Offering your SaaS product at a discounted rate can be an effective way to increase conversions, reduce churn, and keep customers happy.
But discounting too aggressively can be a very bad strategy. Overuse of discounts can lead to a devaluation of your product in the eyes of your customers and negatively affect your bottom line. Even worse, frequent discounting can train customers to take advantage of your product only when they think they're getting a deal.
That being said, if you use discounts the right way, it could lead to major wins for your business. Let’s talk about how you can use discounts in a way that extends customer LTV and increases overall loyalty with your user base.
If you want to create a discounting strategy that works for your business rather than against it, it’s vital to provide personalized, targeted discounts that align with your customers’ needs. Let’s dive into some strategies that you can use when it comes to creating discounts.
Stick to the right level of discount
Research has shown that offering a medium-sized discount can increase the average future value of a customer by 20% to 25%, compared to offering high or no discounts. A good medium discount would be anywhere between 5-20%. That same research shows that the average future value of customers who receive no discount and those who receive a high discount is nearly identical.
The takeaway here is that there’s probably rarely (if ever) a good reason to offer a very high discount. But offering a reasonable discount, especially if it’s personalized and targeted, could be a great way to extend your customer LTV.
Create discounts that get people to pay you more
When it comes to revenue, the goal of discounts should ultimately be to get more customers to spend more on your product…not less. By using discounts the smart way, you can actually get new customers to pay more than they were originally planning to.
This strategy is also a great reason to tie your free trial offers to a specific pricing tier. Say you have a customer who starts your 30-day free trial, selecting you $25/month plan as the plan they’ll begin paying for at the end of their free trial.
Then, when it comes close to the end of their free trial, offer them the next tier up on your plan (say $75/month) and offer it to them for only $50/month. You could choose to offer that discount for a limited time or even offer it forever, until they downgrade, upgrade, or cancel (and that discounted price is a good incentive not to cancel).
Either way, you’re taking a customer who was only planning to pay you $25/month and moving them up to $50/month, automatically increasing their LTV. That’s the power of offering a targeted discount at the right moment.
Figure out which discounts work best
The fact is, not all discounts are created equal and there’s not a one-size-fits-all discount for every SaaS company and product. That’s why it’s so important to do some testing. You should start by offering a series of targeted discounts, like 50% off a specific add-on, one month free of a core product/feature, one month of a higher subscription tier at no extra charge, etc.
Then, you need to take the results of those discounts and see which ones performed best. The easiest way to do this kind of research is with a platform like Churnkey.
We can help you determine which of those discounts were most effective at retaining users or extending customer lifetime value. Once you’ve identified which discounts performed best, you can roll them out across your entire customer base to prevent additional user churn.
With Churnkey’s help, you can reduce cancellations up to 58%, effortlessly increase customer loyalty, and extend LTV every month.
If you’re ready to improve your retention without the time sink, sign up for a free trial and see firsthand how Churnkey is helping SaaS businesses reduce churn and retain more users.