Discount
DIS-kownt
A reduction in the list price offered to close a deal. A margin concession that should always come with a customer concession.
A discount is a reduction from your list price. Every sales organization offers them. The question is how disciplined you are about when, how much, and what you get in return.
Discounting is a tool, not a strategy. A 10% discount to close a deal this quarter instead of next quarter might make sense if you need the revenue. A 30% discount because the rep is afraid to defend the price is a problem. Discounts train customers to expect discounts. Once a customer knows they can get 20% off by pushing, they will push every time.
The rule of disciplined discounting: never give a discount without getting something in return. Longer commitment, upfront payment, case study agreement, larger deployment, referral introduction. A discount without a concession is not negotiation. It is capitulation.
Examples
A disciplined discount negotiation.
The customer asks for 20% off the $100k list price. The AE counters: 'I can do 10% off if you sign a two-year commitment and pay annually upfront.' The customer agrees. ACV drops from $100k to $90k, but TCV doubles to $180k and cash flow improves.
An undisciplined discount destroys margin.
A rep gives 35% off to win a competitive deal. The deal closes at $65k instead of $100k. Gross margin drops from 80% to 69%. The customer tells their peer companies about the discount. Three more prospects demand the same rate. The entire segment pricing is undermined.
A volume discount makes strategic sense.
A customer with 200 seats wants to expand to 1,000 seats across the company. They ask for a volume discount. The AE offers 15% off per-seat pricing for the full 1,000-seat commitment. ACV grows from $100k to $425k. The discount was worth it.
In practice
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Frequently asked questions
How much discount should you offer?
Standard practice: 10-15% for annual commitment, 15-20% for multi-year. Never exceed 25% without deal desk approval and a strong business justification. The average discount in B2B SaaS is 17%. If your average discount exceeds 20%, your list price may be set too high.
How do you stop reps from over-discounting?
Set discount approval tiers (reps can approve up to 10%, managers up to 20%, deal desk above 20%). Commission reps on net revenue, not gross, so discounts reduce their commission. Track average discount by rep and address outliers. Create value-selling training so reps defend price on value, not compete on discount.
Related terms
A cross-functional team that reviews and approves non-standard deal terms, pricing, and contract structures.
The conditions in a sales agreement: length, auto-renewal, termination rights, payment schedule, and SLA commitments.
Revenue minus cost of goods sold, expressed as a percentage. For SaaS, this is revenue minus hosting, support, and delivery costs.
The department responsible for negotiating vendor contracts, terms, and pricing. The last stop before a signed deal.
The annualized value of a single customer contract. Tells you about individual deal size, while ASP tells you the average across all deals.
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