• The Hack

    The Whole Annual Enchilada

  • AARRR stage

    Revenue

  • Growth Problem

    How to Get Customers to Commit to an Annual Plan

Haxplanation:

Discounts are bad. Bad, bad, bad. Bad for revenue, bad for profitability, bad for the perceived value of your product and bad for your self esteem (no point in denying that you, as most other ‘treps, attach your self-worth to your startup’s success).

What horrors can overenthusiastic discounting wreck on your startup?

For one, you start attracting the wrong crowd. Users who buy apps – or most other things, actually – solely based on price are not the same ones who will support your startup through thick and thin. Nope, they’re the “take it and run” types who will also overload your support team with their bitching and moaning about anything and everything. And we mean everything.

Most importantly, you’re giving away revenue. Imagine a big bag with a green dollar sign decal on it that is so full that it has cash spilling out onto the table, which can barely support the bag’s weight. Yes, you’re leaving all those bags on that table for no good reason. That’s money that could go to extending your startup runway.

It has also been found that discounting hurts your customers’ LTV figures and that’s not a good thing either. Sure, there’s a place for smart promotions but they should be the exclusion rather than the norm.

So, are there any mitigating circumstances where offering a discount is justified and good for your startup? There is one important exception to this rule – read on to find out what it is.

 

Just Hack It:

  • So, given all of the negatives of discounting, when does it actually make business sense then? Two words: annual subscriptions.
  • Annual subscriptions are the SaaS equivalent of the whole enchilada. Your cash runway is bolstered and extended for a whole year. You also get a user who is committed to your app. At least as much as a user can be these days.
  • And, of course, such loyalty – and certainty for your startup – deserves a discount.
  • But how much of a discount do you offer?
  • You may tell yourself that 10% or 15% is a good-enough reason for someone to make a leap of faith with your product but is it really enough to entice someone? Think of it this way: would you personally sign up for a whole year for such a discount?
  • “Go big or go home” is definitely the preferred way to go with annual discounts. Within reason, of course.
  • The key is to know how much margin you have to work with and base your discounting decision on this.
  • Offering a 30% discount, or more, will have much more potential to spark a user’s interest in your annual plan.
  • As long as it is profitable for you then there’s no reason to not experiment with deeper pricing discounts on your annual plan.
  • Now sit back and savour the moment because this is as much certainty as you can hope for on your startup journey.

 

Source or Inspiration:

http://blog.trak.io/39-actionable-growth-hacking-tactics-part-5-of-5/

http://sixteenventures.com/annual-pre-pay-renewals

http://www.priceintelligently.com/blog/saas-discounting-strategy-lowers-ltv-by-over-30-percent

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