Discounts can help win deals, shorten sales cycles, and delight customers. But discounts also have a dark side, as they can devalue your product in the eyes of your customers — leading to lower lifetime value, higher churn, and less willingness to pay. For SaaS businesses with recurring revenue, the wrong B2B discounting strategy can truly be the terrible gift that keeps giving. 

In this series, we’ll take a bird’s eye view of discounts, and look at three essential factors that every SaaS business should address when creating a discounting strategy – 1. Establishing Value, 2. Discount Design (this article!) and 3. Quoting & Discounting Enablement.

When managing discounts, Revenue Operations and Sales leadership tend to use a light touch (only getting involved to standardize discounting thresholds in a quoting tool). In general, they trust their sellers to handle their B2B discount strategy judiciously — discounting only as much as needed to close deals. Finance teams are generally hands-off in this process, hopping in only when discounts get out of control. (Raise your hand if you’ve ever heard of a CFO and Sales leadership scheduling a “sit down” to talk about excessive discounting habits…)

This arrangement is reactive by nature — putting out fires as they arise — and it’s certainly not proactive or strategic. I’d argue that represents a lost opportunity. Especially for a SaaS business with recurring revenue, the right B2B discounting strategy can greatly affect revenue streams over time. It should be a major consideration in a company’s go-to-market approach. 

To get started, I suggest asking questions beginning at the very top of your business. What are the goals of the organization? 

• If there is an exit strategy in place like an IPO or acquisition, there may be specific products or SKUs where you need to preserve every penny.
• If you are a portfolio company with a special focus on one particular product group, you will want to focus more effort there.
• If you are a disruptor in an existing market, you may be in a market share grab where higher discounting is tolerable to increase your logo count.
• If you are forging new territory in a completely new segment, you may employ a product-led growth strategy that uses a “try before you buy” model.

This is where the conversation around the B2B discounting strategy should start. Work with your CFO and finance team to understand the important levers within your business like net new logos, total bookings growth, individual product considerations, tolerable risk, etc. 

Next, move to a deep dive into your products and their associated margin profiles. Each product likely carries a different margin based on the cost to implement, update, and maintain. Some are likely high margin products and others may be much lower (as is often the case when your sellers have access to third-party products). Discounting one product 20% may cut a lot deeper than cutting another product 30%. When discounting rules are set up based on total contract discounts, these kinds of details and nuance can be missed. (And that’s when the CFO comes knocking.)

After this deep dive, you should have a much clearer understanding of good versus bad B2B discounting strategy. Share (and review) this information with your sellers. Work with your technical teams to create dynamic gating factors that take these factors into consideration if possible within your quoting tool. If not, include this information in your Quoting & Discounting Enablement curriculum.

Creating a discounting strategy will not happen overnight. And even once you’ve established an approach, it will constantly need to be market-tested, evaluated, and adjusted. Keep moving that needle a little at a time and the next thing you know, your CFO is buying you lunch because discounting has dropped significantly over the last year.

If you're interested in reading more from this series, the next installment focuses on quoting and discounting enablement. Alternatively, you can download the full series as an eBook.