Six months ago, we lost three big deals in a row to a cheaper competitor. I panicked. I convinced my co-founder that our $49/month price was too high for the market, so we slashed it by 40% down to $29/month. I thought it was a brilliant move. I assumed that lower prices meant more volume and faster growth.
We did get more signups about 30% more. But the downstream effects have been a nightmare:
Our churn rate tripled, jumping from 3% to 9% per month.
Support tickets skyrocketed by 150%. The new users coming in at $29 were far more demanding, asking for custom features and hand-holding for a product they paid almost nothing for.
Our LTV (Lifetime Value) tanked. Because the price was so low, we could no longer afford our paid ad spend.
I finally realized what we had done. By dropping our price, we didn't just attract the customers of our competitor; we attracted the bottom-of-the-barrel customers who are hyper-price-sensitive. They don't care about the value we provide; they care about getting the cheapest tool possible. And the moment a cheaper option appears, they will leave us instantly.
