How to raise your online product prices
Ready to increase your profit margin, but not sure where to start? In this article, we'll cover how to raise your prices in 4 steps.
It's time to bust a small business myth.
Raising your prices doesn't have to mean losing customers.
When you sell valuable products -- and handle price increases the right way -- your customers won't run screaming.
Your current prices might even be undervaluing your products, especially if you deal with imposter syndrome like so many entrepreneurs do.
Don't worry, though -- we've got your back. In this article, we'll cover how to raise your prices in four steps.
But first, how do you know if it's time to raise your prices?
3 signs it's time for a price increase
1. You made your product more valuable
If you've improved your product since you launched it, consider raising its price.
Here's why: When you add new features, content, or services to a product, it increases the perceived value.
Perceived value refers to both current and potential customers' "evaluation of the merits of a product or service, and its ability to meet their needs and expectations, especially in comparison with its peers".
When your product's perceived value goes up, its price should, too.
Let me explain. A better user experience (UX) means that your product is easier and more enjoyable to use, which creates a better overall customer experience.
In turn, a better customer experience makes customers more willing to pay a premium for your product.
A customer experience study by PWC found that 42% of consumers said they would pay more for a friendly, welcoming experience. 52% would pay more for a speedy and efficient customer experience.
How much more? According to the same study, consumers are willing to pay 16% more for better customer experience.
Online retailer Brandless improved its customer experience by expanding its selection of health and wellness products -- and announced an increase in prices at the same time.
Previously, all of Brandless’ products retailed for $3. After the price hike, they ranged from $3 to $15.
Here's why the price increase was so strategic, according to Corinne Ruff (via Retail Dive):
"Brandless views health and wellness as a major category opportunity, especially since the types of products offered generally come at higher price points, the company said.
It's also leaning on data that show between 2015 and 2017, wellness grew from a $3.7 trillion to $4.2 trillion market."
So, if you're adding more -- whether that's more resources, a wider variety, or a better customer experience -- it's probably time for a price increase.
Another reason to increase your pricing? You've been selling your product at the same price for a long time.
2. You've been selling your product at the same price for a year
A lot can happen in a year.
The market grows, new competitors pop up, old competitors pivot. You learn more and become more and more of an expert in your space, so your expertise is more valuable.
Pricing experts at Price Intelligently recommend one to two price changes each year.
Patrick Campbell, CEO, explains: "The companies we’ve seen with the most success with revenue and adoption are reviewing pricing at least once per quarter and making tweaks or changes every 6 to 9 months."
One way to handle these periodic price changes is to make your initial pricing an early-bird rate when your product first launches, then increase your pricing for new clients later on.
That's what Amber Malone of Mompreneur Courses does for her online course pricing:
Early-bird pricing offers like Amber's reward loyal customers who have been with you since the start, while making sure that you increase your price over time.
As an added bonus, customers who find your product while you still have your early-bird offer going will be more likely to sign up or purchase ASAP, so they don't miss out on a great deal.
Now, let's move on to our third and final -- and a little less fun -- sign that it's time to raise your prices: You need the money.
3. You need (or want) to increase your profit margin
Your profit margin represents how much revenue you earn after accounting for all of your expenses.
If your bottom line is lower than you'd like, you have two options to increase your profit margin:
- Cut down your expenses
- Raise your prices
(We'll cover how to use your profit margin when pricing your digital products later when we talk about cost-based pricing.)
For small business owners, profitability metrics like your profit margin help you figure out how well your business performs over time. And small businesses tend to have smaller profit margins, especially when they're first starting out.
If you need to increase your profit margin to make up for increased expenses -- like productivity tools, a new email marketing platform, or virtual assistant services -- it might be time for a rate increase.
OK, you know that it's time to raise your price, but how do you figure out your new price? And how do you tell your customer base? For that, keep reading.
4 steps to raise your online product prices
Step 1: Do some research
Before you raise your price, look at what other creators in your field are charging for similar products.
For example, we looked at data from more than 133,000 course sales to answer how much you should charge for your online course. The average course price today is $182.59, while the median price is $76.50.
As you can see, we also found that more than half of the online courses we looked at fall in the $5.00 to $100.00 range, which gives you a solid idea of where to start.
