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How to manage discounts by your sales team
How do you manage the empowerment for your sales and customer success teams to discount your prices or change terms?
How do you implement good discount management?
If you have a good pricing strategy with an effective pricing model—maybe you have even raised your prices regularly—all that can be completely negated if you are giving away too much in discounts on the back end. So, getting your discounts under control with a sales empowerment matrix is a very important way to increase ARPU.
Make sure your sales team understands who has the power to grant discounts and to what degree. It helps to have an empowerment matrix that provides a quick overview of the approval authorities of various roles on the team. Such a chart shows who can give what kind of discount what is expected in return. You never want to give a discount away without getting something in return. It could be a pre-payment or a commitment for a case study. Discounts can also go further than just pricing. They can include payment terms, exposure, and different liability limits. Here is a list of things to potentially give away, and what to expect in return:
- Net present value of cash vs. maximum LTV
- Save on renewal cost (nurture, invoicing, accounting, sales focus)
- Save on collections
- Opt-in/Opt-out (auto payment, ACH/CC)
- Make the commitment enforceable. Is your product or service recoverable?
- One-Time payments vs. subscription (CAC vs. CTS)
- Professional Services vs. Goods/Software (COG vs. CTS)
- Predictable payments
- Adjusted Service Level
- Intellectual Property Protection
There are a few reasons to offer a pre-payment discount, including the net present value of cash vs. what you can get in the maximum lifetime value of a customer. Or the savings you can accrue in renewals. When thinking about what you can get in return for a discount, consider an opt-out strategy. This saves you money in accounting, continual sales, and collections. Saving money in these areas may be worth a discount, but you must be able to enforce it. Keep in mind that discounts only work when your product or service is recoverable if the terms of your agreements are violated.
Example empowerment matrix
Here you can download an example of a table to manage the empowerment across your team. Clarity will help the salesteam work together, and more importantly, this will limit the impact on ARPU by non-desired term flexibility and discounts.