Discounting can be Double-edged
As we approach the end of the calendar quarter, the pressure is mounting to close every possible deal. “Do whatever it takes” usually means to discount the deals to whatever level is needed to reel in every possible dollar in ARR before the clock strikes midnight on June 30.
But is discounting the best approach to closing quarter end deals? The answer is sometimes. There are only two viable reasons to discount beyond the traditional volume driven and term driven discounts: competitive pressure and timing.
Competition often discounts radically in an attempt to overcome product and or company deficiencies. Consequently, customers often try to leverage the competitor’s desperation by using that low price to drive down our price. A small concession in this case goes a long way with customers, as it shows that we’re not arrogant and rigid as it relates to price. Generally, the customer will pay a premium for the superior solution, but determining the amount of that premium and sticking to it is the key.
Timing is a more challenging situation. Certainly, the customer knows that we want the deal signed before the end of the quarter and tries to leverage that deadline imposed by us; however, shame on us for trying to close a deal on our timeline, instead of when the customer really needs it. Be that as it may, providing a little concession to slightly accelerate a deal into our timeframe is, generally, an appropriate tactic to close the deal.
Ultimately, it’s better to be closing deals based on the customer’s “compelling event” (the date by which if the software is not in place, there are significant financial consequences). When selling to this date, the customer loses a little pricing leverage and discounting is less severe or even necessary. It’s when we try to sell when we want to sell (vs when the customer needs to buy) that often puts us in the precarious position of having to give the customer additional incentives to buy.
Too often, vendors resort to trying to win on price, instead of staying focused on the value the software will provide. Nonetheless, every deal has a certain rhythm and if we miss the opportunity to close the deal in rhythm, the deal may go away for a long time. A slight price incentive to close the deal is often warranted and comes in many forms, like a free extended maintenance period or free access to paid company events. Be creative, because we all know that with every day that goes by, 100 things can happen to kill the deal and 99 of them are bad . . .
If your SaaS company needs help with pricing practices, in general, or discount policies in particular, the MOIC Pricing Engine might be considered. If you want further guidance on good discounting practices, please reach out to me at dave@moicpartners.com.
