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Ask HN: Should we give a discount to a billion dollar startup?
21 points by sec_throwaway on March 12, 2016 | hide | past | favorite | 21 comments
We are a 5 months old SaaS startup with a fairly high monthly pricing ($1000+/month) with 7 paying customers. A large startup signed up recently for a month and now wants to prepay for a year but is expecting a discount on the list price (~50% discount). We have offered them a discount of 2 months, which I know is not substantial but given that we are bootstrapped till now, we are really in a dilemma. Any advice from people who have been in a similar situation would be helpful. Thank you.

I would definitely get them signed up . . .

But for 50% off I would get an ok to use their logo on your website and marketing materials, be used as a case study, get quotes/reviews to use from their CTO/CEO, etc . . . also note they can not disclose a discounted rate and maybe spell out that the discount will reduce 10% each year, and also that plans/pricing can change in the future.

As long as their subscription to your SaaS won't cause any profit loss with the discount I think it's a win win.

As far as strategy can you add plans or plan levels that will protect you from absorbing their high use of your SaaS or put in place a growth in price as they grow use your SaaS more?

Sounds like a win win, as long as you're not losing money on their subscription.

I'm definitely more likely to sign up for a SaaS if I see a big name logo using it.

Congrats, good luck.

Agreed. Unless you get something from the business (like saluki suggested), why offer a discount?

See what happens if you say "no". I bet that the person asking for a discount is testing to see if you will sell against yourself.

Anytime the subject of discount/price comes up a good sales person should go back to the question of product/customer need fit.

I would point out that the price helps keep your company in business so the product will continue to be available to satisfy their needs.

Then be willing to broach the question with the customer about how important your product is to them. If the product is not valuable at the original price, then is it really of critical importance?

Are they looking for the low cost solution or a quality solution? Suggest that they try: X, Y,....?

If you are talking to a purchasing manager, the last thing the purchasing managers want to have to do is explain how come a vendor is refusing the big startup's business.

"We have offered them a discount of 2 months, which I know is not substantial..."

A discount of two months (17%) is very substantial for a one-year prepayment (your customer can maybe get 1% a year from keeping that money in a savings account). You'll need to evaluate whether it's worth it to your business to give them even that discount.

For example:

- If you're financing your company off credit card debt at 20%, than giving someone 17% off to get money up front would actually save you money.

- If you're suffering desperate cash-flow problems and need money tomorrow to pay your operating expenses, then it might be worth giving someone a steep discount to get money today.

- If it costs you $500 a month in expenses to provide the service, then a 50% discount on $1000 would wipe out all your profit.

If you're getting adequate revenue from your current paying customers to keep the company going, you may not want to give that kind of discount. The problem with giving them a discount is that they'll expect another discount when the contract comes up for renewal in a year. And they'll tell their friends that your company gave them a discount, so future customers might also ask for one.

If you do end up giving them a discount, you might want to negotiate additional terms that are advantageous to you, such as being able to say on your web site that this company is your customer, and being able to use them as a reference for other customers. That might be worth something if they're a billion dollar company with some name recognition.

You can use your other contracts as leverage. I have a large number of contracts where I have agreed that if I offer any new customer a larger discount I have to turn around and provide the same lower price to them. This means that if I provide a new customer a higher discount I lose money since the new discounts to my existing customers are greater than the revenue from the new customer. I just tell all my new customers this and the whole issue of special pricing goes away.

Probably 50% is too much. I'll just quote patio11.

From http://www.kalzumeus.com/2012/12/29/bingo-card-creator-and-o...

> (Here’s a replicatable strategy for making several hundred thousand dollars with a single email: start with a revenue base of $X million a year. Email all customers asking them to switch from monthly billing to annual billing, in return for some incentive you can offer, which can range from “a month free” to “15% discount” to “Hey, you can book the expense this calendar year, so that will save you money on taxes.” Feel free to try this with any client or day-job of yours if they’re already at scale — “We made so much money the accountant/bank called us to complain” will make for a great bullet point at your next contract/salary review.)

Many people are suggesting you ask to use them as a reference customer, and you should, but be prepared for a 'no.'