In addition to checking out your competitors' prices, this step should include customer research. Talking to your customers can help you figure out price sensitivity, which is a major factor in how well your customers react to a price increase.
Price sensitivity is "a measure of the impact of price points on consumer purchasing behaviors.” Or, in other words, it’s “the percentage of sales you will lose or gain at any particular price point".
When you know your target audience's price sensitivity, raising prices gets way less risky. You know how much you can raise your prices before your customers get fed up and bail.
Patrick Campbell, CEO of ProfitWell, has something to say about this, as well
"Anyone can raise prices, but raising prices and customer satisfaction requires a strong understanding of your customers’ valued features and willingness to pay, which you get from your research."
So, how do you figure out price sensitivity through customer research?
Here are two strategies -- the Gabor-Granger technique and the Van Westendorp price sensitivity meter. (Say that five times fast.)
The Gabor-Granger technique, also called price laddering, asks survey respondents if they would purchase a product or service at a set price. Like this:
The Van Westendorp price sensitivity meter works the other way around -- you ask your customers how much they think your product should cost through these four questions:
- At what price would the product be too expensive for you to consider buying it?
- At what price would the product be so inexpensive that you would question its quality and not consider buying it? (Lower prices aren't always better -- price too low and it can lower the perceived quality of your product.)
- At what price would you think the product is getting expensive, but you'd still consider buying it?
- At what price would you think the product is a great deal?
From there, the Van Westendorp method gives you a set of ranges and an optimal price.
On this graph, your acceptable price range is $23.65 (the intersection of too inexpensive and expensive) to $30.42 (intersection of too expensive and not expensive). Your optimal price point is the in-between of too expensive and too inexpensive: $29.15.
If you're using one of these customer research techniques, make sure to survey both your current and potential customers to get the best idea of how much you can reasonably charge for your products.
After you have a good idea of your price range, it's time to dive deeper by defining your pricing strategy.
Step 2: Define your pricing strategy
Your pricing strategy defines how you calculate your pricing -- not just a specific price hike, but your overall price-setting method.
There are two popular pricing models: Cost-based pricing and value-based pricing.
Cost-based pricing is when a product is priced based on how much it costs to produce that item, plus how much you want to make after taxes and expenses.
The cost-based pricing model is also known as the “cost-plus” pricing model. To figure out your cost-based pricing, you need to calculate:
- The amount of time and materials needed to produce your product
- Your expenses
- Your desired profit margin
That said, the cost-based pricing model isn’t a great fit for everyone. For one, it can cut into your profit margins when you offer sales or discounts.
More importantly, it's hard to put a price on the labor and time that goes into a digital product, which makes it tricky to pick a price that matches your efforts but doesn’t give your customers sticker shock.
For example, author Joseph Hogue estimates that it took 100 to 200 hours to write each of his 160-page ebooks, excluding time spent editing, formatting, and marketing those ebooks.
With that amount of effort, it can be hard to justify pricing ebooks under $100. But customers aren't likely to pay that much, no matter how great your ebook is.
That's where value-based pricing can help.
Value-based pricing means determining your pricing based on how much your audience members are willing to pay and how they perceive your product's value.
This is where the research you did in step one comes into play. When you figure out how much each of your customers is willing to pay for your product, you can maximize your revenue by charging your customers exactly what they want to pay.
Value-based pricing takes a lot of customer research and surveys, but when it helps you max out your customer lifetime value, it's well worth it.
Next, once you've figured out your pricing strategy and planned price increase, it's time to figure out how you'll communicate that price rise to potential and current clients.
Step 3: Create a communication plan
When it comes to communicating price changes, here's our guiding principle: over-communication is always better than under-communication.
First and foremost, make sure that you update your pricing page, website, sales pages, sales materials . . . basically, anything that talks about pricing needs to be updated ASAP.
When you make those updates, add reviews and testimonials to your sales page to showcase your product's value.
Here's why -- 81% of 18 to 34 year-olds trust online reviews as much as personal recommendations.
For example, testimonials on entrepreneur and mindset coach Becky Mollenkamp's coaching page emphasize the value and ROI of Becky's product.
