Discounts are a well-known but controversial topic for XaaS vendors; they are an expected element of pricing and negotiation, but are known to have a detrimental impact on key SaaS financial metrics
Authors: Bryan Belanger, Colin Naples
XaaS Pricing views discounting and price concession as a spectrum that includes market standard practices and situation-specific action
Discounts are a well-known but controversial topic for XaaS vendors. They are an expected element of pricing and negotiation, but are known to have a detrimental impact on key SaaS financial metrics.
For example, subscription pricing strategy and software firm ProfitWell has reported that discounts can lower customer lifetime value by over 30%, also impacting the ability to recover customer acquisition costs.
XaaS Pricing uses a multilevel model to evaluate discounting across categories and competitors, which is outlined to the right.
The success and sustainability of a discounting strategy depend on its specificity, consistency and positioning with customers across these areas of discounting. Key success factors are analyzed in this monthly analyst note in greater detail.
The best place to start is offering (and better yet, publishing) monthly and annual subscription pricing
Twenty-one percent of offerings benchmarked by XaaS Pricing provide standard monthly and annual pricing.
Thirty-six percent provide only monthly pricing publicly, but many may offer annual-term discounts to customers.
Most companies provide a toggle for monthly versus annual pricing and emphasize discount savings.
Typically, an annual discount is provided with agreement to pay upfront, but this may vary depending on the policies of the specific vendor.
Many companies use mixed models, where self-service offerings have monthly terms and enterprise offerings require annual or multiyear terms.
Companies that offer only annual terms are likely to do so because they have an enterprise-oriented offering and/or a product that requires a longer time to value based on the deployment, usage factors and/or other consumption criteria.