There’s a counterintuitive truth in SaaS that makes most founders uncomfortable: raising your prices can actually boost customer retention.
I understand. It may seem counterintuitive.
Every instinct suggests that cheaper = stickier. But the data tells a different story, and understanding why will fundamentally change how you think about pricing.
Let’s dive in.
Here’s what actually happens when you raise prices
1. You filter for committed customers
Low prices attract tire-kickers. People who are “just trying it out” or who see your product as nice-to-have rather than essential. These customers leave at the first sign of problems because they never truly invested in the relationship.
Charging appropriately attracts people with real problems. They need to be solved. They’ve done the math, gotten budget approval, and convinced stakeholders. This process builds commitment before they even sign up.
ChartMogul’s 2023 research confirms that SaaS products priced over $500/month keep 98% of customers in the first three months, compared to only 87% for products under $10/month.
2. You shift the perception of value
Price is a signal. Whether we like it or not, people use price as a heuristic for quality.
A $10/month tool is treated like a $10/month tool. It’s disposable, forgettable, and easy to cut when budgets tighten. A $200/month tool gets attention. It gets used. It gets integrated into workflows. People justify its existence because they need to justify spendiisn't00/month.
This isn’t about asking customers. It’s about alignment. If your product genuinely delivers $1,000 in value, you're charging $50, you’re creating a psychological mismatch that works against retention.
3. You can afford to deliver the service that keeps people around
This is the operational reality most founders ignore: retention costs money.
Onboarding costs money. Support costs money. Product improvements and customer success both cost money.
When you can't afford to do things well, you can’t afford to do them at all. You’re caught in a volume game where you must constantly attract new customers to replace those who leave, leaving even fewer resources for retention.
Higher prices create a profit margin. This margin funds the team that helps customers succeed. Customer success boosts retention. It’s a flywheel, but it only spins when you have the economic fuel to keep it moving.
What Startups Often Misunderstand
Most founders/teams think about pricing as a conversion optimization problem. “What’s the highest price where we still get signups?”
That’s the wrong question.
The right question is:
“What price attracts customers who will actually succeed with our product and stay for years?”
Here's the harsh reality: getting someone to sign up isn't the victory. The real win is keeping them engaged, encouraging them to grow, and having them refer others. These results are greatly shaped by who you allow through the door in the first place.
The Caveat (Because There Always Is One)
Raising prices doesn’t automatically improve retention if your product is mediocre. This isn’t a trick to hide fundamental product-market fit problems.
You need to provide real value. The price increase works because it aligns incentives and filters out customers who can’t realize that value. If the value isn’t there, higher prices only speed up your decline.
What steps can you take today?
Perform the underpricing diagnostic by reviewing these metrics from the past 90 days.
LTV: CAC ratio above 5:1? You’re probably undervalued. Ratios well over 3:1 indicate you’re leaving money on the table.
Support costs exceeding 15-20% of revenue? Low prices attract high-maintenance customers.
Implementation rates below 60% in the first 30 days? Customers aren’t fully committed to actually using what they purchased.
Month 1-3 retention is below 70%? You’re attracting tire-kickers, not problem-solvers.
If multiple indicators are red, pricing is likely a contributing factor to your retention problem.
Test price increases on new customers only
Avoid A/B testing with your current traffic to prevent inconsistent user experiences. Instead, consider alternative approaches.
Raise prices 25-35% for all new signups after a specific date
Grandfather all existing customers at their current rate
Track the new cohort for a minimum of 90 days minimum
Compare retention, expansion, and support costs between cohorts
The deputy took this action and observed no decrease in conversions but saw a significant boost in retention metrics.
Communicate price changes clearly
For new customers (grandfathered approach):
Email existing customers 60 days before the change
Explain what’s improved: “Over the past year, we’ve shipped [X, Y, Z], reduced downtime by [%], expanded support.”
State clearly: “Your rate stays at $X/month. New customers pay $Y/month starting [date]”
Frame it as a loyalty reward.
For existing customers (if truly necessary):
Minimum 90 days’ notice
Offer annual plans at the previous rate as a backup option.
Provide specific value justification linked to tangible improvements
Make yourself available for conversations.
Three Practical Takeaways
Stop competing only on price. If your main selling point is “we’re cheaper than X,” you’ve already lost. You’re training customers to prioritize cost over value. The moment someone cheaper appears, they’ll be gone.
Grandfather existing customers (usually). When you raise prices, honor the current rates for existing customers unless there's a compelling reason not to. It helps build trust and loyalty. Your LTV calculations should focus on new cohorts anyway.
Increase prices each year. Focus on steady 5-10% growth rather than large jumps, aligning with the value you add and the market you’re in. This emphasizes that great products become more valuable over time, rather than becoming cheaper.
Retention isn’t about holding onto every customer who signs up. It’s about keeping the right customers, the ones who value what you’ve built, use it deeply, and succeed because of it.
Sometimes the best way to improve retention is to be more selective about who you retain in the first place.
Price is your first and most powerful filter. Use it strategically.