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Raise Prices Without Raising Eyebrows - Prospect Theory - Saas Pricing

If you want to raise prices for your SaaS software, or in your coaching/consulting business, and cause the least amount of upset for customers, it helps to know a little bit about prospect theory. Prospect theory is a psychological theory that explains how people make decisions under uncertainty.


According to this theory, people tend to be more sensitive to losses than to gains, meaning that they feel the 'pain' of a loss (ie. they had access to a feature and now they don't) more than they feel the 'joy' of a gain, so will often make decisions based on their potential for losses rather than their potential for gains.

When it comes to updating your SaaS pricing model to make decisions confidently, like by how much to increase your prices and when, prospect theory shows us that we can minimize the pain customers feel by implementing one larger price increase instead of raising prices a little bit at a time.


How high can your raise  your Saas software prices at any one time? To minimize customer discomfort, an 8-10% increase would be the highest that's recommended. In keeping with the idea of minimizing customer pain as you raise prices, one price increase of 8% will feel less painful than four separate 2% increases spread out over time.


Price increase are a great way to increase profitability, but keep in mind, you need to be able to justify price increases by showing customers how you've somehow added value.



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