3 Rules for Creating Discount Offers that Work

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When a prospect rejects an offer, far too many companies will just lower the price by giving them a discount.

Not only does this lower the Lifetime Value (LTV) of the customer, but it also lowers the customers' perceived value of your product. But it doesn't have to be that way!

What if I told you there's a way to use Pricing Discounts that doesn't lower LTV, but actually increases it, and doesn't hurt your overall value perception in the eyes of your customer?

Well, that's what this guide is for... to show you how to create Discount offers that not only work to convert customers, but to make them more valuable than if they didn't take the discount.

I hope this helps you.

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3 Rules for Creating Discount Offers that Work

  1. 1. 3 Rules for Creating Discount Offers that Work by SaaS Pricing expert and Growth Hacker Lincoln Murphy of Sixteen Ventures
  2. 2. Discounts are Generally Bad • When it comes to SaaS pricing, discounts are both awful and awesome. • Unfortunately (or not), we just don’t live in a world of absolutes. • Generally, I like to avoid discounts because the way they’re done most of the time will devalue your offering in the eyes of the customer. • And that’s because most of the time, discounts are a cop out. It’s just easier to lower the price than to do the work necessary to sell at full price (or even higher). Copyright© 2014 Lincoln Murphy. All Rights Reserved.
  3. 3. 1. Price Objections are Value Objections • If someone objects to your price, yet they have the means to pay it (i.e. no matter how much I understand the value of a Bugatti Veyron, I can’t pay $2.5M for a car), then it’s not the price they’re objecting to. • Rather, it’s that they don’t think your offering is WORTH the price you’re asking. • The value they perceive simply does not match the price you are asking. Copyright© 2014 Lincoln Murphy. All Rights Reserved.
  4. 4. 1. Price Objections are Value Objections • You can either lower the price permanently or in the form a discount, and maybe get people who originally objected to your offering to pay (while calling you a sucker and thinking of other ways to rip you off or waiting for a more valuable solution to come along)… Copyright© 2014 Lincoln Murphy. All Rights Reserved.
  5. 5. 1. Price Objections are Value Objections • Or you can work harder to raise the value perception of your service to match the price you’re asking. • Amateurs do the other one… pros do this one! Copyright© 2014 Lincoln Murphy. All Rights Reserved.
  6. 6. • This presentation is based on my popular “SaaS Pricing: 3 Rules for Discounts that Work” post... you can find a lot more detail on the techniques and ideas presented here including a 35-Minute Video Presentation on Value Pricing: • http://sixteenventures.com/saas-pricing-discounts • The presentation really gets good on the next slide ☞ Copyright© 2014 Lincoln Murphy. All Rights Reserved. Presentation Source
  7. 7. 2. Discounts should get ‘em to pay more... not less • Sometimes discounts are cool, like when you can get people who convert to pay you MORE than they were originally going to… by offering a discount. • If someone self-selects the $50/mo plan when they start your trial, or if their usage during an unlimited trial or trial not tied to a pricing tier indicates they should select the $50/mo plan, what can we do to get them to convert at, say, $75/mo instead of $50/mo? • Well, we could take the next tier up – $100/mo – and give them that tier for ONLY $75/mo. We could do that forever (until they upgrade/downgrade/cancel – a good reason to not cancel, especially if the price has gone up even more later) or for a limited time, like 6-months. Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixteenventures.com/
  8. 8. 2. Discounts should get ‘em to pay more... not less • Either way, that could be a mighty enticing offer, especially if triggered based on their actual usage during the trial (i.e. once they complete the CCAs, make them the offer… I like to use One Time Offers that will never be available again). • This is how we took one client’s time from sign- up to conversion on a 30-day Free Trial to just 3 days (you read that right) AND increased Average Subscription Value (ASV) by 33%. Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixteenventures.com/
  9. 9. 3. To be really effective, discounts require scarcity • Whether that scarcity is the amount of time the discount is available, the number of discount subscriptions available, etc. it needs to be there. • This is both a customer-facing issue… but also internal. • Externally, if you don’t put some bookends on the offer, it looks like you’re just discounting your product for no reason (or, several reasons like your product sucks, you don’t value it, you’re desperate, you don’t know how to market your product, you’re a sucker, etc.). • Scarcity also gets people to take action… no scarcity, no sense of urgency to take the offer. • If you’re using the discount the way I describe in #2 above and growing LTV by 50% on each transaction, you’re good… time to step on the gas! Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixteenventures.com/
  10. 10. A Note on Discounts in Enterprise SaaS Deals • Just so we’re clear… discounting in an Enterprise deal is common, but you generally start from a much-higher price than the “retail” pricing on your marketing site. • Plus, discounting is generally done behind-the-scenes, one-off for each client, under NDA, etc. and therefore doesn’t have the same negative effect as plastering huge discounts all over your marketing site might have. • Plus, you generally trade the discount for a logo, right? Quid pro quo, am I right? You did that, right? Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixteenventures.com/
  11. 11. A Note on Discounts in Enterprise SaaS Deals • Also, in many Enterprise SaaS deals, long-term contracts are the norm, and generally they allow for expansion revenue possibilities by locking in the rates of add-ons, higher pricing tiers, etc. • And just in case you’re thinking “Who cares about contracts, this is SaaS!”  just know  that contracts are required in many market segments with certain types of customers and you probably aren’t in a position to change that yet. Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixteenventures.com/
  12. 12. Copyright© 2014 Lincoln Murphy. All Rights Reserved. Presentation Source • This presentation is based on my popular “SaaS Pricing: 3 Rules for Discounts that Work” post... you can find a lot more detail on the techniques and ideas presented here including a 35-Minute Video Presentation on Value Pricing: • http://sixteenventures.com/saas-pricing-discounts
  13. 13. Thank You! • Lincoln Murphy • Sixteen Ventures • lincoln@sixteenventures.com • http://sixteenventures.com • @lincolnmurphy Copyright© 2014 Lincoln Murphy. All Rights Reserved.

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