The usual way this is presented as a free lunch has become disconnected from reality, IMO.
Free customers are not the most demanding, in my experience, but they are the most plentiful. If you cut them out, you don't lose any income (obviously) but you do cut down on requests by filtering out a lot of your users. A win!
So some people assume this is a monotonic function, where charging more increases their revenue while filtering out bad customers even further. If you press that button too many times, though, you discover that the higher price comes with increased churn, fewer signups, new competitors appearing on the scene, and, surprisingly, more demands from customers.
The last one is confusing because we were all told that "charge more" is a magic button you press to increase revenue and improve customer quality. The problem is that once your product becomes expensive enough, people expect it to perform at a certain level. If your $10/month service breaks one day, the number of people cancelling their subscriptions over it is going to be small. If your $100/month service is down for an entire day, people start asking themselves why they're paying so much for this thing anyway. The higher price gets more scrutiny at businesses looking to cut costs, so churn goes down. The higher price results it in getting recommend less over alternatives. It starts adding up.
Ideally you find the sweet spot where revenue is maximized, but that's hard to do. The feedback loop on price increases can take a very long time to show up in customer churn and reduced signups.
I've signed up for a number of SaaS products over the years that played the "raise prices" card too aggressively and then backtracked and cut prices.
Free customers are not the most demanding, in my experience, but they are the most plentiful. If you cut them out, you don't lose any income (obviously) but you do cut down on requests by filtering out a lot of your users. A win!
So some people assume this is a monotonic function, where charging more increases their revenue while filtering out bad customers even further. If you press that button too many times, though, you discover that the higher price comes with increased churn, fewer signups, new competitors appearing on the scene, and, surprisingly, more demands from customers.
The last one is confusing because we were all told that "charge more" is a magic button you press to increase revenue and improve customer quality. The problem is that once your product becomes expensive enough, people expect it to perform at a certain level. If your $10/month service breaks one day, the number of people cancelling their subscriptions over it is going to be small. If your $100/month service is down for an entire day, people start asking themselves why they're paying so much for this thing anyway. The higher price gets more scrutiny at businesses looking to cut costs, so churn goes down. The higher price results it in getting recommend less over alternatives. It starts adding up.
Ideally you find the sweet spot where revenue is maximized, but that's hard to do. The feedback loop on price increases can take a very long time to show up in customer churn and reduced signups.
I've signed up for a number of SaaS products over the years that played the "raise prices" card too aggressively and then backtracked and cut prices.