{"id":92497,"date":"2019-09-17T08:03:25","date_gmt":"2019-09-17T15:03:25","guid":{"rendered":"https:\/\/www.backblaze.com\/blog\/?p=92497"},"modified":"2021-08-03T16:18:00","modified_gmt":"2021-08-03T23:18:00","slug":"raising-prices-is-hard","status":"publish","type":"post","link":"https:\/\/www.backblaze.com\/blog\/raising-prices-is-hard\/","title":{"rendered":"Raising Prices is Hard"},"content":{"rendered":"

\"computer<\/a><\/p>\n

Raising prices should not be an 18-month project.<\/p>\n

Everyone is faced with the decision to raise prices at some point. It sucks, but in some cases you have to do it. Most companies, especially SaaS businesses, will look at their revenue forecasts, see a dip, run a calculation predicting the difference between the revenue increase and how many customers might leave, and then raise prices if the math looks favorable. Backblaze is not most companies — here\u2019s how we did it.<\/p>\n

In February of 2019, we made the announcement that one month later, our prices for our Personal Backup<\/a> and Business Backup<\/a> services would be going up by $1: our first price increase for our Computer Backup<\/a> service since launching the service over a decade ago. What was announced in February 2019 actually started in December 2016, more than two years before the actual price increase would take effect. Why the long wait? We wanted to make sure that we did it right, not just mechanically (there\u2019s a lot of billing code that has to change), but also in how we communicated to our customers and took them through the process. Oh, and a big reason for the delay was our main competitor leaving the consumer space, but more on that later.<\/p>\n

In this post I\u2019ll dive in to our process for how we wanted the price increase to go, why we decided to build the extension program for existing customers, what went in to our communication strategy, and what the reactions were to the price increase, including looking at churn numbers.<\/p>\n

Is Raising Prices a Smart Move?<\/h2>\n

Raising prices, especially on a SaaS product where you\u2019ve built a following, is never an easy decision. There are a ton of factors that come into play when considering what, if any, is the best course of action. Each factor needs to be considered individually and then as a whole to determine whether the price increase will actually benefit the business long term.<\/p>\n

Why Raise Prices?<\/h3>\n

There are many reasons why companies raise prices. Typically it\u2019s to either increase revenue or adjust to the market costs (the total cost associated with providing goods or services) in their sector. In our case it was the latter. In the price increase announcement<\/a>, we discussed our reasoning in-depth, but it boiled down to two things: 1) adjusting to the market cost of storage<\/a> (it was no longer decreasing at the rate it was when we first launched the product), and 2) we had spent years enhancing the service and making it easier for people to store more and more data with us, thereby increasing our costs.<\/p>\n

\"Backblaze<\/a>
Cost Per Drive (2009-2017) — No Longer Decreasing Rapidly<\/figcaption><\/figure>\n

One of the core values of Backblaze is to make backup astonishingly easy and affordable<\/em>. Maintaining a service that is easy to use, has predictable pricing, and takes care of the heavy lifting for our customers was and is very important to us. When we started considering increasing prices we knew that we were going to be messing with the affordable<\/em> part of that equation, but it was time for us to adjust to the market.<\/p>\n

How to Raise Prices?<\/h3>\n

Most companies say that they love their customers, and many actually do. When we first started discussing exactly how we were going to raise prices we rejected the easiest path, which was to create a pricing table, update the website, and flip a switch. That was the easy way, but it was important for us to do something for the customers who have trusted us with their important files and memories throughout the years. We would still need to build out the pricing table (fun fact<\/em>: from 2008 to 2017 our prices were hard-coded) but we started thinking about creating an extension program for our existing customers and fans.<\/p>\n

The Extension Program<\/h4>\n

The extension program was a way for existing Backblaze users to prepay for one year of service, essentially delaying their price increase. They would buy 12 months of backup credits<\/em> for $50 for each computer on their account, and after those credits were used up, the new prices would go into effect on their next renewal. It was a way to say thank you to our existing customers, but there was just one problem — it didn\u2019t exist.<\/p>\n

Building the extension program became a six month project in and of itself. First we needed to build a crediting system. Then, we needed to build the mechanism for our customers to actually buy<\/em> that block of credits and have them applied to their account. Afterwards, we\u2019d need FAQs, confirmation emails, and website changes to help explain the program to our customers. This became a full-time job for a handful of our most senior engineers, and resulted in a six month project before<\/em> we were ready to put it through our QA testing. The long development time of the project was a large point of consideration, but there were also financial implications that we had to consider.<\/p>\n

The extension program was great for customers, but good\/bad for Backblaze. Why? By allowing folks to sign up for an extension we were essentially delaying their price increase, therefore delaying our ability to collect the additional revenue. While that was not ideal, the extension program brought in additional revenue from people purchasing those extensions, which was good. However, since those purchases were for credits, that additional revenue was deferred, and we still had to provide the service. So, while good from a cash flow perspective (we moved up about $2M in cash), we had to be very careful about how we accounted for and earmarked that money.<\/p>\n

Continuing to Provide Value<\/h4>\n

Extensions were only part of the puzzle. We didn\u2019t want customers to feel like we were simply raising prices to line our pockets. Our goal is to continue making backup easy and affordable, and we wanted to show our fans that we were still actively developing the service. The simplest way to show forward progress is to make…forward progress. We decided that before the announcement date we needed to have a product release that substantially improved the backup service, and that\u2019s when we started to plan Backblaze Version 5.0, what we dubbed the Rapid Access Release<\/a>.<\/p>\n

Adding to the development time of creating extensions were the projects to speed up both the backup and restore functions of the Backblaze app (those changes were good for customers, but actually increased our cost of providing the service). In addition, customers could now preview, access, and share backed up files by leveraging our B2 Cloud Storage product<\/a>. To top it off we strengthened our security by adding ToTP as a two-factor verification method. All those features were rolled up into the 5.0 release and were released a few weeks before we were set to announce our price increase, which was scheduled to be announced on August 22nd, 2017.<\/p>\n

Oversharing<\/h4>\n

Another of our core values is open communication, which we equate to being as open as possible<\/a>. If you have followed Backblaze over the years, you know that we\u2019ve open-sourced our storage pod <\/a>design, shared our hard drive failure<\/a> statistics, and have told entertaining stories about how we survived the Thailand drive crisis<\/a>, and the time we were almost acquired<\/em><\/a>. Most companies would never talk about topics like these, but we don\u2019t shy away from hard conversations. In keeping with that tradition, we made the decision to be honest in our announcement about why we were raising prices (market costs and our own enhancements). We also made the decision to not mention one valid reason: inflation.<\/p>\n

Our price back in 2008 was $5\/month. With the inflation rate, in 2019 that would be around $5.96, so our price increase to $6 was right in-line with the inflation rate. So why not talk about it? We wanted the conversation to be about our<\/em> business and the benefits that we\u2019re providing for our customers in building a service that they feel is a good value. Bringing up global economics seemed like an odd tactic, considering that we weren\u2019t even keeping up with inflation and ultimately customers got there on their own.<\/p>\n

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Lol, you guys kill me. A $1 price increase over 10 years? You aren\u2019t even keeping up with inflation \ud83d\ude02<\/p>\n

\u2014 John A. Fredrickson (@jfredson) February 13, 2019<\/a><\/p><\/blockquote>\n