Why plugging revenue leakage with standardized discounts is important in SaaS?
In the early stages of a startup it is the founding team that does most of the sales finding early adopters, influencers and evangelists.
During this period you want to run multiple marketing experiments, while engineering the entire sales process through your website and landing pages.
Let’s look at a few pricing models now shall we?
Example 1: Vimeo Plus: Simple does the trick here.
Example 2: Trackur is another one.
This is when the customers sign up for a trial. And so the process for the sales team begins.
What if the customer is reluctant & wants a discount?
This is where the greens are actually involved. In such cases the sales team can be allowed to give discounts. Without even thinking and realizing there are chances of a huge revenue leak for the company.
Let’s look at some of the discount practices:
The ones with percentage discount for a yearly subscription, such as Optimizely
This not only helps with the cash flow of the company but also in retaining the customer for a long term basis as they would be paying for year or two depending on the plan.
There can be other way of discounting as well.
Discounts on plan only:
10% off on a monthly subscription plan.
Per user based plan:
2 users free for 3 months on a yearly plan.
Fixed amount based plan:
30% discount per user for 3 months on a yearly plan.
There could be number of other permutation combinations.
One size does not fit all. Prioritize on what works best for you.
If this is not done proper there could be a huge revenue leak for the company.
What are the various things to keep in mind while dealing with this?
When a negotiation takes place there are a lot of factors coming into play, such as who the better negotiator is, the customer size, the revenue size, whether it is upfront payment or monthly payment and how eager are the sales team to land the deal. When there are so many factors coming into play it is natural to get carried away and this could lead to revenue leaks in the company without even realizing it.
But when you have a standard method of offering discounts the sales team have one less thing to worry about. All they have to worry about is which discount plan to offer first instead of calculating each discount that they offer.
A few pointers:
- For annual plans you can offer 10% discounts or 2 months off, if customer pays upfront.
- If you intend to allow customers to pay monthly even for annual plans, you should have a way to pro-rate & charge monthly rates if customer breaks contract mid-term. But this approach leaves a bad taste if customer has to leave. So think through this option when you offer this.
- 30% off for 3 months could be a better option than a 10% perpetual discount.
- $50 fixed amount discount may be better than a $5 off per user per month. You may lose revenue on every additional user added in future.
- And it is always best to keep your pricing transparent, especially if you are dealing with small and medium businesses who are likely to purchase online than the long winded negotiations of enterprise sale.
What are the discounting practices that have worked for you or you have learnt from? Would love to learn from you.