Should you reduce prices in B2B software deals?

Bartosz Majewski in

Blog/B2B Sales Strategy/Should you reduce prices in B2B software deals?

Working in Technology business (SaaS or services), you encounter clients that want to modify your offer. They need a feature you don’t have, lower pricing, a longer trial, additional training, etc.. Sometimes that’s okay, but too much of it leads straight to a Death by a Thousand Cuts. Been there, done that – I’m going to tell you how to decide whether you should make an exception or not, and what to do when you have to stand your ground.

When you make a deal, you usually promise that over time your technology will result in big ROI, cost savings or process improvements. To deliver on that and make the deal successful for both parties, you need to spend resources – mainly money and time.

There are 3 outcomes of a deal:

  • You break your promise – they lose money, you earn bad karma
  • You keep your promise but overspend on resources – you loose money
  • You keep your promise and spend less than you’re paid and everybody wins

Modifying offers usually leads to an increase in costs or decrease in revenue on your side – both can result in lower, or even a lack of, profits. My firm belief is that margin/profit sacrifice is a great way to fail your clients, team and investors by going bankrupt. Can you avoid it? How should you modify your offer for the right customers?

General rule #1: Avoid Cherry Pickers and “Negotiators”

Some people buy only when they get a better deal than everyone else. That’s their right. Your right is to avoid them at all costs. From my experience, the cost of handling such clients is much higher than usual, because they always expect more&better. They like to ask for features you don’t have.

Too many clients like this will kill your margins and profitability – especially if you have a low-touch sales model. It seems that some people aren’t satisfied with the fact that you can pay 1000$/month for a SaaS that does the same as the 300.000$ tailored software you’d have had to implement 5 years ago.

Rule of thumb: If they are not high profile clients (big brands with millions sitting around) – discard them and feel good about it. Trust me, if you don’t – their friends will soon start asking around for the same offer.

General rule #2: It`s better not to spend, than spend and get underserved

Your clients have to understand that if you charge them less, they will be underserved. Be confident and tell them that you’ll make the payroll with or without their business, but you believe in karma and won’t risk underserving a client or making your team work for free – and that’s why you won’t lower the price.

Dealing with Feature requests

I will buy if you add X into the build” – We’ve all been there, right? There are two things you can do:

1. “Sign the deal and we’ll include it in our product roadmap, you’ll have it in 2 months – generally worth it for high-profile/high Life Time Value clients. Changing your product team’s roadmap won’t do much good long-term.

Rule of thumb: Do it more than 3 times a month, and it’s morally okay for your product team to mock you (and you can’t talk back). Oh, you’ll probably go to hell too.

2. Sign the deal and we’ll include it in our product roadmap as soon as more users tell us they need it – it’s less likely that you’ll close them, but it’s honest and shows that you really care about client opinions.

A fair amount of clients will still tell you they won’t sign anything until you add a feature. Have a special tab in your CRM for those cases, mine is called “follow up when new feature”. I follow-up when that deal-breaking feature is ready. They usually don’t buy anyway, or keep asking for other features.

Why, you ask? Because it’s usually just a polite excuse not to buy from you.

Personal Assistance

Some clients will ask you for more customer-care than you usually provide (which should be a lot!). I always say yes to them.

They either really need it, and I’m really into helping people and delivering value to my customers, or they don’t and I benefit from just agreeing to it (without having to do the extra work after all).

Just make sure that you don’t develop a habit of scheduling a call every Tuesday. Call when they need you. And that’s because there is a rare group of clients out there, ones who just like to talk because they have nothing better to do. It’s a marginal and manageable case – when it gets really bad, you can always stop doing business with them.

When is it okay to give more or take less?

  • You have no other choice. If you risk going bankrupt, or not making it to your seed investment with a high-profile VC, the approach is simple. Do whatever it takes and worry about it later. Break a few rules if you have to. You’ll apologize later, after your business gets back on the right tracks.
  • High profile client that can turn your business around. They pay very well, attract clients that pay even better, or both. Keep your cashflow in check, but if you can afford it, offer better terms to clients that have a huge network to referr you to. 

Rule of thumb: if Goldman Sachs or Uber want to buy from you, don’t argue for pennies. Cash aside, you have to make sure that they give you a logo and testimonial to show on your website (ie.: generate as much referrals and positive word-of-mouth as possible).

  • Client who refers you successfully. I believe that salespeople should reward clients who referr them successfully. Every time you close a referral, you should offer a discount to those who referr your business.

Rule of thumb: Reward people who help you.

  • Annual deals. If someone is willing to commit for 12 months (18? 24?) – give a discount. Same if they are willing to pay upfront. Bankruptcies don’t happen because of a lack of profit, but a lack of cash flow.

Rule of thumb: When in doubt – it’s always better to have money in the bank.

  • Deals that are smaller than usual. Sometimes clients need to only buy a fraction of your offering. It’s okay to cut the price if they don’t use it. Of course if your average Customer Acquisition Cost is 250$, and clients usually leave about 1000$ monthly, then selling something for 50$ a month is probably a waste of time and cash.

Rule of thumb: Have a low-touch sales gateway drug (Audit, Consultancy, Workshop, Training, Book, Report, etc), that you charge a bit of money for and add value with.

What kind of changes are best?

There is no perfect answer. Ideally you should provide what your clients care most about, and at the same time you don’t care much about. If you are a bootstrapping startup, cashflow is a bigger priority than profits, until you have real money in the bank.

Regarding your first clients, lifetime discounts are the best way to thank someone for using your MVP when it was yet unpolished. When it comes to one-time discounts, you can always charge a full price if you renew the contract.

Snowball effect

Businesses which give discounts on a daily basis will give them more frequently and on a bigger scale over time. It never ends. Remember when you bought your first -70% sushi on Groupon because that was the sickest deal ever? Thing is that since 2008 margins in sushi bars dropped and will never go back to pre-Groupon levels. Because the perceived value of sushi has dropped.

Rule of thumb: After you eat sushi worth 60$ for 15$, you’ll never see it as being worth 60$ again. Remember that when you consider giving a discount.

Of course, those rules are only decision makers who have choices. Don’t be picky if you’re bleeding cash and have no new clients in your pipeline. If the situation stays critical for months, then it’s a good indicator that you need more leads (then you could afford to be more assertive with potential clients).

But having a lot of leads is a different story. At RightHello, over the course of 15 months we’ve made 3 exceptions (out of 114 new deals). And we’ve increased pricing by more than 100%, and initial commitment by 640%. Sounds hard? Well, it’s doable, that’s what matters.

In summary:

  • Avoid Cherry Pickers and “Negotiators” who always demand better terms
  • Don’t get used to giving discounts – your team can’t work for free, and you can’t risk underserving your clients
  • Deal with feature request by:
    • including new features in your roadmap for high-profile clients
    • promising to include them once more clients ask for it, for regular clients
  • Agree to help clients when they need it, always add more value

PS. If you’re asking yourself “why is he so negative about discounts?”, go to your boss and give him a 10.000 USD discount on your work this year. Not feeling like it? Good, welcome on board.

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Bartosz Majewski

Co-founder of RightHello. Ten years of experience in sales. Has executed business expansion into 38 markets on 6 continents. A regular speaker at business conferences. An active snowboarder outside of work. Avid book reader and blogger.