Hi there!
This is the first in a series of deep dives we’ll be publishing monthly on different SaaS / XaaS pricing topics and trends.
For those that want more details, or are saying “just give me the data already”, you can grab the full report here:
Out of everything we track and talk about at XaaS Pricing, the topic we most frequently get asked about is discounting.
How should we approach discounting? Should we discount? How much are competitors discounting? How much should we?
There’s great data out there that tells you why you should never discount.
For a select few vendors, that may work. Particularly if you’ve cornered or created a category, or have really nailed your pricing strategy.
Our experience tells us it’s a little more nuanced than that though. Most are on a pricing maturity curve, and are trying to figure out pricing while also carrying quotas and growth numbers to hit.
So what’s our advice? Acknowledge that discounting is a reality. Approach it with a well-rounded, consistent, scalable, repeatable process.
A good first step is defining exactly what discounting is and isn’t, and using common language to govern discounting.
If you are in need of a framework, ours is below:
The short version of the advice is - focus on the “Standard, Consistent, Repeatable” stuff, and avoid or limit the “Difficult to Manage” stuff.
Easier said than done, but a good governing framework nonetheless, especially if processes guide the more difficult elements.
You might be saying - “another research guy with his frameworks. Where’s the practical stuff?”
Message received. Here are five things you can do today to improve discounting:
Focus all pricing efforts around properly defining customer personas and aligning offerings packages to those personas.
Okay so this one is a little broader than “do it right now”. But it’s still the fundamentals. Getting pricing right based on the ideal customer profiles (ICPs) can mitigate the need for discounting down the line. An easy way to start? Add a banner or description for each of your pricing plans that makes it abundantly clear who you are providing and pricing the plan for - “Best for individuals”; “Best for teams of up to 10”. Similarly, clarify the purchase motion - if I am in the “individual” tier, can I buy self-service only, or can I go and haggle with an AE to knock a few bucks per seat off?
Change messaging approach and sales mindset around discounting.
Here’s some real low-hanging fruit. You can use this one today in your next customer conversation or demo. I owe it to the conversational intelligence software firm Gong. Their data says that using the phrase “list price” in sales messaging instead of something like “approved price” elongates the sales cycle by an average of 19 days, as customers are primed to be more aggressive during negotiations. Try it today!
Track and analyze discounting activities on a monthly basis to identify how the average discount levels vary based on ICP / deal size.
Pull some current and historical data out of CRM and look not only at discount size (%), but frequency for recent won deals. Consistent discounting within certain thresholds may signal a need for a price adjustment and/or a redefinition of customer segmentation and packaging.
Emphasize “standard discounting” practices, most importantly by using annual subscription.
A no-brainer for most. Offer an annual plan that’s 20% less than your monthly plan price (consider an annual plan if you don’t have one). This provides a concession and commitment incentive to customers that may help avoid negotiation-based situational discounting that can impact lifetime value, customer acquisition costs, retention and other key SaaS financial indicators. This is particularly important for self-service plans versus enterprise accounts. By the way - don’t actually discount to do this. From whatever “the price” is, mark up 20% to get to your month-to-month pricing.
Limit use of situational discounting to enterprise negotiations and ensure crispness and clarity in how promotional pricing is messaged.
Make sure any direct and/or affiliate discounting or other promotions are clearly marketed in a way that defines terms of time or other limits, target customer(s), and purpose of discount or promotional offer. This can be as simple as website copy editing if you are using or thinking about using a promotional strategy.
For illustration, here’s my favorite current example: ClickUp's “Let’s Make a Deal” promotional pop-up. On the site, I can toggle my willingness-to-pay from $5/seat to $1. If you read buyer forms there are comments saying “trust me, make a deal”, suggesting that you can actually attain discounting pretty effectively this way. That said, if I go to G2 Deals, the same plan is posted for a promotional price of $3.5/seat. So what’s the actual value of a seat for this plan? If I know they’ll go to $3.5/seat for anybody on G2, or down below that, then the value of a seat starts to not feel like the $5 it’s priced at.
The bottom-line? Language and positioning changes can help immediately reinforce value to customers and limit discretionary and other non-standard discounting. Focus on the immediate wins, level set on what your product’s discounting history looks like, and connect discounting mechanisms into a recurring price evaluation process.
If you want the full report that’s behind the above, grab it at the link below.
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