Most business owners I talk to are underpriced. And most of them know it.
What stops them isn't the maths. It's fear. "What if everyone leaves?"
So let's put a number on "everyone." This simulator shows exactly how many customers you can afford to lose before a price rise costs you money. The answer is usually far more than people expect.
How to use the price increase simulator
- Describe today: paying customers, monthly price, normal monthly churn, new customers a month and your gross margin.
- Describe the rise: the percentage increase and how many extra customers you think will leave when you announce it. Be pessimistic.
- Decide who moves. Grandfather some or all existing customers (they keep the old price), for ever or for a set number of months.
- Compare the three lines: no change, your plan, and "new customers only" (full grandfathering).
How the maths works
The break-even formulas come from our guide to raising prices without losing customers. For a price rise of p (as a decimal) and a gross margin of m:
Break-even customer loss (revenue) = p ÷ (1 + p) Break-even customer loss (profit) = p ÷ (m + p)
The month-by-month model applies the extra loss once, when customers move to the new price. Then normal churn runs every month and new customers join at the new price:
Customers next month = Customers × (1 − monthly churn) + new customers MRR = Old-price customers × old price + new-price customers × new price
It also solves for the extra loss that would make your total revenue over the period exactly match doing nothing. That figure is higher than the simple break-even, because every new customer pays the new price.
A worked example
The pre-fill is the example from the guide: 400 customers at $50, 3% monthly churn and 15 new customers a month. You raise the price 10% to $55 and assume an extra 4% of customers leave when you announce it.
The simple break-even is 0.10 ÷ 1.10 = 9.1%. You could lose 36 customers and still bring in the same revenue. At a 70% gross margin, the profit break-even is 12.5%, or 50 customers.
Month one: no change gives $20,150 of MRR. Moving everyone gives $21,311, even after losing 16 customers. Grandfathering gives $20,225. Over 12 months, moving everyone wins, but grandfathering carries almost no cancellation risk.
Now drag the extra churn slider to 12% and watch the 12-month total fall below doing nothing.
How to read the result
If your assumed loss sits well inside the break-even, the rise is low-risk. If it's close, test it first on new customers only.
When should you grandfather? When the rise is large, your customers are price-sensitive, or you're not yet confident in your value. Planet Fitness raised its US entry price from $10 to $15 for new members only.
When should you not raise prices at all? When churn is already high. A price rise on a leaky bucket just speeds up the leak, so fix retention first.
What to do next
- Write the notice with these price increase email templates.
- Selling in Australia? Read raising subscription prices in Australia. There's no single statutory notice period, but your contract and the unfair contract terms rules matter.
- See how Planet Fitness raised its $10 price for the first time in 26 years.
- Not sure what your churn really is? Work it out with the Churn Rate Calculator.
- Wondering what recurring revenue could do for your business? Talk it through in a free Subscription Profit Review.
Frequently asked questions
How many customers will I lose if I raise prices?
Usually fewer than you fear, but it depends on your value, your notice and your competition. The useful question is how many you can afford to lose. For a 10% rise, revenue only falls if more than about 9.1% of the customers you move cancel because of it. Planet Fitness and Xero both raised prices and kept growing.
Should I grandfather existing customers?
Grandfathering means existing customers keep their old price while new customers pay more. It removes the cancellation trigger, so it's the safest option, but revenue phases in slowly as your base turns over. A middle path is to grandfather for a set period, such as six months, then move everyone with plenty of notice.
How much notice should I give for a price increase?
Follow your contract, and give customers time to act before the new price hits. A common practice is at least 30 days for monthly plans and notice before renewal for annual plans. Xero gave Australian customers at least 60 days when it moved them to new plans. In Australia, check the unfair contract terms rules too.
Is a small rise every year better than a big one?
Often, yes. Small, predictable rises tied to a date customers expect (Xero uses a 1 July cycle) cause less shock than a big rise after years of nothing. Run both in the simulator: a 5% rise with 1% extra churn against a 20% rise with 8% extra churn, and compare the totals.
Does a price rise affect my business valuation?
It can, in both directions. A rise lifts MRR and margin, which buyers value, but a spike in churn makes recurring revenue look less reliable. Buyers look at gross revenue retention and the trend over time. A well-handled rise with stable retention generally helps. Australian owners can get a [free Subscription Profit Review](/profit-review/).
Built on The Subscription Playbook
This tool turns frameworks from Robert Coorey's book into something you can use in minutes. Robert is the author of The Subscription Playbook and a Director at BPAG Accountants. More about Robert.