Testing prices, discounts and raising prices

0:00 Testing prices, discounts and increases

Your first price is a guess. A reasonable guess, maybe, but a guess. The question is whether you'll treat it like one, and test it, or leave it untouched for three years while your costs rise and your product improves. In this lecture, you'll learn how to test willingness to pay, how to run a simple price test with a decision rule, how to use discounts without destroying your margin, and how to raise prices in a way that keeps customers' trust.

0:36 Why it matters

Why does this matter? Because markets move, costs rise and your product gets better, so a price that was right last year may be wrong now. Many founders never test price because it feels risky. But not testing is also a decision, often an expensive one. And discounts, used carelessly, can quietly halve your margin. Here's the key idea. Treat price like any other assumption: test it with real behaviour, measure the right outcome, and decide using a rule you set in advance.

1:12 The tuning analogy

Here's an analogy. Adjusting price is like tuning a guitar. You don't crank the peg all the way and hope. You make a small turn, listen, and adjust again. And you listen with a tuner, not by feel. In pricing, the tuner is your metric, and it's not just conversion. Conversion tells you how many said yes. But you also need revenue per visitor, contribution, and retention after sixty days. A higher price can lower conversion yet attract customers who stay longer and complain less. So you tune on the full picture, not on the first number you see.

1:55 Testing methods

How do you test willingness to pay? There are several methods, weakest to strongest. Interviews about current spending and budgets. The Van Westendorp questions, which ask at what price something feels too cheap, a bargain, expensive, and too expensive, to find an acceptable range. Landing page tests with different prices, as long as the price shown at purchase is the price charged. Quoting different prices to comparable B2B prospects and tracking win rates. Cohort changes, where new customers see a new price and existing ones don't. And the strongest evidence of all: pre-sales, where people actually pay.

2:37 Worked example 1: £30 vs £45 (illustrative)

A simple worked example, illustrative. An online course costs thirty pounds. You want to test forty-five. Before you start, calculate break-even. For revenue, thirty divided by forty-five is two-thirds, so at forty-five you can lose a third of your buyers and earn the same revenue. Now the results, per thousand visitors. At thirty pounds, four percent convert: forty buyers, twelve hundred pounds. At forty-five, three point two percent convert: thirty-two buyers, fourteen hundred and forty pounds. Fewer buyers, more money. And if variable costs are six pounds per buyer, contribution rises from nine hundred and sixty to twelve hundred and forty-eight.

3:21 Watch me: the price test planner

Watch me plan a test properly. I open the price test planner from the lesson. Question: will forty-five pounds, instead of thirty, cut conversion by more than a third? I calculate both break-evens. Revenue break-even is sixty-seven percent. Contribution break-even, with six pounds of variable cost, is twenty-four divided by thirty-nine, about sixty-two percent. So I can lose up to about thirty-eight percent of conversions and keep the same contribution. Next, my decision rule, written now: adopt forty-five if contribution per visitor is higher and sixty-day retention isn't worse by more than five points. Then the compliance check: price shown equals price charged, taxes and fees visible, terms updated.

4:08 The discount trap

Now discounts. They can drive trials, reward loyalty and clear stock, but look at what they do to margin. Suppose your price is a hundred, your variable cost sixty, so contribution is forty. A twenty percent discount makes the price eighty. Contribution falls to twenty. You've halved it, so you need twice the volume to earn the same. And discounts train customers to wait for the next sale, and attract bargain hunters who often churn. So prefer targeted, time-limited, purposeful discounts: a first-month trial offer, an annual prepayment discount that improves cash flow, or a volume discount that reflects a genuinely lower cost to serve.

4:54 Worked example 2: a price rise in Riyadh (illustrative)

Next, raising prices, which you'll need to do as costs rise and value grows. Here's a realistic scenario, illustrative. A software company in Riyadh hadn't raised prices in three years, despite adding many features. It announced a twenty percent increase for new customers immediately, and for existing customers after ninety days. It offered a twelve-month lock-in at the old price for anyone switching to annual prepayment. It trained its support team to answer questions, and monitored churn weekly. Many customers chose annual prepayment, cash flow improved, and churn stayed within normal ranges. The keys were value first, notice, choice and respect.

5:38 The price-rise email

Let me show you the announcement email, because words matter. Subject: changes to your plan from a specific date. Open with value. Since you joined, we've added these two or three concrete improvements you actually use. Then the change, plainly: the price moves from this to this, from this date, thirty to sixty days away. Then what it means for them. Nothing changes until that date. You can lock in today's price for twelve months by switching to annual billing. And if a smaller plan suits you better, just reply and we'll help. Close with thanks and a real person's name. The full script is in the lesson.

6:25 Fair and legal testing

And fairness and law. Whatever price a customer sees at checkout is what they pay, with required taxes and fees shown. In the UK, the Digital Markets, Competition and Consumers Act 2024 strengthened enforcement against hidden and drip fees. The US Federal Trade Commission has acted on hidden fees too. Be careful with dynamic or personalised pricing. You should always be able to explain why two customers saw different prices, and never base it on sensitive characteristics. Follow contract terms on notice and auto-renewal. And for B2B or small audiences, cohort tests are usually fairer and cleaner than showing random prices to individuals.

7:10 Common mistakes

Let's run through the common mistakes. Never testing price at all. Measuring only conversion. Blanket discounts to hit a monthly target. Surprise increases without notice or explanation. Customers discovering unexplained price differences, which destroys trust. And pricing far below alternatives, which can make buyers suspicious, especially where trust matters, such as professional services. Remember, price signals positioning. A quick exercise: what happens to your contribution if you raise prices ten percent and lose five percent of customers? Many founders are surprised at how favourable the answer is.

7:48 Recap and try this now

Let's recap. Your price is a hypothesis. Test it with real behaviour, calculate break-even first, and decide with a rule you set in advance, watching contribution and retention, not just conversion. Use discounts sparingly and with purpose, because they cut contribution faster than they add volume. Raise prices with value first, notice, options and a human voice. And keep every test fair, transparent and legal. Your try this now: fill in the price test planner for one price you suspect is too low, and draft your price-rise email even if you don't send it yet. Next module: go-to-market.