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Tip: Maintain a healthy LTV by thinking twice about discounting your SaaS

Discounted rates are great for conversions but the benefits are often short-lived. To avoid taking a hit on your LTV, be very discerning about when and why you offer discounts.

ProfitWell found that heavily discounting a SaaS product can reduce customer lifetime value by about 32%, and discounted users have more than double the churn rate of normal users. Because when discounts are handed out like candy just to hit sales goals, they tend to devalue the product and attract customers who are less willing to pay. This is further backed up by studies revealing a perception that discounted products are of lower quality. Now, this doesn't mean that you should never offer discounts. In fact, they're often exactly what's called for in the moment. Just be very specific about when and why you do it. Understand how it will impact your revenue in both the short- and long-term. Know your customers. Be discreet about your discounts (especially with enterprise customers). Only offer them to segments and prospects who need the extra nudge. And put an end date on each discount so they don't last forever.

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  1. 3

    Just to clarify, the 32% reduction in LTV in the article compares heavy discounting vs. minimal discounting. It would have been interesting to see minimal discounting vs. no discounting. I suspect that the conversion rate benefits of minimal discounting outweigh any negative side effects.

    Also, it would have been nice if the ProfitWell article defined what "heavy discounting" means. Is 20% heavy? 30%?

    1. 2

      Good point — added "heavily" to the article. Thanks for weighing in!

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