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• It is difficult to raise the price of a product, but many times you cannot help yourself. This article discusses the reasons for the price increase of data storage provider Backblaze, one is to adjust market costs, and the other is to increase the cost of improving service quality.

• Backblaze rejects the simplest shortcuts to raise prices: build price lists and adjust websites. Instead, we chose to develop an expansion pack to continue to provide value to our customers. However, development of an expansion pack is a disaster and an opportunity and coexistence for Backblaze. The influx of new customers increased revenue performance, but created new challenges for its operating performance.

• The withdrawal of Crashplan, the biggest competitor, disrupted Backblaze’s price increase deployment, and it decided not to increase the price for at least 6 months. But when he re-raised the price, Backblaze found that many of his previous decisions were flawed and users were constantly losing. From the price increase, Backblaze has learned a few lessons: be kind to customers, don’t take it for granted; build expansion packs, build a good community foundation; and have an open dialogue with customers.
  

  

  Raising prices is not a project that can be completed in a year and a half.

  Someday you will face this problem. It’s complicated, but in some cases you have to do it .

  Most companies, especially SaaS companies, are very concerned about the revenue situation. As soon as the number drops, they begin to calculate the impact of price increases on revenue growth and customer retention, and then choose to raise prices at the appropriate time.

  The data storage provider Backblaze is an exception. Our price increase model is different. Verifiable customers will not receive an update reminder for the expansion pack, just renew their subscription after two years. After thinking again, this will cause many customer problems, so we have to re-plan for two-year customers, who are our core users.

  Although we have project tables and related documents, we also realize that during the project development process, we lost a lot of instant knowledge. We find ourselves often saying, “Why do we do this” and “Does this mean what we mean?”.

  There is a long interval between the start of the initial project and the restart of the project, and the start-up time of the expansion pack is much longer than we expected. We ca n’t announce a price increase in December and implement it at the beginning of the year: we need more time, whether it is to ensure the quality of the expansion pack, or to create a version 6.0.

  a. 6.0 version

  At first we tried to provide value to customers by releasing version 5.0, and now it is the same. We started to think about how we can have another better version 6.0, a bigger, longer, faster and better version was born.

  First, we doubled the size of physical media, allowing people to recover more data faster and more affordable (this is an improvement often requested by users, and despite the additional cost of Backblaze, it is optimized Customer Experience).

  Using B2 cloud storage, we have built-in the function of backing up data to the cloud, which is an upgrade to the preview and sharing functions of the previous year. We have improved service efficiency, accelerated backups again, and added network management tools.

  In addition to computer software, we have also updated iOS and Android App. These have extended the development time, and our new price increase schedule was announced in February 2019 and will take effect in March.

  b. Hold on …

  You might say that version 5.0 was released before the price increase, then it was abandoned, and then version 6.0 was released before the price increase. Does this mean that the new version sequence will increase as the price increases? Definitely not. When the first 5 versions were released, there was no price increase. We are already developing version 7.0, and we have no plans to raise prices.

  c. Price increase announcement

  We have all been affected by secret price increases. We suddenly announced price increases and implemented them on the same day without giving a good explanation. This feeling is not good at all. We will notify customers in advance one month before the price increases, and everyone will have time to buy the expansion pack we have worked hard to build.

  If you have a monthly license, or if the renewal date is after the price adjustment takes effect, they will have a chance before the price increases.Cancel service. Of course, we don’t want anyone to leave, but we realize that any change to the subscription plan can be a sensation, and customers who are more price sensitive may reconsider whether to renew.

  Another goal is to communicate as much as possible. We want our customers to know exactly what we are doing and why we are doing it. We don’t want anyone to worry about not knowing the process.

  Write a blog post, create an email for all personal backup customers and group administrators, and brief members of news and commentary sites who need to update price lists. It may seem silly to inform the media that the price is about to rise (usually a negative event), but over the years we have established a good relationship with reporters, letting them know in advance that this seems correct.

  Once everything is ready, it’s time to press the Start button. The price increase was announced on February 12 and will take effect on March 12.

  Customer response and customer churn analysis

  1. Customers: plan for the worst and hope for the best

  We do not expect a positive response. People are not as good as the sky, no one can predict the outcome. We’ve prepared customer support, FAQs, and communication plans to cope with overwhelming negative responses, but fortunately, the end is not the case.

  A client wrote to us expressing their ideas. Some people express their comfort that we are finally raising prices because they worry that we have been burning money for years. Others believe that we clearly communicated the need for price increases and made the correct pricing, and they said that it would be very fair to increase the price by $ 1 in 12 years.

