Successful price increases drive a far higher profit improvement than any other initiative. Across a study of Fortune 500 companies, for instance, Andreas Hinterhuber found that a 5% price increase leads to a 22% improvement in operating profits. Compare that to a 5% improvement in SG&A expenses, which only moves the bottom line by 5%. A successful price increase helps you acquire better customers, who are more serious about using your product and less likely to churn. It dramatically improves the lifetime value of a customer, which in turn boosts the LTV: CAC ratio. Plus, it allows startups to build a more sustainable business model, and hence be more in control of their own destiny. Take StatusPage, the leading hosted status page provider acquired by Atlassian. As Co-Founder Steve Klein describes in detail, StatusPage started out with two price points – free and $49/month. Over time, they removed the free tier and managed to raise prices by up to 8x with minimal impact to conversion or churn. This was a key lynchpin in their efforts to grow average revenue per user (ARPU) by 2.4x and reach a $2.5M annual revenue run rate over the course of only two years.
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