In the competitive world of B2B SaaS, promotional pricing can be a powerful tool for attracting new customers and retaining existing ones. However, if implemented incorrectly, promotional pricing can actually backfire on your business, decreasing both customer lifetime value (LTV) and revenue.
That’s why it’s important to approach promotional pricing carefully and strategically.
In this article, we’ll explore the difference between discounts and coupons, and how they can fit into your promotional pricing strategy to maximize the benefits for both your business and your customers.
What does promotional pricing look like in B2B SaaS?
A promotional pricing strategy in B2B SaaS involves offering discounts or coupons to encourage customers to try or continue using the product. It’s considered to be a marketing strategy more than a pricing strategy. You may offer a promotional price in the form of:
- free trial with a discount,
- seasonal promotions,
- referral discounts,
- upgrade discounts,
- bundled services, or
- rewards from loyalty programs.
Promotions work well for businesses operating with high profit margins or selling to a market that has high pricing sensitivity.
There’s also a related strategy called price skimming. This pricing strategy refers to intentionally setting a high base price and running frequent promotions. But, remember when I said your promotional pricing can backfire if you don’t implement it correctly? This is where you’re playing with fire. General best practice says not to rely too heavily on promotional pricing long-term, as it may negatively impact your business…
A word of caution as you build your promotional strategy
There are some disadvantages of promotional pricing, too—especially when you’re getting into price skimming territory. Recent research from Price Intelligently shows that selling a SaaS product or service at an aggressively discounted price may actually decrease LTV by over 30%.
Huge discounts may be helpful for bringing in new customers, but they may decrease customers’ and prospects’ perceived value of your product.
To be sustainable, your promotional pricing strategy should be:
- segmented, and
In practice, this means deciding only certain groups of customers or prospects are eligible for coupons or discounted products—maybe customers who’ve been with you for five years or more get a 10% off coupon they can use to supplement next month’s subscription or try out a new add-on feature. It also means advertising the offer only to the customers who are eligible. No plastering a “10% off for all loyal customers!” banner on your website.
And lastly, your promotions shouldn’t run forever or happen predictably every other month—there should be a set promotional period. This is what lowers the value perception.
Instead, manage your promotional pricing by leading with the value of your product. Done right, you can mitigate any negative effects on customer loyalty, keeping LTV stable.
What are discounts?
Discounting is a pricing strategy that involves reducing the regular price of a product or service to attract customers and boost sales. It is a commonly used tactic in retail and software markets, and it can take various forms, such as percentage discounts, bundle discounts, volume discounts, and seasonal discounts.
Discounts can be an effective promotional pricing strategy to attract new customers, retain existing ones, and increase revenue. A well-executed discounting strategy can help the company stay competitive in the market, differentiate itself from its competitors, and generate positive word-of-mouth referrals.
What are coupons?
A coupon, on the other hand, is a document or code that entitles the holder to a discount or rebate on a particular product or service. Unlike a discount, which is applied to the regular price of a product, a coupon typically offers a specific dollar amount or percentage off the purchase price.
Coupons can be a powerful tool in your promotional pricing strategy. You can incentivize potential customers to try your software or reward existing customers for their loyalty.
Leveraging both for a holistic promotional pricing strategy
To begin to offer promotions, consider starting by segmenting your customer and prospect base. Choose a segment you can offer discounts to, and one to offer a coupon to.
Leverage discounting by offering volume discounts to customers who purchase a certain quantity of software licenses. This can incentivize customers to buy more licenses and increase revenue while also providing customers with cost savings.
Another approach could be to offer a limited-time discount on annual subscription plans to encourage customers to commit to a longer-term relationship with your business.
At the same time, you could offer a coupon code to new customers who sign up for a free trial of your software, providing them with a discount if they decide to purchase the full version. Alternatively, send coupons to existing customers as a way of thanking them for their business and encouraging them to renew their subscriptions.
But, as noted earlier, offer promotions intentionally and strategically.
“When a SaaS business offers a pricing discount, it needs to provide a decent answer to the question of ‘why’,” advises business development and client services expert, Rakhin Veliyambra.
“The key is to be able to explain to the customers that the discount is valuable for both parties—the business and the customer. Your answer to the ‘why’ should not deter the value perception of your product/service, just so you get to boost your sales for some time.”
Successful promotional pricing needs the right billing tools
Whether you want to offer promotional pricing in the form of discounted prices, coupons, or both, you need a way to charge your customers. A modern subscription billing system handles this seamlessly for you.
When you’re billing customers using software that isn’t cut out for the job, you’ll run up against plenty of roadblocks. You may find yourself needing:
- intensive manual setup,
- to roll out the promotion to all of the customers in your base, or
- confusing workarounds that may mess up your reporting.
A flexible product catalog makes it easy to handle subscription discounts and coupons without any hassle.
Coupons simply need to be set up once and can be applied whenever needed. Discounts can be scheduled to automatically stop applying to an invoice after a set amount of time. No workarounds, no manual intervention, and no impact on your reporting.
With the right billing software in place, promotional pricing strategies become another tool that can easily be pulled from your arsenal when you need to attract customers.