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 : )
I sort of concur with point 2. And I witnessed this many times. I think the price point self-selects a different audience by default, not necessarily rewarding the average reader. There are some pretty successful Substacks that have arguably pretty high-end pricing mechanism in place that when they scale, end up truly finding a revenue sweet spot.
Of course, in the finance and technology categories you notice this the most on substack.
A million percent. I wish I could share your comment to Notes, but apparently it's only possible to share the original comment, not the reply.
It made me immediately think of Edwin Dorsey, who mentioned his paid subscriber growth accelerating *after* a price increase. For posterity, if anyone is stumbling across this comment later, here's a link to the convo on Notes:
Yes, there are many cases of this in the substack network, I've come across many quotes that are similar. Sometimes customers view the product as more valuable when the price is higher. As when the information provided is packaged as more exclusive.
And you actually see this pricing strategy on a regular basis. If I provide the best cheat sheets for product managers to ace their job interview then I can charge thousands of dollars for that information.
Platform engineer could be charging what the generalist charges because for an engineer who will write off the amount anyways, what difference does it even make? The same goes for research for venture funds. And it is a kind of a hack.
If I'm the leader providing expert knowledge of an industry like semiconductors, I can basically charge what I like and there will certainly be people who will pay for it. It's sometimes a case of faking it till you make it. That literally is like reverse psychology.
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
I feel the same way, Sylvain. I like the idea of rewarding early supporters with the grandfathered-in price, which feels nicer and maybe encourages them to stick around.
Totally doable — it significantly reduces the risk associated with increasing the price. It's a nice vibes win with your early supporters and can actually turn into a powerful retention mechanism (i.e., if grandfathered subs cancel, they lose their special pricing).
Of course, the downside is that for many businesses that are well-positioned to increase their price, most of the value from a price increase will come from existing subscribers. A great example is Spotify, which is about to increase the price of Premium (I think $10 to $12) for the first time ever. If they only did that for new subscribers, it wouldn't have a material impact on their revenue for quite some time. But increasing price for existing subs, even after some kind of grandfather period, will have a huge impact on revenue.
I'm always curious to see how things shake up after a price increase.
For Spotify, it's kind of wild they haven't tried to raise prices for their core subscription product. I would imagine it doesn't impact retention too much, but I could definitely see it slowing down new subscriber acquisition. We'll see!
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.
Yes, by default, all your existing subscribers are *not* impacted if you change your price — only new subscribers will have to pay the higher price.
If you did want to increase price on existing subscribers, that's possible to do through our Support team. We hope to make that process easier over time, and hopefully work in some best practices to guide folks through an effective price increase (if they want to do it for existing subs).
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 : )
I sort of concur with point 2. And I witnessed this many times. I think the price point self-selects a different audience by default, not necessarily rewarding the average reader. There are some pretty successful Substacks that have arguably pretty high-end pricing mechanism in place that when they scale, end up truly finding a revenue sweet spot.
Of course, in the finance and technology categories you notice this the most on substack.
A million percent. I wish I could share your comment to Notes, but apparently it's only possible to share the original comment, not the reply.
It made me immediately think of Edwin Dorsey, who mentioned his paid subscriber growth accelerating *after* a price increase. For posterity, if anyone is stumbling across this comment later, here's a link to the convo on Notes:
https://substack.com/profile/250128-reid-deramus/note/c-22027590
Yes, there are many cases of this in the substack network, I've come across many quotes that are similar. Sometimes customers view the product as more valuable when the price is higher. As when the information provided is packaged as more exclusive.
And you actually see this pricing strategy on a regular basis. If I provide the best cheat sheets for product managers to ace their job interview then I can charge thousands of dollars for that information.
Platform engineer could be charging what the generalist charges because for an engineer who will write off the amount anyways, what difference does it even make? The same goes for research for venture funds. And it is a kind of a hack.
If I'm the leader providing expert knowledge of an industry like semiconductors, I can basically charge what I like and there will certainly be people who will pay for it. It's sometimes a case of faking it till you make it. That literally is like reverse psychology.
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
I feel the same way, Sylvain. I like the idea of rewarding early supporters with the grandfathered-in price, which feels nicer and maybe encourages them to stick around.
Totally doable — it significantly reduces the risk associated with increasing the price. It's a nice vibes win with your early supporters and can actually turn into a powerful retention mechanism (i.e., if grandfathered subs cancel, they lose their special pricing).
Of course, the downside is that for many businesses that are well-positioned to increase their price, most of the value from a price increase will come from existing subscribers. A great example is Spotify, which is about to increase the price of Premium (I think $10 to $12) for the first time ever. If they only did that for new subscribers, it wouldn't have a material impact on their revenue for quite some time. But increasing price for existing subs, even after some kind of grandfather period, will have a huge impact on revenue.
Thank you both for dropping by with comments! 🙏 🙏
Not happy with that Spotify increase...But it's not like I'm going to unsubscribe for it. In this case it totally makes sense
I'm always curious to see how things shake up after a price increase.
For Spotify, it's kind of wild they haven't tried to raise prices for their core subscription product. I would imagine it doesn't impact retention too much, but I could definitely see it slowing down new subscriber acquisition. We'll see!
Good stuff Tandy. Looking forward to the Croissant that discusses tiers!
You are too kind, sir!
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.
Also, fwiw, I really like the idea of encouraging folks to upgrade to lock in the current price.
After the price increase, for your existing subscribers, you can also emphasize their special rate as a retention benefit. For example, you could add something about that to the automated "Subscription renewal email" (https://your.substack.com/publish/settings?search=Subscription-renewal-email).
Thanks for dropping the comment, Kevin — keep me updated on how the price increase goes, or if we can help with anything.
Will do & thank you!
Yes, by default, all your existing subscribers are *not* impacted if you change your price — only new subscribers will have to pay the higher price.
If you did want to increase price on existing subscribers, that's possible to do through our Support team. We hope to make that process easier over time, and hopefully work in some best practices to guide folks through an effective price increase (if they want to do it for existing subs).
Really helpful! Thanks!
Thank you, Jillian!
another excellent one! thanks!