Increasing your price is one of the most immediate ways to boost earnings and customer lifetime value (“CLV”). But going through a price increase is delicate and can easily backfire, so having a thoughtful plan is critical.
Many readers respond to posts via email with some incredibly valuable comments and hot takes, and I always wish they were comments on the post.
The below is from one my best friends, who agreed to let me share it on the post (and copying over to Notes too). Here's what he said:
I have (slight) beef with a few points you make here:
1) You sort of omitted the concept of consumer surplus. I think that's a critical factor in assessing a price increase. How does time spent compare to value? How does time spent : value compare to my peers?
2) You make the point that growth will slow or will likely slow with a price increase. Not always. There is a value perception. Sometimes you can increase the price and the perception of your product goes up and you sell more. I think there are probably some examples in the cosmetics or luxury goods space.
3) I wouldn't necessarily include it here but I think there is a decent discussion around increasing price while introducing a plan and using one of them as a bit of a red herring to stimulate growth on the other. Simple example: I currently have two plans. One is Free and the other is 10 articles per month for $10. In the future, I'm going to have three plans: Free, 5 articles per month, and 10 articles per month (+1 phone call with me). My new prices are free, $10 per month, and $15 per month. I just executed a price increase but in a pretty elegant way that might stimulate more growth.
4) You make the point that "the more we increase the price, the more we can expect retention to worsen." Maybe. Especially without a grandfathering strategy. BUT, if I raise prices and tell my current subs you're good for a year that might help retention. Also, if I tell new subs the price is going up in a quarter so hurry that might help growth.
Mostly these points are nuance and I think you're right to stick to the big picture. The one I'd fight for a bit is the first one. I think it deserves to be there because I do think it's an important consideration. Another good post : )
Great post, on a very important topic. I love that you included the Google Sheet!
My 2 cts: price increases don't always have to be for existing subscribers, it's ok to grandfather people in if projections and tests don't look good. If they're just for new subscribers, then it's ok to do them more frequently
Good stuff Tandy. Looking forward to the Croissant that discusses tiers!
This is a very useful post. I do plan on increasing my price but my rationale is the amount of work I'm doing relative to my peers and the mean price in my category. My $8 a month price point was supposed to be cheap enough to allow for more lift and allow me to have a living wage, which does not seem very likely in my second year now.
My plan is to raise my price to $10 a month in September. I am worried I will lose paid readers and that it will hurt my less than stellar retention and growth rates currently, but if I rely on paid subscriptions as my primary revenue source, I also feel like I have little choice.
There is another newsletter in my category whose price is actually at $5 a month and they have recently overtaken me in revenue in spite of starting considerably after me.
I see myself more as an archiver and curator, and this other newsletter is more of an op-ed original writer on topics that are designed to be more clickable. All this fills me with a lot of anxiety with how I can stick around here and keep doing this.
I may have to write more op-eds, do more sponsorships, and raise my price and hope for the best that I can find a living wage while doing this.
My plan is is to nominally raise rates at the start of the year (I'd previously committed to keeping them flat for 2023). I believe Substack does this automatically (?), but part of that campaign will mention current subscribers being locked in to the lower rate. Hopefully, that will entice some people to upgrade before the new rates take effect.
Really helpful! Thanks!
another excellent one! thanks!