Write the price-raise letter with a vanishing discount

1. Why raise

A gym owner priced memberships at $49 a month so everyone nearby could afford coaching. The cheap rate brought his worst customers ever, more members still meant losses, his savings were gone, and in 12 more weeks there would be no gym. Staff came first: partial rent payments to the landlord covered payroll. He used a newly written letter as the script of a video in the gym's online community, comments off, questions sent to him. The monthly rate tripled for every member. He lost members, nowhere near all, and within a week went from losing $2,000 a month to a $4,000 monthly profit.

No crisis is needed: picture $4,000 a month rising to $10,000, $40,000 to $100,000, or $400,000 to $1,000,000.

Most owners price in the middle of their competitors, who are broke. Charging more for the same thing is the easiest way to make more; fear of angry messages or lost sales, or doubt about being worth it, leads instead to a race to the bottom. Being second-cheapest in a market is no strategic advantage; being the most expensive is. The link to profit is less direct than you might guess: the winners spend the extra on better advertising, product and care.

The cycles a cut and a raise set off are on SOP 2 — Set a price from the value gap, not from competitors, section 3; added here, an owner who cuts grows less grateful to customers, and one who raises can afford marketing and becomes confident enough to guarantee results.

2. The rules, in order

A business that can raise prices without losing customers to a competitor is a very good one; one that agonizes over a tenth of a cent is a terrible one. The rules hold assuming yours is not a terrible business and does help its customers.

1. Do not grandfather existing customers or sell lifetime deals. Value depends on price, so when value rises, price should too. Never lock a customer into a price if you can avoid it; you cannot know what you will want to deliver later.
2. Never sell lifetime access for one payment, unless it truly costs nothing to fulfill. Every owner known to start that way ends up fixing it; you typically get upset customers once the money is spent and the obligation remains. It pays in theory if its lifetime value beats your normal take; no large company does it. Early on you are probably not very good yet, and doubt is healthy; as the product and brand improve, the price should follow. Entrepreneurs often resent early customers for paying early prices. Do not.
3. Raise prices at least once a year. One owner of a candy business kept a single decision for himself, price, and sent the managers every product's price each year. Over more than 50 years prices rose an average of 10 percent a year, and in some years up to 17 percent. It was probably worth his time, and probably is worth yours.
4. Test a raise on new customers before rolling it out. You learn whether it pays, gain confidence, and show existing customers that the market has accepted it.
5. Meet customers if the raise is more than 50 percent. A raise that large usually follows a big early mistake; talk to them, on top of everything else here. One software company charged $30 a month while hundreds of its customers made over $1,000,000 a year, and its biggest customers lost it the most money. Its chief executive called all 300 and moved them from $30 to $3,000 on average, a hundredfold rise. One left. People who see the value stay.
6. Time a raise within 90 days of a launch, if you can. The best quarter for a raise is one with a launch in it; call it early-adopter pricing and let the launch carry it.
7. Do the math first. Know what share of customers you can lose and still make money. If you have already tested the price on new customers, you will make more money in the end regardless.

Flag: the candy business's rise. Rule 3 gives an average of 10 percent a year. SOP 2 section 4 tells the same long-run case with rises of 5 or 6 percent a year. This page does not settle which reading is right.

Flag: locking in a rate. Rule 1 says no lifetime deals and never to lock in a price if you can avoid it. SOP 75 section 8 advertises a rate that drops for life after the usual churn month; neither page calls that a lifetime deal. This page does not settle which reading is right.

3. Pick the new price

The best price makes the most money; watch how price moves both sales and what each sale earns. A worked test on a recurring product, 100 clicks at each price:

Price	Clicks	Conversion	Sales	Monthly churn	Lifetime value	Total return	Against $10
$10	100	5%	5	10%	$100	$500	—
$20	100	4%	4	10%	$200	$800	60%
$100	100	2%	2	33%	$300	$600	20%

At 10 percent churn (1 customer in 10 cancels each month), $10 brings $500. Doubling to $20, a 100 percent rise, cuts conversion by a fifth while churn holds: losing one customer earns 60 percent more revenue, and a business on 30 percent margins at $10 would make three times the profit. Ten times the price cuts conversion 60 percent and shortens the stay from ten months to three; lifetime value triples, and is 50 percent above the $20 price's even with churn three times higher, but not enough to beat $20. A tenfold raise sometimes lifts profit 800 percent; not here.

