A Price Increase Needs a Customer-Loss Test

Raising prices to cover customer acquisition costs deserves a test before a broad rollout. In an October 1 Entrepreneur opinion article, Roof Maxx co-founder and CEO Mike Feazel argues that increases should preserve the value customers expect, while repeat business and referrals can help reduce dependence on paid acquisition.

Feazel draws on his company’s approach to customer relationships. His article is a contributor’s operating perspective, not a market-wide measurement of acquisition costs. It supplies no benchmark for how much a typical business should raise prices or how many customers it could lose.

Test the dollars left after acquisition

Trovo’s interpretation: The useful question is whether a higher price leaves more money after delivery costs and customer acquisition, once any reduction in buyers is counted.

Consider this illustrative scenario, using assumptions rather than reported results:

• A service business spends $2,000 on marketing and wins 20 new customers. Acquisition cost is $100 per customer.
• Each customer buys one $500 job with $300 in variable delivery costs. That leaves $4,000 before marketing, or $2,000 after marketing and before overhead.
• The business raises its price to $550. If the same marketing spend now produces only 16 customers, acquisition cost becomes $125. Those jobs still leave $4,000 before marketing and $2,000 afterward.

Here, a 10% price increase and a 20% decline in buyers cancel each other out at that contribution level. Fewer jobs also require less delivery capacity, which may matter to a busy owner. But the increase has not created extra dollars to cover rent or debt payments.

Separate margin from cash timing

For a limited pricing test, record qualified inquiries, completed purchases, variable costs, refunds and cash collection dates. Compare similar customers and channels; a change in lead quality could otherwise be mistaken for a pricing effect.

Then use a cash conversion review to examine when marketing and delivery bills come due relative to customer payments. A profitable sale can still require cash upfront.

Before considering financing for additional marketing, use the funding readiness check and test repayment against observed purchases and collections. Treat hoped-for referrals and repeat orders as upside until there is evidence to budget around them. The next step is a bounded price test with a review date, not a larger advertising commitment based solely on the new price.

Image: Antoni Shkraba on Pexels.