SaaS products are expensive! And this is a key reason why their sales can be so difficult. But SaaS companies across the globe advertise offers and price discounts to draw the attention of customers and push sales.
There is no doubt about the fact that SaaS products are expensive. This could be credited to the high value they offer, the high production costs, or even the investment of resources. But this very cost makes SaaS sales so difficult, especially for B2B SaaS startups just starting.
Considering this situation, SaaS companies offer ‘pricing discounts.’ However, customers may not buy discounted products if they do not get strong answers as to ‘why the discount?’
In this article, we will discuss all you need to know about SaaS pricing discounts. The article covers –
- The ‘Why’ of SaaS Pricing Discounts?
- Benefits of SaaS Pricing Discounts
- Challenges of SaaS Pricing Discounts
- Best Practices to Implement SaaS Pricing Discounts
The ‘Why’ of SaaS Pricing Discounts?
Take a moment to remember the number of times you have jumped to buy something that came at a ‘discounted price.’ Well, psychologically speaking, the term DISCOUNTS triggers happiness. Customers find joy when they get a discount, especially when it is exclusive.
But the treatment is a bit different between Retail and SaaS. When a SaaS business offers a pricing discount, it needs to provide a decent answer to the question of ‘why.’ SaaS businesses have to be able to answer the question ‘Why?’ to all the customers (both existing and prospective customers).
The key is to be able to explain to the customers that the discount is valuable for both the parties – the business and the customer.
Your answer to the ‘why’ should not deter the value-perception of your product/ service, just so you get to boost your sales for some time.
Now, coming to the question of why we offer SaaS pricing discounts, you need to focus on the reason for offering the discount. SaaS discounts go beyond boosting sales and retaining customers. They serve the greater purpose of increasing long-term value (LTV).
Benefits of SaaS Pricing Discounts
1. Boost your sales
This is one of the key reasons to offer pricing discounts on your product. When you offer your product/ service for a discounted price, you will be encouraging your customers to purchase more.
2. Shorten sales cycles
Sales cycles of SaaS products are proportional to the price of the product/ service offered. So the higher the price of the cost, the lengthier the sales cycle. When the product is offered at a discounted price, the cost of the product/ services becomes low. Thus, the sales cycle becomes short.
3. Helps gain an edge over the competition
As we have already discussed, the SaaS environment is heavily crowded. In such an environment, businesses keep fighting to earn an edge over competitors. Offering discounts is one of the proven ways to stand out from the rest.
4. Gaining market share
Market share is one important measure that indicates business growth. Offering pricing discounts is a way to gain a foothold in the market and increase strategic numbers. While offering discounts may reduce your profits for a certain period, you could always change your direction after gaining market share.
Challenges of SaaS Pricing Discounts
1. Discounting may undervalue your product
While SaaS companies offer discounted pricing, thinking it would help their cash flow, it could negatively impact customer perception. When your highest-priced product is offered at a discounted price, your customers might start devaluing it.
Considering this, your teams – especially the sales & marketing teams, will have to ensure that they keep the value proposition intact while boosting the promotion.
2. Lower willingness to pay
When you offer your product/service at a discounted price, your customers might show higher price sensitivity and turn unwilling to pay when the discount ends. This could also lead to an increased churn rate.
Pricing discounts might boost your sales, but you need to see the bigger picture. So, instead of relying only on the pricing discounts, you should focus on Marketing Qualified Leads (MQLs) for the long term.
Best Practices to Implement SaaS Pricing Discounts
Now that we have discussed the benefits and challenges of SaaS Pricing Discounts, let us now discuss the best practices for implementing them –
1. Never give away something for free!
Giving away something for free can undervalue your product in the customers’ eyes. Remember this and ensure you always get something in return for the discount. For instance, if you are offering a discount to a customer, then make sure that they give you something in return – a referral, testimonial, review, or product feedback.
Customers willing to give you something in return will probably become long-term customers.
2. Integrate the discounting with your rate card
As a SaaS business, it is always a good practice to segment your pricing discount on an account-by-account basis, i.e., you offer exclusive discounts specific to the client. Irrespective of your pricing list (disclosed list or non-disclosed list), have an internal rate with an attractive, volume-based discounting.
Also, ensure that your sales teams know this exclusive “list price” and use it to close deals.
3. Offer time-sensitive discounts
Pricing discounts boost sales and get your cash flow going. However, these tempting sales volumes should not motivate you to keep going. You must end the discount spree after a time. Prolonged discount periods could devalue your product/ service, demotivate your buyers, and take a toll on your ROI.
Instead, inducing scarcity by offering a limited period offer. This will boost sales by creating fear of missing out (FOMO) in your potential customers. At the same time, it will also help you have a proper closure to your discount spree.
4. Announce loyalty discounts
SaaS businesses benefit more from returning customers as compared to new customers. Thus, these businesses need to nurture their existing customers and turn them into loyal ones.
One way to encourage existing customers to stay loyal is by offering exclusive loyalty discounts. Doing so, instead of sending regular congratulatory emails, also serves as great PR.
5. Be open and creative
There are a respectable number of pricing discount strategies that are effective. You must find the one that works best for your business. AB testing the strategies and analyzing what works for you is a good practice. At the same time, ensure that your internal teams, especially the sales team, are well-versed with the rationale behind the offering.
Be creative and open to latest ideas in creating your SaaS discounting schemes.
6. Stay out broadcasting the discounts to everyone
SaaS products are of high value. Most customers need them for the value they provide. They are ready to pay the full price despite them being expensive. In such a scenario, putting up ads or a banner on your website announcing discounts can backfire – the customers who are ready to pay the full price will also purchase at a discounted price.
Keeping this in mind, the sales representatives need to be mindful enough to use pricing discounts as a tool to close the deal rather than as a last resort to attract customers.
The internal teams, especially the sales reps, have to use data to identify customers who would sign up when there is a discounted price. These customers should be separated from those who are willing to provide the full price for the value provided by the product/ service.
7. Drive brand awareness
Pricing discounts can do much more than boost sales. If used right, they can also serve as excellent tools to drive your brand awareness. Ensure that your discount does not come with a compromise on the product value. Rather, make sure that it serves as a product promotion, which can be used by the prospects, who come back to pay full price for the same product.
8. Choose the right reason
A discount pricing strategy becomes more valuable when it comes at the right time. So when offering a pricing discount, you must research and find the timing that works best for you. For instance, offering a discounted price right after the end of a trial period is a fantastic way to close a deal.
Similarly, you can also offer seasonal discounts, volume-based discounts, package discounts, etc.
Pricing discounts serve as great tools to boost sales. When used right, they can greatly benefit a business in terms of revenue and growth.
We have discussed the benefits, challenges, and best practices for pricing discounts, and hope they will help determine your pricing strategies.
The post The Curious Can of ‘Pricing Discounts’… And When to Open It! appeared first on SmartKarrot l Comprehensive Customer Success.