Providing discounts on subscriptions and software services offers various advantages, such as expanding market share, securing more deals, renewing contracts, outpacing competitors, increasing profits, enhancing customer acquisition, and more.
However, sustaining discounts in the long term for a SaaS B2B model can pose challenges, and it’s crucial to ensure that your pricing strategy doesn’t diminish your perceived value in the eyes of customers.
To address the sustainability of discounts in an enterprise SaaS context, it’s essential to develop a thoughtful B2B annual discount strategy. This involves carefully balancing the benefits of discounts with the long-term viability of your business.
Factors to consider include evaluating market dynamics, understanding customer needs, and anticipating the potential impact on profitability.
Why Do SaaS Businesses Offer Discounts?
Before delving into how to manage SaaS discount requests? It’s essential to address the fundamental question: Why do SaaS businesses offer discounts? There are several reasons, with the most common being the desire to attract customers and boost conversion rates. While the methods of providing discounts may vary, the primary incentive is often centered on securing that initial sale.
The underlying assumption is that a significant portion of the target audience might not engage with the services without the enticement of a discount. Determining the validity of this assumption becomes a critical factor in assessing the overall business sense of the discounting strategy.
Another category involves those who offer discounts more sporadically, perhaps inspired by competitors or as a tactic employed by the sales team. In such cases, there are inherent risks that need consideration, as will be explored in the following section.
A distinct scenario arises when discounts are applied to long-term subscriptions. This type of discounting strategy presents unique considerations, and the subsequent paragraphs will elaborate on the specifics.
Lastly, discounts may be implemented as a form of apology in the event of errors or service disruptions. For instance, offering discounts can serve as a gesture of goodwill if a SaaS tool experiences downtime or malfunctions for a certain duration.
How to Manage SaaS Discount Requests?
1. Acknowledging Universal Desire for Discounts
Recognize that in a high-touch sales process involving customer-representative interactions, resistance to pricing is common. This is particularly evident for younger startups where potential clients may test the extent to which the business is willing to negotiate. Balancing this desire for discounts is crucial to avoid leaving money on the table and potentially negatively impacting the market.
2. Distinguishing Good vs. Bad Discount Requests
Develop a clear understanding of what constitutes a valid SaaS discount request versus an undesirable one. Examples include unfavorable reasons like competitors having higher prices, customers seeking additional features for free, or a lack of commitment from customers in return for a discount. Conversely, valid reasons might involve addressing a genuine pricing issue due to factors like seasonal budget constraints or large-scale deals warranting reasonable per-seat discounts.
3. Being Prepared to Walk Away
Anticipate the possibility of losing some opportunities based on pricing. Understand that customers seeking discounts may become challenging accounts, requiring additional customer success resources. Assess the potential long-term implications before committing to a lenient discounting policy, as it could lead to churn or difficulties during renewal.
4. Analyzing Discount Occurrences in the Pricing Model
Utilize historical sales data to analyze where discounts commonly occur. This analysis helps identify areas where the product may be perceived as expensive and reveals instances of unnecessary discounting. Examining deal metrics, such as per-user pricing and number of users, provides insights into the effectiveness of volume discounts and tiered pricing structures.
5. Leveraging Non-Dollar Deal Levers
Recognize that dollars are not the sole bargaining tool in discount negotiations. Many SaaS offerings include modules, add-ons, or value-added services that can be creatively used in negotiations. Understand the internal cost associated with these features and their value to different customer types, as they contribute to the negotiation process beyond monetary considerations.
6. Incorporating Discounting into Internal Rate Card
While specific discounts may be negotiated on an account-by-account basis, having an internal rate card that reflects volume-based discounting is essential. Even if pricing is non-disclosed, maintaining consistency in volume discounting ensures fairness and guards against potential challenges in negotiations.
7. Quid Pro Quo Approach to Discounts
Adopt a quid pro quo mentality when offering discounts. Customers requesting lower prices should be willing to provide something in return, such as testimonials, case studies, periodic product feedback, or indications of commitment. This approach helps maintain the perception of the product’s value and establishes an equitable customer-vendor relationship.
8. Structuring Contracts to Protect Upside
Ensure that discounts are given for valid reasons, and discuss discount timelines upfront. Consider building limits into contracts based on time or seat numbers to prevent unexpected situations during renewal. Frame the conversation around the value created for the customer and establish a framework for re-evaluation if expectations are not met.
9. Recognizing SaaS Discounting as Negotiation
Understand that SaaS discounting is a crucial part of the negotiation process. While having a defined strategy is important, be open and creative in dealing with unique situations, especially in higher-ACV deals. Ultimately, a company culture prioritizing value creation for customers is indispensable, and no pricing policy can replace this fundamental principle in the SaaS model.
To conclude, creating a successful annual discount strategy for your SaaS B2B model requires a nuanced approach. Instead of solely relying on discounts, consider incorporating value-added features, personalized services, and strategic partnerships to enhance the overall customer experience. This can contribute to customer satisfaction and loyalty, mitigating the risk of appearing less valuable despite offering discounts.
Additionally, regularly reassess your pricing strategy to align with market trends and customer expectations. Conduct thorough analyses of customer feedback, competitor pricing models, and the financial implications of your discounts. Striking a balance between competitive pricing and maintaining the perceived value of your SaaS offerings is essential for long-term success in the B2B space. We’ll have a blog post on SaaS discounting strategies soon, so subscribe to our weekly newsletter so you don’t miss it.