How to handle discounts.

When times are tough, two things happen at once.

1. Cash becomes even more important.

2. The pressure to give discounts increases.

These two things are in conflict, so how do you manage this so that discounts don’t eat up your cash? (Recent research shows that, on average, discounts cost 18% of revenue).

The key is to trade things that are of low cost to you (i.e. not cash), but are of high value to the customer.

If you’ve got a SaaS product, or any other product or service with a high IP content, then you usually have a lot of room to manoeuvre. For example, you can increase the number of authorised users for the same price, you can relax the restrictions on inter-company sharing and so on.

If you have set your standard licensing correctly, there will be a number of parameters you can adjust to give the customer more value, but which have no hard-cash impact on your business.

If you don’t have much IP to play with, then you need to look elsewhere. You might offer more meetings, increased access to senior people in the company, faster response times, or you might increase limitations of liability or give bigger warranties.

Giving in on any of these is never great, but sometimes you have to choose between the lesser of two evils.

And cash is always king.

9 April 2024