Picture this: After much agonizing and hand-wringing, your team rolls out a price increase. Everyone holds their breath as you wait to see the results.
A week passes. Then a month. At the end of the month, you look at the numbers. Retention has held at 100%.
Everyone lets out a collective sigh of relief. The sales team is giving each other high fives. Even the CFO is smiling.
But if you’ve been in pricing for a while, you know something the rest of them don’t. That 100% retention rate isn’t a sign of success.
It’s a red flag.
Pushing the boundary
Imagine you adopted a new workout plan designed to sculpt your physique, but you never got sweaty. You never got sore. You weren’t even really tired. You might be making some mild fitness gains, but you’re definitely not progressing as fast as you could towards the six-pack you wanted.
Keeping all your customers after a pricing increase is sort of the same. Sure, you might be bringing in a little more revenue, but you are probably leaving a lot on the table. You’ve stopped short of the actual willingness-to-pay-boundary in a space that feels very comfortable. Too comfortable, actually.
It’s tempting to anchor pricing targets to what feels safe. You pick a percentage that won’t generate pushback. Won’t trigger executive inquiry. Won’t give the sales team heartburn.
That instinct is completely understandable. But it also means that you are making decisions based on personal risk tolerance rather than what the market and what the actual product value support.
After a healthy price increase, you should lose a couple of customers. A little churn is evidence that you found the real boundary. Of course, you don’t want to be reckless. But losing a small number of customers who were only purchasing from you because of price is a sign that the increase was correctly calibrated. Those were probably your least profitable accounts anyway.
In effect, 100% retention means that you have sized your price increase to the tolerance of your most price-sensitive customers. And if you remember anything about price segmentation, you know that’s not the most profitable way to do business.
A better way to do price increases
Leading pricing teams don’t really face this kind of dilemma. That’s because they never roll out a uniform price increase to all their customers.
Instead, they segment. They size up willingness to pay, switching costs, strategic value, and competitive exposure. They make some calculations about how much more each segment will absorb, and then they roll out targeted increases.
We have several resources that can help you figure out how to make these kinds of pricing moves. Check out Survival Strategies for Raising Prices, The Fundamentals of Price Segmentation, and Getting Control of Discounting.
Redefining success
A successful price increase isn’t one that results in 100% retention. If your goal is zero attrition, you’re optimizing for safety. If the goal is capturing real value, some friction is proof it’s working.
We’ll close with a quote from Robert Kiyosaki, author of several personal finance books:
“Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.”
Survival Strategies for Raising Prices
In this on-demand training seminar, learn why some B2B companies struggle with price increases while others are able to do it with far less pain and angst. What are leading companies doing differently to execute price increases with far less risk, conflict, and uncertainty?
The Fundamentals of Price Segmentation
In this recorded training seminar, we explain the concept of price segmentation and why it's such a powerful and important tool. We explore the essential process and even walk through a step-by-step exercise, building an example price segmentation model from scratch.
Getting Control of Discounting
In B2B, discounting tend to be the norm rather than the exception. How do we make sure the discounts are appropriate and warranted? And how do we do it without alienating the sales team?
