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  • Writer's pictureJoel White

Discounting quid pro quo

In the past few weeks I’ve come across multiple statements saying you should never discount your services or software. The rationale is that discounting conditions customers to bargain and demonstrates you don’t truly understand the value of what you offer.

This advice is complete garbage.

Say you and your customer are discussing a 12-month project or software subscription valued at $200,000 at standard pricing. Typical billing terms would be monthly or quarterly invoicing, with 30-60 days to pay.

Offering the customer a 5% or 10% discount for non-refundable payment in full prior to the start of the project or subscription makes excellent business sense. It makes sense when your customer is flush with cash or in financial trouble. It makes sense when inflation is 2% and when inflation is 9%. It makes sense when you have more deals than you can handle and when you’re scraping the bottom of the barrel.

The only time it doesn’t make sense is if your margins are so tight you will at best break even on the deal. In that case, the problem is your base pricing, not the discount.

Non-refundable payment in full:

  • Reduces churn and cancellation rates by virtue of being, well, non-cancellable.

  • Gives your customers more options for how to work with you- on your terms.

  • Conditions your customer to learn how best to work with your team and/or product, instead of looking for problems from the start.

  • Gives your business control of the working capital from the start.

  • Simplifies invoicing and financial administration.

The percentage you use is based on your circumstances. You have the old 15%-20% go-to in software (pay $999/month or $10,000/year), and I’m seeing that standard trending higher. The services side varies widely based on the provider’s margin structure. Ultimately, make it compelling enough that the customer is happy to take the discount, but conservative enough that you don’t regret it for the next 12 months.

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