How can you acquire new customers without resorting to discounts?
Instead of taking the easy (and typically painful route) of discounting, use the following strategies to acquire customers that will pay for the value of your product and have high lifetime values.
1. Create an entry-level tier
Your revenue model should be based upon a value metric, meaning that as your user utilizes your product more (bandwidth, installs, contacts, etc.) they should be charged more. An entry-level tier allows you to drive users into your main product while capturing users with a lower willingness to pay. This gives you an opportunity to entice them at a lower service level until they are ready to convert to a higher and more ideal tier for your company's bottom line.
The biggest benefit of pricing tiers is that it allows you to target many different segments of the market. By offering a piece of your product's core value scaled down to a lower price, you get to cater to more price-sensitive users without undervaluing your product.
Note: An entry-level tier does not necessarily mean a freemium model, which is an acquisition strategy and not a revenue model. Read a deeper analysis of freemium models here to learn about strategic implementation.
2. Add value instead of providing negative discounts
Even though people love discounts, it doesn't mean that you should cut your prices. On the contrary, adding more features, units, seats or services can feel like a better value without losing that original price point. Psychologists have proven that people would rather receive 2 for 1 as a promotion, than 50% off. So considering adding more features and benefits to bring in new users.
3. Improve your marketing segmentation
Understanding the trigger features and value propositions that are important to your customer is crucial in how you sell to them. Value among different market segments, company sizes, locations, etc can get very specific, which is why you should optimize your pricing strategy to provide value at these different levels. It is a big undertaking to revamp your entire pricing strategy to include marketing segmentation, especially if your users are conditioned to respond to discounts. So start incrementally, by offering packages that meet company specific company size. For example, a start-up package for up to 20 seats and an enterprise package for up to 2,000 seats.
4. Encourage annual subscription plans
The economics of annual subscription plans demonstrate that SaaS companies can offer an annual plan at a lower price than the total sum of 12 monthly rates—and still benefit greatly from the contract. If only 10% of your users switch to an annual plan, then you can increase your cash flow and become profitable immediately. Annual plans also greatly improve retention rates.
The economics of discounts are not always black and white. The complicated nature of discounting has been around since the start of commerce, and where the SaaS world is concerned, discounting can have drastically negative effects on your product or service's value.
The foundation of your SaaS lies in the product's value—both perceived and paid for. Don't jump to discounts for the quick wins, because they don't pay in the long-term. Analyze your best and ideal customers, monetize them correctly, and build loyal customers that retain and grow with your company.