Are discounts good for a saas after MVP stage? After PMF?

[magicalhappy]

Discounts could be a good way to get your first couple hundred users. As a new saas product, you need these initial users in order to get enough feedback to help you polish your product. However, once you are past the MVP stage, it may not make sense to continue offering discounts.

So goes the general wisdom. But in the wild, I see saas businesses of all stages offering discounts. Even Intuit, one of the most valuable saas out there, is offering a massive July 4 sale.

What are your thoughts? What are the naunces here? Should a saas continue to offer seasonal discounts even after PMF? Say discounts sales lead to massive boost in sales for saas X, should saas X maximize this opportunity and sell discounts on as many holidays as possible (perhaps even taking advantage of holidays in other countries too)?

 

[amarbadz]

@magicalhappy Generally speaking, it's a bad idea. Essentially, it projects a lower value for your service and can set an expectation that prices will drop in the future. People will wait for the sale price, which just extends the marketing cycle and ultimately eats into your profits. The other thing to consider is the strain it can put on your marketing and sales team. Let's say you have sales around every holiday, 50% off the normal prices - now you have to create X number of bespoke campaigns, and because it's half-off, everyone has to get twice as many customers through the door to reach your usual revenue targets. You do that 6 times a year? Everyone is burnt out.

There are other, more creative ways to attract new customers without affecting the product itself.

 

[cybersaint]

@magicalhappy Please be careful not to mix 30 year old, well capitalized businesses within established markets, to MVP-PMF businesses.

It depends on your sales process (thereby your ARR), LTV and churn rate. If you have a sales process that masks the discount, it reduces the risk of erosive pricing. If your LTV is big enough, who cares, you may pay them to become customers (>100% discount). Naturally, if you have high churn, your LTV is going to suck.

 

[magicalhappy]

@cybersaint Thanks for your thoughtful response. Masking the discount seems like good idea. It could alleviate the problem @amarbadz pointed out: "People will wait for the sale price, which just extends the marketing cycle and ultimately eats into your profits".

If I understand you correctly, masking the discount in the sales process is to not offer it right away at the top of the funnel but wait until a lead isn't progressing further down the funnel? For eg, a customer visits your site and sees no offer. Books a demo. Decides to pass. Then you say, "oh by the way, we have Thanksgiving sales where you get 2 months off".

A strategy like that could benefit the saas in terms of filtering out unideal customers who would have signed up just for the discounts and churned anyways. However, would such a strategy appear manipulative to the customer? I also wonder how much less effective the discounts will be if their exposure is reduced.

 

[cybersaint]

@magicalhappy No, I have very rarely found latent discounts effective in acquisition. It is an effective tool if used in the current sales process, increasing conversions at end of sales cycle. Simply put, if your cycle is 30 days, try making your best and final offer at 29. Otherwise it becomes a Dutch auction.

You can check your close rates for anything after your cycle and run experiments. But ultimately I found that it's a 'nice to have' product, and not a true price/value objection.

Lifetime deals at MVP stage, prepay and referrals during PMF, and remeasure your TAM to ensure you aren't chasing ghosts. Otherwise, stick with the pricing that makes the most sense for your target market's justification.

 

[magicalhappy]

@cybersaint Thanks for your suggestions. I definitely learnt something.

 

[cybersaint]

@magicalhappy Cool, good luck! Feel free to reach out if there's anything I can do to help.