If you're concerned sticker shock is keeping possible customers from signing up for your product or service, discounts may be tempting. During the negotiation, you feel hard-pressed to sweeten the pot to close the deal.
However, discounting your service can be a dangerous cycle—one which often proves ineffective in the long term.
The Dangers of Discounts
The problem is that discounts work. They attract more customers to sign up for your product. However, your key growth metric shouldn’t focus on the sheer quantity of users you attract; it should focus on their customer lifetime value. While discounts may fuel top-funnel growth, they often do not create the sustainable CLV growth that your business needs (and can hurt you in the process).
A few of the largest pitfalls include:
- The value of your brand and/or product being diluted. Giving a 50% discount tells your customer that what you are selling is only worth half of the original price - and that you know it.
- You may end up acquiring the wrong customer. By pricing your product or service inexpensively, it is very difficult to attract high-value customers. Remember: one of the first ways a customer perceives the value of a product is through its price.
- Customers acquired through discounts can be the least loyal since they are seeking a great price rather than a great experience.
- Those buyers may never pay the full price. Once a customer gets the product for less, it is difficult to get them to pay more without offering any additional value.
- If you offer too deep or frequent of discounts, you will have to work harder than your competitors to acquire more customers just in order to keep up with them.
Offer Additional Services Instead
If you work on a recurring revenue model, discounts can cost you thousands of dollars per year.
Instead of closing at a discounted price, find a way to maintain the price of your product or services while still offering an additional value.
For example, if you are a SaaS product, offer consulting services, or a free training session — especially if there is a setup or onboarding fee associated with an initial sign up.
If you are a service provider, don’t cut your hourly rate. This immediately lowers the perception of the quality of your work. Instead, offer a free consultation, or even a specific portion or addition to your Statement of Work for free.
These fees can be waived without diluting your brand, devaluing your product, or significantly affecting your bottom line while still offering an olive branch to sticker shocked prospects and letting them leave with a win to take back to their boss..
Create Long Term Value
Building customer loyalty—the silver bullet of successful businesses—starts when you are negotiating. Playing on the same team as your customer is the first step.
New loyal customers will both be paying more and thinking they are getting a better deal. Similar to the way an expensive bottle of wine is perceived to taste better, maintaining the cost of your services protects the value of your brand.
Not to mention that happy and loyal customers are the drivers of profitability, on average repeat customers spend 67% more than new ones.
Your business strategy should be to enhance the experience and prove the value of your services, not diminish them. But when a customer truly needs a price break, find a way to offset their concerns with added benefits rather than decreased quality.
At Bitmatica, every relationship starts with some free advice. If you want to talk more about your pricing strategy or product development, get in contact with us today.