Pricing Due Diligence: Testing a Price Increase Before Close

Many value creation plans include a price increase. Pricing due diligence tests whether customers will accept it before you pay for the upside. It looks at how customers reacted to past price changes, how they say they would react now, and what the target's own sales team hears every week.

The stakes are high. McKinsey found that for an average S&P 1500 company, a 1% price rise with stable volume would lift operating profits by 8% (Marn, Roegner, and Zawada, 2003). That leverage works in both directions. If the increase drives more customers away than the model assumes, the thesis weakens fast.

What pricing due diligence should answer

Warren Buffett called pricing power "the single most important decision in evaluating a business" in a 2010 interview with the Financial Crisis Inquiry Commission (Benzinga, 2025). For a deal team, that idea breaks down into four practical questions:

• How did customers react the last time prices went up?

• At what price does resistance start, and for which segments?

• Why would customers stay or leave? Switching costs, contract terms, and alternatives all matter.

• How much churn can the plan absorb before the increase stops paying for itself?

Each question needs a different kind of evidence. The strongest work combines all of them.

Start with the data room: past price changes and churn

Past behavior beats stated intent. Ask for every price change in the last three to five years, with dates, the size of the change, and which customers it affected. Then pull retention and revenue for those customers in the 6 to 12 months after each change.

Look for:

• Churn after each increase, compared with the normal baseline.

• Downgrades and discount requests, which can hide behind steady logo retention.

• Differences by segment. Small accounts often react differently than large ones.

• Grandfathered customers who never saw the increase at all.

If the company has never raised prices, that is a finding too. It means the plan rests on stated intent alone, and the research below carries more weight.

Price sensitivity survey questions that work

A price sensitivity survey shows where customers start to push back. The most common format is the Van Westendorp Price Sensitivity Meter, developed in the 1970s (Sawtooth Software, 2024). It asks four questions:

1. At what price would this be so cheap that you would doubt the quality?

2. At what price would it feel like a bargain?

3. At what price would it start to feel expensive, though you might still consider it?

4. At what price would it be too expensive to consider?

For a price increase on an existing product, we also ask direct questions tied to the planned change. For example: "If your annual price rose from $10,000 to $10,800 at renewal, how likely would you be to renew?" We pair that with a question about what they would do instead: switch, downgrade, negotiate, or accept.

Read every answer with care. A meta-analysis of 28 studies found that hypothetical values ran a median of 1.35 times actual values (Murphy et al., 2003). People tend to say they will pay more than they do. Treat survey results as an upper bound and test them against the data room.

Interviews with customers and sales staff

Surveys tell you where the line is. Interviews tell you why. We talk with 5 to 8 customers per segment and ask about the value they get, what they compared before buying, and what it would take to switch. We listen for switching costs, budget cycles, and who signs off on renewals.

Sales and customer success staff add a second view. They know which accounts already push for discounts, which competitors come up in deals, and how often reps cut price to close. A company that discounts heavily today may struggle to make a list price increase stick.

Report these findings as counts. "5 of 7 customers said a 10% increase would trigger a competitive review" is more honest than a percentage from seven people.

Turn the results into a range for the model

The output of pricing due diligence should be a range the model can use. Here is a hypothetical example.

A software company has 2,000 customers paying $10,000 a year, so revenue is $20 million. The plan calls for an 8% increase, to $10,800.

• Break-even churn: 1 minus (1 ÷ 1.08) is about 7.4%. If more than about 148 customers leave because of the increase, revenue falls.

• Base case: if the research points to 4% added churn, 1,920 customers × $10,800 is about $20.7 million, a gain of about 3.7%.

• Downside case: if the data room shows 10% churn after the last increase, 1,800 × $10,800 is about $19.4 million, a loss of about 2.8%.

Now the deal team can see how close the plan sits to break-even and which evidence drives each case. Our guide to testing a growth plan before close shows how to apply the same approach to the other claims in the plan.

Sample sizes for pricing research

• Survey: about 100 responses gives a margin of error near ±10 points. Plan that number for each segment you will report on.

• Customer interviews: 5 to 8 per segment, such as small accounts and enterprise accounts.

• Internal interviews: 3 to 5 sales and customer success staff, across regions or segments where possible.

Our guide on how many user interviews you need explains the math behind these numbers.

Frequently asked questions

What is pricing due diligence?

Pricing due diligence tests whether a target company can raise prices as its plan assumes. It combines historical price change data, a price sensitivity survey, and interviews with customers and staff.

How long does pricing due diligence take?

A focused study usually takes 2 to 4 weeks. The data room review can start right away while the survey and interviews are recruited.

Can we survey the target's customers before close?

Often yes, with the seller's agreement. Many studies run under a neutral research brand so customers do not learn about the deal. When direct access is not possible, we recruit similar buyers from the same market.

How accurate are price sensitivity surveys?

They show direction and relative thresholds well. Stated willingness to pay tends to run higher than real behavior, so we treat survey results as an upper bound and check them against past churn.

What if the company has never raised prices?

Then there is no historical baseline, and the survey and interviews carry more weight. We widen the range in the model to reflect the extra uncertainty.

Test the price increase before you pay for it

Investor Validation from Habib Innovation Partners is fixed-fee customer research for PE firms, family offices, and angels, completed in 2 to 4 weeks. We test pricing assumptions and the other customer claims in your plan, then deliver a range your model can use. See how it works or start a conversation.

Sources

• Michael V. Marn, Eric V. Roegner, and Craig C. Zawada, "The Power of Pricing," McKinsey Quarterly, 2003

• Jeannine Mancini, "Warren Buffett Says the 'Single Most Important' Trait in a Business Is Pricing Power," Benzinga via Yahoo Finance, 2025

• Sawtooth Software, "Van Westendorp Pricing Model: Definition, How It Works, Examples, and More," Sawtooth Software, 2024

• James J. Murphy, P. Geoffrey Allen, Thomas H. Stevens, and Darryl Weatherhead, "A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation," University of Massachusetts Amherst Working Paper, 2003

• Example calculations by Habib Innovation Partners. Margin of error uses the standard formula for a proportion at 95% confidence (1.96 × √(0.25 ÷ n))