Startup sales negotiations 101 – how to respond to discount inquiries | Hacker News Reader

Startup sales negotiations 101 – how to respond to discount inquiries

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140 pointsSteliE43 comments

My general experience with people asking for discounts on our $30-50/mo product is:

1. Some people ask for a discount, saying they're going to be long-term customers, they're going to blog about us all the time, and it's going to be great. 95% of these end up not being long term customers, and do not end up blogging about us all the time.

2. Some ask for a discount, and say (or imply) they'll go elsewhere if they don't get it. My thought is if a few bucks a month is the deciding factor, it's going to be hard to retain them in any case.

3. Some are polite about it, and just ask if there are any discounts available. They're going to subscribe anyway, but wanted to make sure they're not passing up a good deal.

I almost never offer one-off discounts any more, and very rarely offer any kind of public discount offer (and it's always for a limited time when I do). When someone asks I point them to our referral program, and to out partners who may offer a bundle discount on our product if you subscribe to _their_ product.

The benefit to this approach, in my mind, is that no one ever feels like they got ripped off because they had to pay full price - there aren't any public discounts available, so pretty much everyone pays full price.

Jason Cohen proposes an interesting idea for customers asking for a discount: give them two months free if they prepay for a year. He makes the case that if you're a bootstrapper having the money all at once upfront is worth it.

http://vimeo.com/74338272

I watched that video recently. He raises a good point about the value of having cash up front, but my worry there is the liability it creates. There is a 1-year period when you might have to refund some or all of it, which is a long time IMHO.

Prepay for a year doesn't imply that they will get money back if they cancel. Unless of course that is the way you make the offer.

But even if there is a liability you have to calculate the percentage of people that will want a refund. If it is "high" (whatever that is..) you have a much bigger problem (people don't like your product or service).

To your point #1:

We get this ALL the time in my business (which is much more expensive and a brick-and-mortar service). My answer is generally along the lines of (in a much less snarky way):

"Great, if you become a regular customer we'll give you a discount on your 3rd visit."

The ones who are serious go for it. The ones who are not (which is most people) say something like:

"Well, I don't know that I'm going to be back 3 times."

Well, then I don't know that I want to give you a discount.

My 2 cents... When asked for a discount pre-trial, I am vague suggesting "We'll find a way to make it work for you. We can offer discounts for longer term contracts. Once you do the trial, we can narrow down the scope and figure out how to get it to make sense for you."

If they'll give a reasonable budget to hit, then we can find a way to make trade-offs to hit it. If it's discount requests without either a budget to hit, or an explicit competitor's price, then it's too early to make concessions. You need the specific competitor so that you can define value propositions. And if you ask for enough competitor pricing, then eventually you'll get a sense of what the real price away from you is, and if the prospect is giving you BS.

This is a tough topic, because on a business with 10% net margins, if you give everyone a 10% price cut, you've given away all of your profits.

I was about to suggest much the same thing. Instead of offering a month trial by default, only offer it when enterprise customers ask about billing. Then you can use it as leverage, in the "Here! I'm giving you something!" sense, rather than it just being an assumed perk. You've thus generated goodwill and can follow up the trial with an offer for a bulk 12-24 month deal.

You can still offer free trials by default to lower tiered customers, eg. consumers, small businesses etc. But they aren't the ones that you need to worry about 10%+ discounts on. Becuase they're so low billing that the rarity of the pre-trial discount will render the overall cost negligible.

It's my job to to create the quotes and offers for our SaaS software. The tip in this article does not match with my personal experience.

This is something that happened to us some time ago: Someone phoned us asking for an offer. We told him to try the software instead to see if the company likes it. He said that he will do that.

A week later we followed up with him. He said that his boss, for whom he collected the offers, had a meeting to which he wasn't even invited. In that meeting, his boss and some other managers compared all the offers they received. There was no offer from us because we told them to try the software instead. According to the person on the phone, the managers just looked at the printed quotes. They picked the three that seemed best to them and proceeded with that short list.

Since that day we always send out a standard offer when someone asks for it. Of course this quote is changed later if the company has needs that are different from the standard.

Often the person collecting the offers is not the person trying the software, but an intern who is pre-selecting for someone else.

If you don't want to be crossed out in that list the intern gives to the manager as "didn't submit an offer", you need to submit something.

Counterpoint: you don't necessarily want this kind of companies as customers, the kind of manager who buys on a PowerPoint and Excel checklist is already on CYA mode and is not looking to the value you provide.