Only the best tested price is known. The next test would probably be between $20 and $100, around $39 to $59, because if churn stays lowish those may earn more still. Price moves conversion and churn, both worse as it rises, but not always in proportion: you may lose some, but often less than you gain. If you can double the price and close 20 percent fewer deals, all else unchanged, do it. Test on new customers; then, provided churn does not soar and sales do not collapse, raise everyone else.

Flag: the percentages. The $20 row gives 60 percent more revenue; doubling is then said to have raised profits 80 percent. The tenfold raise is called 1,000 percent; $10 to $100 is a 900 percent rise. This page does not settle which reading is right.

4. The letter: five parts, in the order RAISE

Five parts, spelling RAISE in order; the letter stays short.

R — Remind them of the value they have had. Open with what you do and what they have gained since joining, as personal as you can make it: calls attended, deliverables used, revenue made, profit gained. One to five bullets, from as much of their own data as you can get. Make it about them.

A — Address the change directly. It is usually one sentence: to keep investing in the product for them, the price has to rise. The rest of the letter softens it.

I — Invest in their future. Show that paying more gets them more of what they love, so you do not look greedy. List what you already planned for the next 12 months, each with how it adds value. Categories: better people, training, equipment, technology or software, facility upgrades, a higher level of service. Do not promise what you will not do; frame every investment as value to them; and do not add unplanned costs to justify the raise, which cancels its profit. Pair each investment with more good (closer to their goal, faster, easier, risk-free) or less bad (off target, slower, harder, riskier). Keep it to three bullets, the biggest.

S — Soften the news with a loyalty discount. People take a vanishing discount better than a raise, and mind even less when another discount appears later. Raise the price now and give a discount that expires 3 to 6 months out. If you can show it on their invoices as a credit, do: it almost reads as a gift. New customers pay the full price as of today; loyal ones keep their plan for now and move up later.

E — Explain away their concerns. Take concerns seriously and personally, and reply yourself. Fewer will write back angry than you expect, because of the crucial postscript: if this will make them homeless or end their business, tell you, and you will work something out. Consumers get it in terms of buying groceries, businesses in terms of real harm to the business.

Replies come from three types of people:

1. Those who see the value. They may not like it, but they understand and stay.
2. Those really affected. They send hard-luck stories, which gives you options: offer to extend the discount another 6 months and talk again then.
3. Those who were going to cancel anyway. Churn rises the first month, falls the next, typically below normal, and is back at baseline in month three. That pattern means you very likely pulled churn forward, losing one month of revenue from a small slice.

Expect a lot of one-to-one talks. For key customers the raise truly hurts, be ready to extend the discount or move the price in more, smaller steps.

Flag: is the investment part optional? It is one of the five parts, but a second version of the template marks it optional, if you have strong things to add that clearly benefit the customer. This page does not settle which reading is right.

5. The letter assembled

Fill the brackets.

Dear [name],

In the last 12 months, [product] has: [a result, with its number]; [a feature they rely on].

To keep investing in [product] for your team at [their company], we are raising our prices. The extra will go to: [something they love, expanded]; [a hire, and what gets better].

You have been with [your company] for [months or years]. New customers pay the new price as of today; you keep your current plan for [3 to 6] months, with a [$ amount] credit as thanks, then move to [$ new price].

Thank you for letting us be part of [company]'s mission. Every reply comes to me.

[Your name; signed in ink if it goes by post]

PS: if this makes groceries hard to afford (consumer) or materially hurts your business (business), tell me and we will sort something out.

6. Send it, then roll it out

Send it. If the raise's size gives you pause, two options:

1. Go all the way at once. If you are not profitable and must make the move, make it. It worked for the gym in section 1 and for others; it may work for you.
2. Step up in one to three increments. Present the discount as a staircase, part of it falling away every so many months or quarters: for example $200 a month off for the first 4 months, then $100, then $50 for the last three.

If customers gather in a community, consider a video there, comments off if you can.

New customers go on the new price at once; they have no context. If one heard a friend paid less, the sales team can say it may sound like bad news but is good: the product keeps improving, most existing customers agreed, and this is the lowest the price will ever be. The example puts that share at 96 percent; use your own figure. People grumble and still buy.

