What to do when your customers ask for a discount (and why you shouldn’t give them one)
Everybody wants a deal. Especially your prospects. And while you probably think giving 10% or 20% off isn’t a big deal, giving discounts just to win business can cost you more than money. It can kill your company.
Sure, you probably think I’m being dramatic. You’ve been giving discounts for ages and your revenue and customers are still growing. Right?
The problem is, when your company culture is a discount culture you might win a few battles, but you’ve already lost the war.
SaaS companies today don’t win on being cheap. They win on being valuable.
Let’s start off with the obvious: The SaaS landscape today is more crowded and competitive than ever. You know that when a prospect is talking to you, they’re also talking to your competition. And somewhere in the negotiation, that prospect is going to ask you for a discount.
And so you think “If this customer is willing to offer their solution at that price, I can too, or even a little lower. Just to win the business.” The problem is, once you start down this path, it’s almost impossible to get off it.
You’ve positioned your company as being the cheapest solution, rather than the most valuable.
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When you offer discounts, that’s all people think about your company. We’ve seen this exact situation happen in the consumer goods space. The market gets so crowded and undifferentiated that customers will only pick either the cheapest option or the brand they know and trust.
In SaaS, the only way to win on price is to be free. And you can’t build a company like that.
Instead, I truly believe the winning SaaS companies of today and tomorrow will win on value and they’ll win on brand. And you can’t have either if you’re just trying to be the cheapest.
Discount culture creates a weak sales force (and a weak brand)
When you give discounts, you’re setting the wrong example for your team. Instead of going out and selling on your solution’s value and your brand, your salespeople will become transactional. They’ll just give the prospect information and then offer them whatever they want.
Worse than that, your sales team will start offering discounts without even being asked! I’ve seen this happen so many times at SaaS companies and it drives me crazy.
A sales rep is talking to a prospect, they qualify them, there's a match, they can really deliver value. And when the prospect asks about pricing, the sales rep preemptively goes: "Well, this is our price. But I would give you a good discount.”
Wait a minute. Nobody asked about a discount!
This is a weak sales culture. Your sales reps will always use the easiest tools available, and when they see discounts being given they’ll start to abuse them. They’ll start to think: "Everybody thinks everything is too expensive. Every buyer wants the cheapest, so before they ask, let me just tell them I'm going to give them a discount."
All of a sudden one of the most vocal voices of your brand—your salespeople—are weak. They’re cheap. And that’s going to reflect on your brand at the end of the day.
You can’t scale because you don’t know what a customer’s actually worth
The other huge issue with discounts is that they make your business completely unpredictable and unscalable.
Instead of a Basic, Pro, and Business plan where you know how much revenue you make for each, you’ve got Customer A with a 12% discount, Customer B with 14%, and Customer C with 2 free user accounts. Good luck trying to build models or forecast your future revenue or even figure out what’s going on with churn.
Those discounts are going to undermine your entire financial structure because you don’t know what a customer’s actually worth. If they remove or add seats, you have no idea what that means in true revenue or churn.
It’s going to cause problems for your support team, your success team, and your marketing team. Even your product people are going to get angry because they’ll have to build all these backend solutions to keep track of billing on all your different discount cases.
You’ll piss off your customers when they find out you’re charging them more than others
Let’s say a slightly larger company aggressively negotiates a big discount. A few months later, a smaller company comes are your sales rep says “this is the best discount we can give. I can’t go any lower.” I guarantee at some point your customers are going to talk to each other. And when they do, the second customer is going to be pissed.
And rightfully so. You lied to them. You betrayed them. And they have every right to get loud and aggressive and drag your brand through the dirt and tell everyone they know about how terrible you are.
This doesn’t mean you can’t give discounts. You just have to do them right.
If you’re just giving our discounts willy nilly, you’re going to get burned. You’re going to destroy your brand, piss off your customers, and create more headaches than that little bit of extra business is worth.
But this doesn’t mean you can’t give out any discounts. You just have to make sure when you do, you do these two things.
First, make sure you’re getting something in return
The problem with discounts is they create abusive customer relationships. Your customer comes in, demands a bunch of things, and you give it to them just for a bit of business. Instead, you need to ask for something in return. This creates a healthy, reciprocal relationship.
In SaaS, that means asking for:
- Prepayment: When a customer agrees to sign a long-term contract or prepays for an entire year, you can absolutely give them a discount. You get guaranteed income and predictable cashflow and they get a break on the monthly price. We offer customers of our inside sales CRM a 10% discount if they pay annually instead of monthly.
- Case Studies: Trading a bit of a discount for marketing materials is also a good deal. Feel free to offer a discount if a customer is willing to spend a few hours on the phone with your sales team to make a great case study and do some co-promotion.
- Referrals and reviews: You can also offer discounts for connections and leads. Ask for a positive review on a specific platform or give discounts if they connect you with other people in the industry who could be strong prospects.
Second, make sure your discounts are standardized
If you are giving out discounts, you can’t have any flexibility or offer customization. Your sales reps can’t just give them out however they want. You need to have set, predetermined discounts for each of the deals you’re offering.
For example, you could offer 10% for a case study, 15% for prepayment, and 20% for a referral that leads to a new customer. That’s it. There’s no 12% or free seats on offer.
But Steli, what do I do if a customer says they're not going to buy if I don't give them a bigger discount than I want to?
There’s always going to be someone who wants more. But you have to draw a line in the sand.
If they’re not willing to work with you, they’re most likely not your ideal customer. At Close, we’ve told thousands of businesses “No” when they asked for bigger discounts.
And you know what’s funny? They all get angry. They all scream and yell and tell you there’s no way in Hell they’re going to buy from you at that price. But in my experience, about 50% of the time, they become customers anyways.
It’s just the way they negotiate. They’re trying to get the best deal for their business and you have to respect that. If you have a strong brand and can show the value you provide, there’s a very good chance they’ll choose you anyways.
Of course, there’s one big exception to all of this: Enterprise
As you can tell, I’m sick of seeing discount culture in SaaS companies. But there is one big exception.
If you’re selling to enterprise clients, the way you handle discounts is going to be completely different. You can’t just give them a price and say “this is what it is,” because that’s just not how they work.
Most enterprise companies have a procurement department whose entire job is to get discounts. They have a discount quota to meet, and if you won’t play ball, they’re not even going to consider you.
That’s just the way their organization is built and you’re going to have to go with it if those are your ideal customers.
If you’re trying to win with discounts, you’ve already lost
If you don’t value your solution, your customers won’t either.
So, if you feel like you absolutely have to offer some sort of discount, make sure:
- They’re standardized (and don’t budge!)
- You’re getting something equally as valuable in return
Sell your prospects on value first and make the discount an added bonus. Not only will this give you a stronger brand, but it will set you down the right path for real, sustainable growth.
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