When you highlight your product's value in your customers' own words, your visitors' focus will be on how much they can earn from your product instead of how much it costs.
Sales page testimonials and reviews work even better for higher-priced products, like annual memberships or expensive courses. Research has found that conversion rates rose by 380% when reviews were included on a higher-priced product’s landing page:
If you're using Podia, adding a testimonial to your site is as easy as opening up your site editor and adding a new section:
(Not using Podia? Start for free today.)
Otherwise, be prepared for pushback when you tell your current customers about new pricing. People are change-adverse, and that's going to come up the first time you tell them about your higher rate.
Here's how to get it done smoothly.
First and foremost, give your customers plenty of notice. When agency coach Karl Sakas increased his rates, he gave his current clients five months' notice. “Prepare to over-communicate," Karl advises.
When you communicate your pricing change, focus on increased value, not increased costs. What are they getting in return for a higher price?
This is how Karl communicated his rate increase with clients (and faced zero pushback):
"No one asked me to justify the increase, but that’s partly because clients found value in working with me—and because I pre-framed it as being based on three things:
- Increased demand.
- New benefits within the existing services.
- The fact that the old price was 18 months old, and would be two years old when 2018 started
Giving several months of advance notice helped, too -- it wasn’t a surprise."
One last way to make a pricing adjustment less painful for your loyal customers is called grandfathering. If you sell a membership, service, or other subscription, consider honoring your clients' current rate before ramping up to the full price.
Grandfathering works like this: Let your customers know that you're raising prices, but plan to honor their current rate for a set time period, like the next six months, while you charge new customers the new rate. When that time is up, their pricing will increase to the new price.
At this point, you've communicated your new pricing with current and potential customers alike. You're all set, right?
Almost, but not quite. First, you need to see what happens after you make that pricing change. You've got one more step to tackle . . .
Step 4: Collect feedback and adjust accordingly
Don't think about your new pricing as set in stone. You can regularly adjust based on customer feedback, how much your sales and profit change (or don't), and changes in your niche.
Communication is key in this step, too.
To make sure your product's perceived value continues to match its price, ask for feedback when you communicate the pricing change, advises Patrick Campbell of ProfitWell.
"Part of the reason for a price change is to align value and price for everyone. You will get feedback from your select customers during testing, but you'll get a better understanding from all your customers if you open up communication channels with them during price changes."
With that feedback in mind, continue to review your pricing every few months.
You don't have to make changes that often, but when you keep an eye on how well your pricing matches your value, you're less likely to spring major price changes on your customers -- and more likely to make them happy.
After all, customers prefer smaller, more frequent price changes:
Plus, when you give yourself permission not to find the perfect price the first time around, you take a lot of the pressure off of yourself.
"For me, a big realization was this: you don't have to get it 100% right from the start. It's totally okay to experiment.
If you price too high or too low for your initial launch, so what? You can always launch again, experiment with the pricing structure, and improve your products over time. There's no quick fix or ‘magic’ trick that will help you figure out pricing from the start.
I now make a point of supporting my courses and books long-term to make them more valuable over time. The initial product launch and pricing is just the start of that journey.
So yeah, just pick a price and then experiment. With digital courses and books, nothing is set in stone, and with a long-term strategy, the bulk of your revenue isn't going to come from the first launch anyway."
I couldn't have said it better myself.
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Raise your pricing and increase your profits
If you add new features to your product, have been selling it for a while, or need to boost your profit margins, it's time to raise your prices.
Raising your prices doesn't have to be scary. In fact, it can be a strategic way to make your customers -- current and potential -- recognize the value of your product.
When you follow these four steps to raise your prices, you won't have to be on the edge of your seat, worrying about customer pushback:
- Do some competitor analysis and market research. Learn your audience's price sensitivity so you can match your price to how much they value your product.
- Define your pricing strategy. The right pricing strategy will help you pick a price that matches your efforts but doesn’t give your customers sticker shock.
- Create a communication plan. Update your marketing and sales materials, and communicate the change with your current customers well in advance.
- Collect feedback and adjust accordingly. Review your pricing often. Most importantly, don't pressure yourself to get it 100% right the first time around.
Hopefully by now, you're ready to raise your prices and make the profits you and your product deserve. Good luck!