realized that when you raise the price of your product, the lower, legacy pricing becomes a promotional opportunity. That becomes a win-win window — customers get a deal at lower prices and the company gains conversions to higher plans.
In their call-to-action to non-customers, Appcues created urgency to take advantage of its promotional pricing by invoking the psychology of loss aversion. If you don’t upgrade to a paid plan before July 31st, you lose the opportunity for legacy pricing forever. That grabs your attention and propels you towards a buying decision. If you’re considering buying Appcues at all, now is a great time.
It worked — this email had a 60% open rate with 4.3% click rate. Appcues was able to close a number of those sales and bring in 263% more in revenue in July versus June as a direct result.
As for existing customers, Appcues did something awesome by grandfathering them into their current pricing instead of forcing them to move up to the new pricing scheme. They focused on this message because they wanted to keep current customers happy and not damage relationships for the long-term.
However, in doing so, the company missed a chance to nudge this existing customers segment towards the opportunity to upgrade to a higher tier at legacy prices. They could’ve made a similar offer to the one for non-customers: take advantage of legacy pricing to upgrade now. Because they didn’t, there were 0 upgrades.
If the Appcues team were to do it all again, here’s what they said that call-to-action would’ve looked like:
Never email from [email protected], especially for an email with this level of sensitivity.
Not only did Appcues send their email from a friendly account, they actively encouraged email replies. And they backed up their promise by responding to queries quickly to make sure that everyone was squared away.
The follow-up is crucial to closing deals, and that’s why Appcues decided to create short email campaigns for its non-customer segment.
Within a broad segment like non-customers, you’ll often find a heterogenous group. In fact, the non-customer group had 8x more people in it than the customer group, which made it ripe for some deeper segmentation. For example, people currently in their 15-day trial are much warmer leads than those who tried your product out 9 months ago and barely remember who you are. So Appcues created 2 separate email campaigns for its 2 non-customer segments.
For people currently active in their 15-day trial, Appcues created a specific follow-up to the initial announcement. One day before the new pricing took effect, they sent a second email to this specific segment reminding them of the pricing change and giving them one last opportunity to take advantage of legacy pricing.
This segment also had the most promising prospects for the pricing change. They were the most likely to convert to a paid plan compared to people who signed up several months ago. And since this was just a quick reminder to a targeted sub-segment, the email not only wasn’t annoying — it worked to move people onto their buying decision.
Often, people won’t respond or act on branded emails just by virtue of the fact that they come from the company, not an individual. Appcues decided to add the personal touch and email people directly, by hand.
John Sherer, Appcues’s Director of Business Development, reached out to sales prospects (people who’d shown interested in the product and weren’t yet customers) and divided them into two groups:
He wrote each active conversation email from scratch, drawing on the existing context of his sales conversation and without copy-pasting a template. They resembled this email:
These emails were incredibly effective in getting deals from interest to close because of the personal touch.
For prospects he hadn’t talked with in awhile, he copy-pasted and sent the following email to prospects that he thought had the potential to convert. He used HubSpot Sales to track opens on those emails.
This email reignited interest in a number of prospects. The Calendly link made it easy to book time for a call with John, where he would warm up the lead by demoing the product. After that, he would close the deal using the promotional legacy pricing.
What’s impressive about Appcues’s pricing campaign is that they were able to do what’s best for the customer and boost their bottom line, all with a pricing email that startups all too often are scared to send.
By thinking through their messaging strategy, they were able to send targeted emails that persuaded people to act positively in their own interest. The Appcues team accomplished its goals, simply by establishing some basic principles, creating 2 segments, and adding the human touch.
How have your pricing change communications gone? Share your story with us in the comments!
Jun 6, It can be terrifying to increase your prices. Especially as you grow your cleaning business, you will see some clients leave you. Be honest, and make sure you send them a letter or an email before you increase their prices.