Approaching Clients About Price Raise

[interactive]

Hello,
I'm not personally a webhost. But just wondered how hosts out there dealt with Price Raises. Did you just simply email the clients? Some price raises you can't prevent such as unavoidable rate changes and such. Thanks

[xaviahost]

We have what i call "Price Lock All"

What this means is that current customers are not affected by price changes, whether they go up or down.

[allan]

Obviously, the approach is important in this case. Generally, if you have to raise prices there are two rules you should follow:

1. Give customers as much notice as possible.
2. Emphasize the advantage customers will get from the price increase.

Most customers could care less about the rising expenses of your business, so they don't want to hear how your costs are increasing :). So, frame the explanation about cost increases in terms of how this will benefit the customer (ie better bandwidth, faster servers, more features, increased redundancy, etc).

[Robert]

We call it "price freeze" rather than "price lock all"

Whatever the price is when you sign up is the price you will continue to pay. That is, until you cancel your account. Once you cancel your account, you cannot go back to that price. Nor can you transfer that price to a new account.

[xaviahost]

Yah the reason we didn’t use price freeze ...
Is because by saying all it helps imply that whether prices go up or down, your price wont change.

[MrManager]

One of the draws to our business which has proven to be tremendously advantageous is what we call a price freeze guarantee- as long as they remain a loyal customer, their prices never change. It can bring your customers a sense of stablility, security and some assurance that your company is not simply out for a quick buck.

If you positively *must* increase your rates, someone mentioned earlier about certain guidlines for doing so. Good advice there. I would only add one thing - please don't apologize. Operate as though YOU believe your services are with the increase. If you have a hard time believing it yourself, pretend. No one ever said companies don't get to be actors/actresses once in a while. :)

[allan]

Originally posted by MrManager:
No one ever said companies don't get to be actors/actresses once in a while. :)

And some companies should be forced to get SAG cards they have to act so often :D.

[Alex[nl]]

I think promissing a price freeze is quite hard... how can you know you can offer the exact same product for the exact price in 2 years? Personally I wouldn't mind if a webhost would raise his prices if it is for a real reason. . .The fact weather or not his "overal costs" are higher then expected should not be forced upon the current customers.. .I assume everyone makes a small calculation how many people they expect on different plans, then decide the prices etc related to the toal costs... if that just doesn't work out (due to bad math?) you cannot ask your current customers to just fill that gap . . .
But moving to a different DC, or getting a proper firewall, standalone email/mysql etc things that will actually mean an improvement woudln't mind me as long as the raise is reasonable (I once had a host that changed his 9.95 account to a 24.95 account) ...

[Robert]

Alex, if a webhost has been in business for 2 years, that either means they are doing faily good (enough to stay in business) or has a lot of money to support the company.

[allan]

Originally posted by Robert:

Alex, if a webhost has been in business for 2 years, that either means they are doing faily good (enough to stay in business) or has a lot of money to support the company.

Sure, but the sucess could bring addditional costs (which goes back to the point made a couple of times). Say you start out as a reseller and charge $5.95 a month for a basic account. Eventually, you get your own server and you continue to charge $5.95 for the basic account, but you may not be making as much per customer.

2 years later you have 12 dedicated servers and 2,000 customers and you decide you are better off getting your own rack migrating your customers to that rack. Now you have to buy a switch, servers, a firewall and possibly a router. But onces this is done you will have better connectivity and presumably faster servers (given that server technology continues to improve servers purchased today are generally going to be better than servers that are 2 years old).

But all this is going to cost a lot of money, rather than eat the cost, you can pass some of it on to your customers, again by explaining that it is to their benefit:


Dear Valued Customer,

Exciting things are happening at Acme Hosting, and this is good news for you! Over the next 6 months we will be migrating all clients to a new data center and adding several enhancements to your service.

The new data center affords us the opportunity to build upon the service you have come to expect from Acme Hosting, and give you several exciting new services:

1. Undoubtedly, the most important feature of any hosting service to you is uptime, if you can't reach your site, what's the point of hosting it? To that end, the new data center has multiple levels of redundancy, not only will your site be connected to multiple backbones, but it will also be connected to multiple paths within the data center. So, even if a switch inside the data center dies, visitors will still be able to reach your site.

2. Along the lines of redundancy, what good is great network connectivity if your server is always down? Your site is being migrated to a server that is X times faster than the current server. The news server will have X processers and X RAM, it will also have 2 power supplies.

3. Our new mail server will allow you to create custom SPAM rules, so you can decide which mail you want to block.

4. Finally, our new firewall will keep your site even more secure, and you will be able to create custom rules that apply to only your site!

Unfortunately, this type of enhancement comes at a cost. The additional cost, requires Acme Hosting to adjust our rates, the first time we have done so in more than 2 years! Starting [some point 3 months from now] our basic plan will increase from $5.95 to $6.95 per month, which is still one of the best values in hosting.

We here at Acme Hosting appreciate your business and look forward to continuing to serve you. If you have any questions about the move, please feel free to contact me personally at ceo@acmehosting.com I will happy to answer anything I can.

Sincerely,

Yada Yada
CEO Acme Hosting

[maxhest]

Nice template ;)
-Max

[TheGAME1264]

I'm not personally a web host, but I have had to deal with a semi-similar situation. In 2002, my gross income for my business was such that I did not have to charge my clients the Canadian Goods and Services Tax (GST), nor did I have to remit it. However, this year I've had to.