Yeah I have to so this often to get a purchase order approved in advance. Most vendors give me a quote at full price even if we are buying a year

I'm not a big fan of this approach at all. Two reasons why:

i) Company is actively, publicly, positioning itself as a discounter "Check it out and if you dig it I'm sure we can work something out" So now don't be surprised when you get more requests for discounts! ii) At the end of the day they're stating something they believe to be not true We don't intend to take care of you. We think you'll qualify out and if you stick around or you'll like it so much you won't want a discount.

Why not just say "Hey, I tell you what. Sign up for a trial and if at the end of that time you really want to buy it and you have a good reason why you shouldn't pay our actual price we'll listen to you." It's closer to what you're really thinking.

Isn't this the site where everyone is always saying you undervalue yourself and should raise your prices?

I actively position myself as a discounter. I figure out what my price should be, then I price higher than that. I discount down to halfway between the advertised price and my "should be" price at the blink of an eye. I almost always get higher than my "should be" price.

No one pays retail, they all think they are getting hooked up.

Any further price discussions end pretty easily with me starting with, "Well, we've already given you a good discount..."

I'll never negotiate on pre-defined tier pricing. On the "call us" for pricing, i will negotiate. If you make me go through a sales guy, i am going to play hardball.

For SaaS product with pricing, I always give discount if they ask for it before doing trial. Why? These people will not pay anyway. No need even to waste time on telling them to sign up. Just try it and see.

Lots of deflection in this thread. Here's another idea:

"I'd be more than happy to give you a discount. I feel our pricing is fair, so I don't do this frequently. If we can find a price you're comfortable with, will you purchase the tool?"

Discounted pricing is normally the last step. So, if we're talking discounts, you're about to buy, and it's not my call to steer you away from that. But, let's be clear: if we're talking discounts, you're about to buy, and that should be the tone of the conversation.

The author argues that nine out of ten bad customers will self select during the trail period, but does not offer any indication for how to positively verify that. Perhaps those asking for discounts are doing so not because they are problem customers waiting to happen, but because your product is priced at too high a price point?

Can anyone recommend a strategy for verifying that isn't the case, rather than insisting that good customers will be happy to pay the price and damn the doubters?

Just do a simple experiment: always give the discount. They want for 4.99 - give them for 4.99. They want for 0.99 - give them for 0.99. You will see that is not going to improve your sales. If it does, then you might need to tweak pricing but we hackers always price our product too cheap so that very rarely the case.

The point I'm making is not that it's bad to ask for a discount. I do it all the time :)

The only difference is I don't ask for discounts before trying a product and determining that it fits my needs and I actually want to purchase.

The advice I give is to ask people politely to trial your product first and then offer them a discount if they actually confirmed that they like it

If someone offers you money, take it. Smart salespeople shut up the instant the prospective says,"yes."

That's true for one time deals where you don't care about success but not true for SaaS. Taking money from the wrong customers and running a high churn/high support cost SaaS app will destroy your startup.

Good post. So much this. If your pricing doesn't make sense, you will eventually find out one way or another - but don't give out discounts solely for the purpose of bringing in new customers. Especially if they are not seeing the value of your product at its listed price point. This will just lead to them wanting more. And I've often found that the users paying the least ask for the most.

> And I've often found that the users paying the least ask for the most.

This is a universal truth. Any business where they tried to under-cut the competition will have horror stories about their lowest-paying constantly-dickering customers trying to squeeze every last ounce of use out of the service or widget they under-bought.

Disagree. If I ask for a discount, it's because 1) the pricing is off and you have competition 2) I want to make a decision and settle into the service.

If you say no to my offer, cool. I'll go elsewhere.

I think startups that say no to reasonable discount offers are foolish, and it's a bad omen for their future.

Depends on service and how broad the competition is. I pretty much respond the same way as the author to discount requests. If I feel that the service I charge $250/mo for creates $250/mo value to you, I'm under no obligation to lower the price.

Curious to hear if you really "want to settle into the service" without having used/tested the product at all?

Asking for a discount during your trial is one thing, asking for a discount before trying the product is another :)

I ask for discounts on yearly subscriptions, but I test the service first. Sometimes I need only a day to know if it's a right fit or not.

Ironically, we're happy to give discount pricing for a year deal - because in that case the customer is investing up front and we're confident once they're using the product they'll realize significant ROI and stay.

But re negotiations, I agree with Steli here - the customer who asks for a discount before they've ever tried the product will typically become a problem customer (especially for a young company trying to get the initial 10-100 customers).

