When it comes to SaaS pricing, discounts are both awful and awesome.
Unfortunately (or not), we just don’t live in a world of absolutes.
Generally, I like to avoid discounts because the way they’re done most of the time
can will devalue your offering in the eyes of the customer.
And that’s because most of the time, discounts are a cop out. It’s just easier to lower the price than to do the work necessary to sell at full price (or even higher).
I can’t help you if you just want to lower your price whenever someone objects, but if you want to NOT do that, and are interested in using discounts to actually GROW your business, well, then here are my three rules for using discounts.
- Price Objections are Value Objections
- Discounts should get people to pay you more… not less
- To be really effective, discounts require scarcity
- A Note on Discounts in Enterprise SaaS Deals
1. Price Objections are Value Objections
If someone objects to your price, yet they have the means to pay it (i.e. no matter how much I understand the value of a Bugatti Veyron, I can’t pay $2.5M for a car), then it’s not the price they’re objecting to.
Rather, it’s that they don’t think your offering is WORTH the price you’re asking.
The value they perceive simply does not match the price you are asking.
You can either lower the price permanently or in the form of a discount, and maybe get people who originally objected to your offering to pay (while calling you a sucker and thinking of other ways to rip you off or waiting for a more valuable solution to come along)…
… or you can work harder to raise the value perception of your service to match the price you’re asking.
Amateurs do the former… pros do the latter.
BTW, you could also be attracting the wrong customer; you may need to identify an Ideal Customer that immediately perceives the value in your SaaS congruent with the price you’re asking.
Those images are from this ~35 minute video on SaaS Value Pricing… watch it if you need a refresher on the basics (everyone probably needs a refresher on the basics!).
2. Discounts should get people to pay you more… not less
I take flak for this all the time… until people try it and it produces crazy-awesome results. Please, don’t send flowers when you try this and it works… a simple “thank you” is all that’s necessary. And money.
Like I said above, there are no absolutes here. Sometimes discounts are cool, like when you can get people who convert to pay you MORE than they were originally going to… by offering a discount.
Let me explain.
If someone self-selects the $50/mo plan when they start your trial, or if their usage during an unlimited trial or trial not tied to a pricing tier indicates they should select the $50/mo plan, what can we do to get them to convert at, say, $75/mo instead of $50/mo?
Well, we could take the next tier up – $100/mo – and give them that tier for ONLY $75/mo. We could do that forever (until they upgrade/downgrade/cancel – a good reason to not cancel, especially if the price has gone up even more later) or for a limited time, like 6-months.
Either way, that could be a mighty enticing offer, especially if triggered based on their actual usage during the trial (i.e. once they complete the CCAs, make them the offer… I like to use One Time Offers that will never be available again).
This is how we took one client’s time from sign-up to conversion on a 30-day Free Trial to just 3 days (you read that right) AND increased Average Subscription Value (ASV) by 33%.
In fact, this is a great reason to tie your trials to a pre-selected pricing tier, but make it unlimited so they use or get exposed to advanced (more expensive) features. Of course this works really well if your pricing plans are segmented on high-value metrics and not low-value commodity metrics (i.e. storage, bandwidth, etc.).
Let’s bottom-line it… if you can get them to pay $75/mo at conversion instead of $50/mo, even if they never expand their usage beyond that, you drove up LTV 50% simply by offering a SMART discount at the right time.
Oh, you could also make up a pricing tier that doesn’t exist publicly (yet) and offer that to them, thus avoiding any “discounting” altogether, but that’s a story for another day.
3. To be really effective, discounts require scarcity
Whether that scarcity is the amount of time the discount is available, the number of discount subscriptions available, etc. it needs to be there.
This is both a customer-facing issue… but also internal.
Externally, if you don’t put some bookends on the offer, it looks like you’re just discounting your product for no reason (or, several reasons like your product sucks, you don’t value it, you’re desperate, you don’t know how to market your product, you’re a sucker, etc.).
Scarcity also gets people to take action… no scarcity, no sense of urgency to take the offer.
If you’re using the discount the way I describe in #2 above and growing LTV by 50% on each transaction, you’re good… time to step on the gas!
But if you’re using traditional discounts – especially things like annual pre-pay discounts – then putting bookends on the availability of the discount internally (i.e. offering just enough to make-up for that cashflow crunch you’re having), it means you won’t use it as a crutch.
It means you’ll have to actually figure out how to attract better customers, raise the value perception of your offering… or, ideally… both.
I mean, if you really do have cash flow issues, then figure out how much you need and offer only that many annual subscriptions, then stop offering them.
If it really is about cash flow, that should be enough, right?
A Note on Discounts in Enterprise SaaS Deals
Just so we’re clear… discounting in an Enterprise deal is common, but you generally start from a much-higher price than the “retail” pricing on your marketing site.
Plus, discounting is generally done behind-the-scenes, one-off for each client, under NDA, etc. and therefore doesn’t have the same negative effect as plastering huge discounts all over your marketing site might have.
Plus, you generally trade the discount for a logo, right? Quid pro quo, am I right? You did that, right? C’mon, man.
Also, in many Enterprise SaaS deals, long-term contracts are the norm, and generally they allow for expansion revenue possibilities by locking in the rates of add-ons, higher pricing tiers, etc.
And just in case you’re thinking “Who cares about contracts, this is SaaS!” just know that contracts are required in many market segments with certain types of customers and you probably aren’t in a position to change that yet.
Oh, and a little trick I like to use on “retail” pricing pages is to have a link to a lead-capture landing page for “Enterprise” clients and both on the pricing page and that landing page say: “Enterprise pricing starts at $xxxx.” More on that Enterprise SaaS “hack” here.
By the way, having the “pricing starts at…” really sets the tone for the conversation if someone calls or fills out the form, since they know we’re starting at $xxxx.
It correctly reframes the conversation if all they saw before was your “retail” self-service pricing of $xx/mo.