How Black Friday Deals Cost SaaS Companies Millions

Posted by

Borja Prieto – Head of Growth @ FROGED
|
November 19, 2020

Black Friday might be terrible for your business.

Despite being one of the busiest shopping days of the year, it’s not always the most profitable—especially for SaaS companies.

When a retailer slashes prices in hopes of selling as many products as possible, their investment ends once customers receive the goods.

When a SaaS organization does it, they tend to put business growth at risk. 

This doesn’t mean Black Friday deals should be off-limits in SaaS, but it does indicate that organizations losing money should recalibrate their approach.

In the war of Black Friday SaaS deals, companies with a strategy in place don’t compete on price. They extend the value of their solutions well beyond the sale.

The problem with Black Friday deals

People don’t purchase SaaS products on a whim. When a customer pays for a software subscription, they’re usually trying to solve an ongoing problem for an indefinite period.

In ideal conditions, this leads to lasting relationships between a company and its customers. In others, failing to meet a customer’s needs means losing their business—often to a competitor who can.

Black Friday deals turn this dynamic on its head. Instead of buying a subscription after careful consideration, buyers may base their decision purely on price.

To their own detriment, most SaaS companies encourage this. By structuring their offers around steep discounts, they engage in a race-to-the-bottom that negatively impacts the business.

This can play out in a few ways:

Whether the customer churns isn’t the only problem. When doling out discounts, the core threat SaaS companies face is attracting the wrong customers altogether. 

These poor-fit customers can hurt profitability in several ways:

In worst-case scenarios, these companies don’t only lose money, they also waste resources on customer acquisition and support costs—efforts that could be better spent attracting customers more likely to stick around.

Here’s the good news: With the right strategy, SaaS companies can participate in Black Friday without sacrificing profitability.

To discount or not to discount

Source: Metricool

To avoid the potentially costly trap of Black Friday discounts, some organizations decide not to participate at all. In doing so, these companies may leave money on the table as a result.

According to research from Paddle, who examined the historical performance of hundreds of software companies over previous Black Friday weeks:

We can infer two conclusions from these findings. First, despite the obvious pitfalls, it probably makes sense to get in on the Black Friday promotion craze. 

Second—and perhaps most importantly—it will take careful and strategic planning to make the initiative worthwhile in the long run.

Overcoming the discount trap with a gameplan

With so many businesses targeting Black Friday buyers, having a strategy isn’t an option—it’s an imperative.

Here are a few things to consider before kicking off any promotions:

1. Decide how deeply to discount

Deciding how much to discount is a fine balancing act.

Generally speaking, if your discounts are too high, some buyers may question the value of your offering. If your discounts are too low, price-sensitive buyers may turn to other options (which may not be such a bad thing).

Most SaaS companies we’ve seen offer discounts ranging from 20 to 50 percent off the purchase price. Anywhere within that range is a safe place to start.

2. Treat existing customers with care

Most Black Friday deals focus on acquiring new customers, which raises a few important questions.

Neither question is easily answered—but there are a few things SaaS organizations can do to foster loyalty while protecting revenue:

Offer discounts to existing accounts, but don’t promote them heavily.

While it may be impossible to prevent some of your customers from discovering your deals, that doesn’t mean marketing needs to go out of their way to broadcast them. Exclude existing customers from any newsletters or mailing lists that mention the discount, leaving only those crafty enough to ask about or find the deals on their own to benefit.

Offer VIP discounts to your most loyal customers.

If you have long-term, happy, and engaged customers, offering them a discount may seem counterintuitive but it can go a long way towards reaffirming the relationship, especially if you can base those discounts around their specific use case.

3. Use what you know to create targeted offers

Attracting high-fit customers is often a matter of serving the right offer to the right person with the right messaging. Figuring out what “right” means requires knowing which factors yield the best returns. 

For example, which channels or sources drive the most high-quality leads? If you can answer that question, you’ve already solved one problem.

With an advertising budget, you can take that data even further. For instance, can you target individuals at companies that fit your ICP? Can you use something like email list matching to serve Black Friday ads to your most engaged email subscribers as they browse the web?

To whatever extent possible, use data to create targeted offers that safeguard against reeling in too many bad-fit customers that may not be worth the cost of acquisition.

4. Create non-monetary concessions

For SaaS folks still on the fence about discounting their solutions, adding value (instead of reducing price) can be an effective way to navigate Black Friday. 

But getting it right will depend heavily on knowing your audience.

Here are a few ideas worth considering:

Exclusive or early access

Everyone likes feeling special. Whether you’re providing access to gated content libraries or allowing new or existing customers to get the first crack at your latest product update, enticing people with assets or products not available to the general public is a great way to start or maintain relationships.

Custom contracts

Most SaaS companies offer monthly or annual contracts, but sometimes it can take several months before customers see value from a solution. If it’s feasible for your organization, consider offering custom contracts at a discounted rate—like six months for the price of three.

Enhanced onboarding, training, or coaching

Companies with complex or robust solutions may benefit from offering high-touch onboarding and support. Use your world-class customer support and education programs as a unique selling point that helps customers ramp up and see results faster.

Is your Black Friday strategy churn-proof? Sign up now for our Black Friday for SaaS webinar to learn how to retain your customers and improve your churn rate.

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