Startup Sales Negotiations 101 - How to Respond to Discount Inquiries

Posted by Steli Efti on Thu, Feb 13, 2014

negotiation_jujuitsu

People will sometimes reach out and ask for a discount on your product before they took the time to sign up for a trial and use it at all. What do you do when that happens? 

Instead of debating if you should or shouldn't offer them a discount right away, you need to refocus their energy on what really matters: your product!

Let's explore the 3 core reasons why you never want to negotiate pricing before someone had a chance to trial your product and determine that it's a good fit.

#1: You're starting the relationship on the wrong foot

People who ask you to lower your prices before having invested any time using your product are usually trouble.

This can often lead to winning a new customer that is going to expect you to give 24/7 premium phone support, prioritize features based on their needs all while trying to pay you pennies on the dollar. If you start the relationship by giving them everything they ask for, don't be surprised if they keep asking for more in an unreasonable fashion. This is ultimately unsustainable and unhealthy for both sides.

#2: They're buying for the wrong reason 

At this point they can't tell if your product is a good fit for them since they never used it. Your first priority should always be to help people explore and discover that your product is really solving their problem before negotiating what the final pricing should be.

Discounting your product upfront might help you close some deals faster but will often lead to these customers ultimately discovering that they should have never bought in the first place. Always be wary of prospects that don't want to do their homework upfront. Nothing sucks more than a new customer that cancels immediately after having created a ton of support and onboarding cost. 

#3: You're negotiating on price vs. value 

The problem with people trying to negotiate pricing before testing your product is that you are forced to negotiate on price rather than value.

They didn't have a chance to build up any desire to buy and discover the massive value your product could deliver to them. All of the sudden your product turns into a commodity and your only differentiation is offering them the lowest price possible. 

#4: You're negotiating without leverage

The more time people invest in your product the more "invested" they become and naturally the harder it is for them to "throw away" the time they put into exploring your product and making it part of their daily workflow.

You always want to postpone the most difficult/complex parts of the sales negotiation till the end of the sales cycle. That way you ensure the right amount of momentum as you move forward in the sales process and avoid too much upfront friction. 

Here is what your response should be when someone asks for a discount without having tried your product:

"Thanks for inquiring about pricing options! Why don't you sign up for a trial and give the product a go? If you find out that it's a great fit I'll take care of you and make sure you get a price that makes you happy. Sound fair enough?"

This works every time. The reply you usually get will be:

"Great! Just signed up and giving the product a go. Thanks!"

What's the result you should expect?

9 out of 10 times the people that turn out to be a bad fit will self select during a trial and just leave. The prospects that are a good fit will love your product so much that they will not negotiate hard for a discount since they now really understand its value. 

Even if they do it's fine to give great customers a good price because you know they are buying for all the right reasons and will probably stay with you for a long time.

We've done this thousands of times and it always works. I hope this startup sales negotiation tactic serves your business as much as it has ours :)

P.S. The same tactic doesn't just work for people that are "unreasonable" and potentially a bad fit. Even when uber nice prospects are worrying about pricing upfront we tend to ask them to first discover if the product is even a good fit for their needs. See below a recent twitter exchange as a good example for this:

twitter_negotiation

Topics: startup sales, sales negotiation

    
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