That's totally different and not the use case I discuss in the post. It's fine to ask for a discount after you tried the product. Most of us do it :)

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If you haven't already gone with the competition you described in (1), then there's a reason you're considering them and asking for a discount.

Interesting to see different views on this topic

https://signalvnoise.com/posts/2580-why-non-profit-pricing

Who decides who really needs a discount? We believe prices should be fair, public, and consistent

I spend 2 years from my life related to this topic. We are offering a relatively high priced product and lots of Arabic customers whose habit is to negotiate. After 2 years, spending half of all my days with negotiating, I finally arrived to the conclusion that my time is much more valuable if I invest it in something other such as product development and then I came up with a price wizard: http://www.mizu-voip.com/VoIPhostingsetup.aspx Since this is online, I am not going anymore into any conversation negotiation with our clients. "All our prices are fix and we offer the same for all our customers"...this is my standard answer.

This reminded me of Hipchat's 30-day free trial that I recently discovered. I was mistakenly under the impression that they limited the trial to 5 users. I reached out to them on Twitter, since I couldn't find an email address for them anywhere, and they told me the trial can be for an unlimited amount of users. I think this is genius. With a product like Hipchat, 30 days provides a decent enough amount of time that companies will feel locked-in as long as they use it a fair amount. Great strategy.

Just to make a point on the other side: We are a bootstrapping social enterprise startup and honestly have to penny pinch. When we were looking for the right CRM, both One Page CRM and Nimble offered us discounts when we wrote to them and asked politely.

We ended up sticking with Nimble due to the preferred workflows of the Sales team, but I still regularly recommend both products to lots of other people, some of whom have gone on to become paying customers for those services.

They are both great CRM tools, and because the people who run them were so understanding and provided great service by understanding our genuine need for a discount, I will be forever grateful and will recommend them. We've also mentioned both on social media.

So that's the flipside - if you do give discounts now and then to those who need it and are grateful, you'll earn a lot of loyalty. I think the answer is to be human about it. Listen to people, give them the benefit of the doubt, and decide things on a case by case basis.

It really depends on pricing. The more expensive the service, the more likely there's negotiating fat explicitly build in. Two jobs ago, I was with a company that sold medical equipment mostly in the 4-5 figure range. They had a flat 5% discount that the sales guys opened with.

Similarly, having just implemented ethernet-over-copper for our office, I got to see more fat in action there. It's ridiculously expensive here in aus - I got a 5% discount just by asking "is there a discount?", and our CFO finalised the deal and got a 5% discount by asking the same question again. Neither of us are hagglers - that fat is just built into the price.

On the other hand, if you're doing consumer-level stuff with many users, individual discounts would likely be a headache and usually people hung up over a once-off couple of dollars are more trouble than they're worth. Highly contextual on target audience though, methinks.

> "Thanks for inquiring about pricing options! Why don't you sign up for a trial and give the product a go? If you find out that it's a great fit I'll take care of you and make sure you get a price that makes you happy. Sound fair enough?"

Me: "Yeah, so we did the trial and we really like what you're trying to do. It's not a perfect fit for us, yet -- we'd really need to see X and Y someday. Also our budget is tight -- like, ramen tight. So I was hoping you could cut us a break, to start, and that way we can be part of this while your grow the product? We really love your vision for this."

Your move. :)

me (9 times out of 10): replies saying "thanks, we can't offer a discount now but we'll ping you with another trial license if we ship feature X or Y in the future", drags your email to the folder marked "20%", forgets about it and returns to concentrating on the folder marked "80%" :D

"Sounds great! We want to invest in you too. How about a long term contract that specifies the price increase after the first year? If we do not have X and Y features before the price increase, we will gladly allow you to opt out of the contract."

Obviously, this only works in cases where enforcing a contract is actually worthwhile (think $100k/yr service, not $5/mo service).

Counterpoint - from a enterprise IT procurement perspective, if you're not willing to negotiate the price, as a start-up, you're lowering your chances to sell it to 0. You may have leverage with the people that will use the product(s) but all the procurement operations are usually centralized and will require negotiations at pricing and \ or T&Cs level.

"People will sometimes reach out and ask for a discount on your product before they took the time to sign up for a trial and use it at all. What do you do when that happens?"

Maybe it's just me or the companies I've worked for, but this has never happened to me.

When it comes to discounts, I like when some companies give discounts for students. A group of people who are known to be temporarily poor :) If you are on super super tight budget, $15/mo off can help and start a relationship in the right way.

good

Awesome

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