I dealt with the situation by informing my customers of the impending tax situation in early and giving them the opportunity to get me to do work before January 1, 2003, and avoid paying the 7% if they wanted to. The odd thing is that the business actually picked up after the tax was put into effect, and some of my customers were happy I was charging it. "It's a sign that your business is growing and you're not going anywhere, Adam." "It lowers my GST payment for the government at the end of the year anyway." "That's okay, we understand. It's business, right?" I didn't hear one negative piece of feedback.

In other words, give people a warning of what's coming and the reasons behind it. You may also want to offer a "value added" service, something that doesn't cost as much as the increase, in exchange for the increase (e.g. more hard drive space, email accounts, etc.)

[Binx]

I think the price freeze or lock some of you suggested is a really good idea. We got slammed hard when we had to lower all of our prices recently. So in this case a lock would have benefitted us. For those of you that use this, do you just add the price lock clause to your TOS?

[MrManager]

Originally posted by Binx:

I think the price freeze or lock some of you suggested is a really good idea. We got slammed hard when we had to lower all of our prices recently. So in this case a lock would have benefitted us. For those of you that use this, do you just add the price lock clause to your TOS?

It's just a guarantee we offer just like your other guarantees such as your 30 day money back etc etc. No special TOS references per say. Ours is only briefly mentioned in the SLA.

We don't really save all that much money by the thought of raising prices. And besides, we get more traffic from word of mouth than advertising or an extra dollar or two per month. Existing clients see they're paying less than what newcomers will pay, so they stick with you to keep getting a good deal AND recommend you to others. It works all around for us. =)

[Incognito]

In today's market where costs have been dropping, it would be hard to picture a reason for an increase other than you just priced too low to start with.

However, in the not so distant future, I predice we will see a turn around and significant increases in our costs. At that point, all hosts will face this issue.

[Locke]

Well, the price freeze guarantee is no secret in this industry. When companies offer specials, if you get in on it, you keep that price, while the plan you got, goes back to it's original price. That's the only shifting in prices you really see anymore in the hosting industry. Unless like Incognito said, you just priced it way too low.

[MrManager]

Originally posted by Incognito:

In today's market where costs have been dropping, it would be hard to picture a reason for an increase other than you just priced too low to start with.

However, in the not so distant future, I predice we will see a turn around and significant increases in our costs. At that point, all hosts will face this issue.

I'm curious as to why you predict that costs will need to increase for everyone soon. Thoughts?

[Dapon]

Graet job Allen, you have said it so eloquently. That's a great letter as so many others have mentioned.

[allan]

Originally posted by Dapon:

Graet job Allen, you have said it so eloquently. That's a great letter as so many others have mentioned.

:blush: thanks, I can't take all the credit though. My former employer gets most of the credit. One of our datacenters was a disaster, with constant problems and a completely incompetent data center staff. There were literally weekly outages that I had to contend with, so I got a lot of practice writing outage letters, and coming up with "innovative" ways of saying: "We f----d again, please don't cancel".

To give you an idea of the type of problems we had:

1. The power company had to rebuild the power grid in the area because there were so many datacenters sucking down power in the area. This caused multiple power outages over a 6 month period (about one a month). The datacenter actually lost power twice in that 6 month period because the staff forgot to refill the diesel generators after the previous power outage.

2. The datacenter was built in 3 or 4 stages, by different staff (all of whom must have thought they were MacGyver), and no one documented anything as they did their build out, so there was no authoritative network map of the data center. When someone finally got around to performing a network audit, they found a switch in one of the telco rooms that no one had any idea where it went, or what purpose it served. Rather than trace the cables the technician simply unplugged it and took hlf the data center offline.

3. Verizon had built a fiber ring in the area, but again with all the data centers, the fiber rind had been saturated, and no additional lines could be run to the datacenter. We found this out in August when Verizon informed us that the OC3 lines we had ordered in January were not able to be run. We were at 50% capacity when we ordered the lines in January, in August we were at 75% capacity and the XMas spike had not started yet. Verizon said it would be a year before the new ring was built.


There were so many more examples -- its actually embarassing, how poorly that one data center was run, especially when compared to how well the other data centers performed.

[UH-Matt]

Originally posted by interactive:

Hello,
I'm not personally a webhost. But just wondered how hosts out there dealt with Price Raises. Did you just simply email the clients? Some price raises you can't prevent such as unavoidable rate changes and such. Thanks

We lock all current accounts on there current pricing structure. Only new signups would pay the new pricing and often they wouldnt even know the price had gone up.

[Karen]

When we raise our pricing, our pricing structure stays the same for current clients, and only new clients will be charged the new pricing. When I raise the pricing, I also raise the package offerings as well to appeal to clients.

I did have several clients ask if they could be upgraded to the new structure. But I do not send out any notices to current clients since I do not increase what they are paying.

Regards,
Karen

[hostpath.com]

I don't think vendors should worry too much about having to raise prices, if need be. If you're doing your job, your customers won't mind a slight price increase for valid reasons.

Allan:

Good template, however you should eliminate this line:

"Unfortunately, this type of enhancement comes at a cost."

With one simple sentence you destroyed the positive feeling you created with all the new enhancements you described above it. Instead, your next statement should be delivered from a positive perspective:

"Fortunately, Acme is able to provide our loyal customers these valuable new services without a huge increase in prices. These exciting new services will dramatically improve the quality of our product and the value of your hosting account, all for only $1.00 more per month."

See?