Flag: when to meet one to one. Rule 5 says above 50 percent; it is also given as at 50 percent or more, if you can manage the call volume. This page does not settle which reading is right.

Flag: the steps. Option 2 gives one to three increments every so many months or quarters, a 4-month first step and a middle step of no stated length; it is also given as 6-month intervals for 2 to 3 small jumps. This page does not settle which reading is right.

7. The older, longer letter

A longer letter came first, given to gyms; section 1's owner sent it close to word for word. The five-part letter, worked out later with a pricing specialist, covers the same basics faster and is preferred. The old one worked for hundreds of gyms. Be bold: if you follow the rules in section 2, you will likely profit. Its parts, in order:

Part	What it does
1. Opening	Notes how long the gym will have been open as of next month and how it has grown; thanks members; promises openness and a big improvement in service
2. What we do now	Three items: hiring and keeping the best coaches; their continued education; new equipment and replacing broken equipment, with more planned in the next few months
3. What is coming	Four items: improving the facility or moving; member events; specialty programs for more individual coaching; and, the largest, booked sessions with a coach 3 times a week instead of come-when-you-like, for smaller classes, which also helps with some of the parking problems
4. Why	Come-when-you-like has become never for many people, and people seem to get results early, then tend to slow as the novelty fades; so members are checked in ahead and missed sessions are followed up
5. The cost	Billing moves from unlimited to weekly: about $10 to $15 a week more, depending on the membership, to a final $39 a week from a set date; with several levels, attach a chart of each level's weekly price
6. New hours	A revised timetable stapled on, effective from a set date, partly for the season and last year's traffic
7. The softener	Refer a friend who signs up and get a month free, so 12 referrals in a year earn a free year; announced by video in the Facebook group
8. Questions	To stop gossip, questions are answered in person only, not by text, message, email or group thread; the group carries no posts about the business side
9. Close	Asks for support; signed by hand by the owner, with a warm postscript

Flag: the gym's figures. Section 1's owner tripled $49 a month: about $11 a week to about $34, a rise of about $23 a week. The older letter he sent almost unchanged gives about $10 to $15 a week more, to $39 a week. This page does not settle which reading is right.

8. Keep doing it

Owners who work harder every year for the same money or less often do not see what pricing can do. Priced well, you attract better customers, earn more from each, fund a better experience and more advertising, open channels mispriced competitors cannot afford, feel good about what you sell, and keep the best people. Priced badly, or never changed, you bring in the wrong customers, watch profit erode, stop reinvesting, keep less each month, feel worse about what you sell, and lose your best people to competitors who pay more. So revisit your pricing at least once a year: first for inflation, then for other costs that may have gone up. Easy to do, maybe not easy to stomach. Raise once, see that you survive, and keep improving so you can keep raising.

9. What this page does not decide for you

• The size of the raise. A threefold rise worked for one gym and a hundredfold rise for one company; this page gives no figure for the right raise.
• How many customers you can afford to lose. The last rule says to know it; how to work it out is not covered on this page.

10. The checklist

Step	What to do
1	Decide on the increase
2	Test it on new customers first; go on only if they buy and stay at rates that raise what you make
3	Separate the customers who joined before the raise
4	Write one to five bullets of the value delivered so far, or of how much they use what you sell, from as much customer data as you can get, personalized as far as possible
5	Tell them the raise happens now
6	Write three bullets of the biggest investments the extra profit will pay for, all things you already plan to do
7	Explain how those investments benefit them
8	Give an expiring discount as a reward for loyalty, to soften the blow
9	Tell them you will reply in person if they have any issues
10	Sign in ink if possible; otherwise put your own signature on the email
11	End on a strong postscript: reach out if this is going to ruin their lives or their business
12	Do it one by one if the raise is 50 percent or more and you can manage the calls (flagged in section 6)
13	If the raise is large, you can stair-step the discount, letting it fall away at 6-month intervals for 2 to 3 small jumps (flagged in section 6); people cope better with disappearing discounts than with raised prices

11. What this page does not cover

A fixed yearly rise in new contracts is SOP 79 — Write an annual inflation increase into a contract. Choosing a price and how far to push it are SOP 82 — Set price from the pricing rules and the three models. How often to test a price is a question for SOP 128 — Test price with a step size and a cadence.

Consumer-protection rules and notice rules for price changes are not covered on this page.