SaaS sales negotiations 101: How to respond to discount inquiries
Prospects will sometimes reach out and ask for a discount before they even sign up for a trial. What do you do when that happens?
Instead of debating if you should or shouldn't offer them a discount right away, you need to refocus their energy on what really matters: your product!
Let's explore the four core reasons why you never want to negotiate pricing before someone had a chance to trial your product and determine that it's a good fit.
1. You're starting the relationship on the wrong foot
People who ask you to lower your prices before they invested any time into using your product are usually trouble.
This can often lead to winning a new customer that is going to expect you to give 24/7 premium phone support, prioritize features based on their needs all while trying to pay you pennies on the dollar.
If you start the relationship by giving them everything they ask for, don't be surprised if they keep asking for more in an unreasonable fashion. This is unsustainable and unhealthy for both sides.
2. They're buying for the wrong reason
At this point, they can't tell if your product is a good fit for them since they have never used it. Your first priority should always be to help people explore and discover that your product can really solve their problem before negotiating what the final pricing should be.
Discounting your product upfront might help you close some deals faster. But it will often lead to these customers ultimately discovering that they should have never bought in the first place. They'll churn a lot more often. Don't believe me? Look at the most recent data analyzed by our friends at ProfitWell:
To summarize this chart in plain English: Customers given a discount have over double the churn rate of non-discounted customers.
Always be wary of prospects that don't want to do their homework upfront. Nothing sucks more than a new customer that cancels immediately after your company invested a ton of time on support, onboarding, and Customer Success.
3. You're negotiating on price vs. value
The problem with people trying to negotiate pricing before testing your product is that you are forced to negotiate on price rather than value.
They didn't have a chance to build up any desire to buy and discover the massive value your product could deliver to them. All of a sudden, your product turns into a commodity and your only differentiation is offering them the lowest price possible.
According to ProfitWell's 2018 Study On Discounts, customers who received discounts of 30% of more are 15-40% less willing to pay when their contracts are due for renewal.
4. You're negotiating without leverage
The more time people invest in your product, the more invested they become and naturally the harder it is for them to "throw away" the time they put into exploring your product and making it part of their daily workflow.
You always want to postpone the most difficult/complex parts of the sales negotiation till the end of the sales cycle. That way you ensure the right amount of momentum as you move forward in the sales process and avoid too much upfront friction.
How to respond when someone asks for a discount without having tried your product
"Thanks for inquiring about pricing options! Why don't you sign up for a trial and give the product a go? If you find out that it's a great fit, I'll take care of you and make sure you get a price that makes you happy. Sound fair enough?"
This works every time. The reply you usually get will be:
"Great! Just signed up and giving the product a go. Thanks!"
This even works on social media, as this little exchange from a few years back shows:
What are the results you should expect?
Nine out of 10 times, the people that turn out to be a bad fit will self-select during a trial and just leave. The prospects that are a good fit will love your product so much that they won't negotiate hard for a discount since they now really understand its value.
Even if they do, it's fine to give great customers a good price because you know they are buying for all the right reasons and will probably stay with you for a long time.
We've done this thousands of times with great success when people ask us to give them a better price for our sales CRM.
Want to learn how to handle other common sales objections startups encounter?
How do you manage the pricing objection in sales?
What usually is behind the pricing objection in sales and how to manage it successfully to close more deals and make more sales.
Lean startup validation: Don't be cheap
If you're the founder of an incipient startup, it's tempting to offer your product or service for free to get to initial traction. That's mostly a bad idea though - which is why I advise founders to focus on getting paying customers as soon as possible. But once you ask prospects to part with their money, you'll encounter resistance. People who just told you how much they love your idea, and how great it would be to have such a thing as yours suddenly become a lot less enthusiastic about your product.
SaaS pricing: You're too cheap if you never lose customers because of pricing
Focus fanatically on this: offering more value to every single customer than you extract from them with your pricing. Do that by constantly adding more value to your customers life instead of lowering your prices and discounting your product heavily.