The stakeholders at the customer likely don't have the authority to say 'yes', it's very likely they the request will have to go through their legal team (who probably doesn't care about whether the project is successful or not) and a marketing review, and while they may be happy to help you jump through these hoops after the deal is closed, they may not be able to get it into the contract.

*I deal with many Fortune 100 companies and work this into almost every deal, but it's rejected most of the time.

They will end up sucking most of your time away from you, with bugs, support tasks, feature requests, etc. Depending on how big the name is, it might be worth it to snag them, if they would be come a reference customer and help you grow quickly. But it depends on your bandwidth. Do you have sales people that could make use of their name? If not, then don't give them a 50% discount and be ready for an onslaught of work from them.

Large businesses routinely take advantage of smaller businesses. They pay later than average, they demand "extras" and so on.

Determine what you think is a reasonable deal for any customer who prepays. Write it up as your new policy. Notify theses guys you can give them X off. If they have a problem with that, they are free to go elsewhere.

I really need to start collecting links, because I have read too many stories and stats on exactly this kind of thing, but I never know how to find them when this type question comes up. Do not let a big company make you their bitch. Set boundaries. Let them go elsewhere if they do not like it.

It's already been mentioned but giving them the discount (provided you don't immediately need the revenue) in exchange for a 24 mo contract seems ideal. I believe the longest you can contract would be 24 mos (12 mo w/ 12 mo auto renew but it might be worth asking an attorney/search a bit online. I would also ensure you can use their name to leverage into additional customers. Congrats by the way, this seems like a nice problem to have :)

You need to convey that a severe discount makes no sense.

Hey Big Startup Guys-

If you're buying from us-- you're going to want us to be profitable, so we can have great customer service, do product upgrades, legal protections, and so we can have an entire team of people to do the job and serve you.

We work with Big & Small clients that want us to make a profit. We won't allow you to make us do a bad business deal.

Our pricing model is fair-- let's figure out a way to continue working together.

*Hat Tip: Oren Klaff > http://pitchanything.com/

Just tell them: "No sorry, we can't do that. So, should we sign you up for our annual plan (2 months free!), or would you prefer paying month to month?".

If they need your service, they won't leave. If they don't, they will, but that teaches you something about your market. Either way, you win.

Btw: two months is substantial, it's a 17.5% discount.

Perhaps they're asking for a "startup discount" like AWS Activate.

A discount because they're a startup and putting trust into you and your startup. If they do well, you'll do well. If you screw up they will be impacted.

Also, you may be able to learn a lot of from them and help more people love your product.

I'd counter with like 25 to 30% for one year and a bit more for two years. Try to find a win-win even if you have to get creative. Perhaps they allow you to use their name as a reference on your website or some other consideration.

These sorts of negotiations happen all the time. Enjoy them :)

Good luck with the SaaS, sounds look you have some momentum!

As someone alluded to, if they're a big name you can point to / use their logo this could easily pay for itself. If you think of their discount instead as an approximately $500/month marketing budget, would you do it? (Or even more precisely $350/month as that's the additional request).

Just try to avoid the slippery slope of giving everyone such a discount (and I hope your pricing plans mean that this presumably large customer is getting a discount on an expensive "Enterprise" plan that's only sensible for larger groups).

If they think you need them more than they need you, they'll push you hard.

50% discount is my expectation. Lately, my place had been scoring those kinds of discounts even on hardware.

Have you seen those SaaS sites that mention they are used by the NYTimes, Newsweek, Forbes etc. Well you can say the billion dollar startup uses your SaaS.


Id not give them a discount. Im sure they can afford to invest 12k a.k.a. peanuts if they are valued so highly.

What do you get in return for the 50% discount?

- reference statement?

- mention on their blog?

- referals to other billion dollars startup?

- case story?

It depends if having them as a marquee name on your site and guaranteed revenue is worth it. Guaranteed revenue is hard to thumb your nose at. So too is a recognizable brand name, especially if they have gravity in a vertical you are targeting.

Give them a discount but make them prepay for 3 years

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