  Thank you for explaining your customers so clearly and politely online. I have no opinion on the price increase. @ backblaze’s healthy development means my backups are safe. Value for money. —— Stephen Bubanovic February 12, 2019

  Just received an email from @backblaze CEO about price changes. The price increases by 1 yuan per month. I’ll pay even if they raise $ 5. Great product! -Chris McGill February 12, 2019

  Since May 2015, as a @backblaze customer, I have been notified today that the price of the product has increased, rising by $ 1 per month to $ 6. The price adjustment of the services provided by your company is very fair. do not worry. Thank you for providing such a good product. —— David Fitzgerald February 12, 2019
  

  When the media reported this, they also held similar views. It is reported that Backblaze is preparing to raise prices,But the report was positive and very fair. A member of the media who conveyed the price increase in advance responded: “Everyone’s response was rational …”

  Of course, some people are also angry. Although some customers are defending us, we do see an increase in customer churn.

  2. Customer churn analysis

  In the next few months, we carefully monitored customer churn to see how the price increase would actually affect existing customers.

  Whenever someone leaves Backblaze, we send a final email thanking them for spending time with us, wishing them all the best and asking them if they have any feedback. These emails go directly to our statistics system, and I read them every month to understand why people leave Backblaze.

  Sometimes problems we can’t solve, but if they can be solved, they are the compass for future development. After the price increase, about 30% more people said they left because of billing.

  But we also got a lot of positive feedback from solving the 5.0 and 6.0 issues.

  What about customers who haven’t responded to our emails? After in-depth analysis, it was found that six months before the announcement of the price increase, our customer backup service churn rate was approximately 5.38%. Within six months of the price increase announcement, the customer churn rate was 5.75%, which was an increase of about 7%.

  We expect a slightly higher churn rate in the first year, but after most customers renew at the new price for the first time, the churn rate will return to the historical average.

  

  Legend: From January 2018 to July 2019, the customer churn rate increased by 7%.

  3. Get new customers

  People choose to leave after raising prices. This is only half the story. The other half depends on the new customers you attract. Because of market competition, increasing prices will cause potential customers to focus on other products when comparing products.

  This number is a bit hard to calculate for us because in 2018 weThe biggest competitor is out of the market. We reviewed the historical data for 2017-2019 and found that even after the price rose, after six months, the growth rate of our personal backup service for two years was still a pleasant 42%.

  4. Learn lessons

  We learned a lot throughout the process. The most important lesson is to be kind to customers, nothing is taken for granted. At the beginning, we felt that for only one dollar, who cares! Soon, we will kill this mentality in the bud, and wait for it.

  A dollar may not seem like much, but for many people and our global customers, they feel the price increase, and the 7% increase in customer churn is enough to prove it.

  Some people might think that 7% is not so bad and could have increased the price even more, but this is a wrong conclusion. Thousands of miles of dyke, collapsed in the anthill. Any change to an existing plan can have very different results.

  5. Expansion Pack

  Expansion packs are a successful attempt for existing customers and very popular. Take the time to build an expansion pack that attracts more than 30,000 Backblaze personal accounts to purchase, bringing in approximately $ 1.8 million in revenue. Everything has its advantages and disadvantages.

  If these 30,000 accounts were renewed at the price after the price increase, we would earn $ 2.16 million and lose $ 360,000. But the premise is that all customers will renew. Some users have sent us signals by purchasing expansion packs that they are willing to continue using our products even if the price goes up.

  As a client, I’m very happy with your approach to this issue. I am grateful for the opportunity to purchase the expansion pack at the original price, the information is clear, direct, and the price is reasonable. Awesome! —— Andrew Ferguson February 13, 2019

  6. The benefits of trust

  With a good community foundation, an open dialogue with customers is beneficial. When we announced the news, we did not see the anger expected. This is largely because our customers trust us and they know we are not trying to make more money.

  When the community trusts you, they are willing to listen to you, even if it is not good news. You can enjoy this benefit by building a good relationship with your customers, but be careful not to abuse itright.

  7. The benefits of active sharing

  Just like having a good community relationship, explaining why this happens will help you build your customers and continue to strengthen the relationship with them.

  When I discuss price increases on social and news sites Reddit and blogs, customers who are accustomed to the way we answer questions are happy to ask some very difficult questions. When we give thoughtful and lengthy answers, they say they are very grateful.

  We enjoy talking to customers on these platforms. We learned a lot about this: who is using Backblaze, what are their pain points, and what can we do to help them. These conversations do affect the way we create and think about product roadmaps.

  Many companies raise prices in order to chase profits, so when they received an email from @backblaze explaining why they decided to raise prices for the first time, it felt refreshing, transparent, reasonable, and fair. —— Dylan February 12, 2019

  Final thoughts on price increase

  Few people are willing to raise prices, especially for loyal and loyal customers. Many companies refuse to discuss their decision-making process or strategy, but many companies face the need to raise prices.

  Unfortunately, there are few resources to help them navigate this task and what their customers can understand and accept.

  I want to share with you our price increase process, I hope you can learn useful information from it. Think about your customers first. If you really take the time to sit down and think about their reactions, think about what you can do to thank existing customers, and you will succeed, or at least reduce some disadvantages.

  Cover image from pexels