Discount Management

What is Discount Management?

Discount management is a process in which businesses plan, implement, and control the discount strategies for their products or services. It involves setting up discounts, calculating potential impacts on revenue, tracking the performance of discount campaigns, and making necessary adjustments to optimize results.

Effective discounting plays a crucial role in the RevOps function. It drives customer acquisition, increases sales volume, and incentivizes loyalty. There is, however, lots of pressure on revenue teams to balance sales growth through discounting with overall profitability. So, discount management is one of the most critical skills for RevOps professionals.

Synonyms

• Pricing optimization
• Promotional pricing
• Sales promotion management
• Sales incentives management

Importance of Discount Management

Pricing influences demand and brand perception. If you offer too many discounts, you’ll lower the perceived value of your product. Nobody who’s willing to wait for something will pay full-price for it if they know that the price will eventually come down.

And if your price reductions are too steep, you won’t have any margin left to sustain your business, let alone grow it. Poor discount management creates a direct impact on both the top and bottom lines of your business.

With effective strategies in place for managing discounts, you will:

• Make your business more profitable by offering discounts strategically
• Give sales reps clear guidelines and limits when offering discounts
• Improve customer relationships through transparency and consistency in discount pricing
• Differentiate your business from competitors through unique and creative discount campaigns
• Minimize the negative impact on revenue and margins

Not to mention, discount management also allows you to track the success of your sales and marketing efforts. If more customers are purchasing with a certain discount code or from a particular campaign, you know it was successful compared to other offers.

Challenges of Managing Discounts Manually

While there are plenty of things that could go wrong when offering customers discounts, the majority of them are the result of manual discount management.

These include:

• Manual pricing calculations that lead to mistakes in pricing and profitability
• Lack of visibility into discounting trends and performance, making it impossible to optimize strategies
• Inconsistent discount pricing that causes confusion and distrust among customers and sales reps
• Difficulty tracking the impact of discounts on revenue and margins, hindering the ability to optimize your pricing strategy
• Time-consuming discount calculations and approvals that unnecessarily lengthen the sales cycle
• Unauthorized discounts that cause revenue leakage and hurt profitability

But the biggest issue is that, without software to monitor price reductions across your sales force 24/7, you’ll never be able to track and optimize your discount strategies effectively or react quickly to market changes. This is where discount management software comes in.

Discount Management Strategy Essentials

To maintain profitability while appealing to customers, you have to methodically plan every aspect of your discounts—timing, amounts, percentages, impact on margins, appeal to price sensitivity, willingness to negotiate (for B2B sales), and optimal use.

These are the essential components of a successful discount management strategy:

1. Define your objectives for offering discounts.

You have to understand why you’re offering discounts in the first place. Objectives could be:

• Clearing inventory
• Attracting new customers
• Increasing market share
• Introducing a new product to the market
• Making up for a period of slow business
• Capitalizing on seasonal demand (e.g., holiday deals)

Having clear goals will guide the design of your discount strategy and help you measure its success.

2. Segment your customers and differentiate your product.

Not all customers respond to discounts in the same way. Segment them based on their purchasing behavior, preferences, and value to the business.

If it makes sense, tailor your discount offers to different segments to maximize effectiveness and ensure the most profitable customers receive the best incentives. This is common in B2B sales, where you might offer volume discounts to high-value customers or tiered pricing for products with different levels of features.

It’s also important to remember that different products will probably require different discount strategies. High-margin items might have more room for price reduction, whereas low-margin items won’t. Evaluate your product portfolio to apply discounts strategically, so that discounts on high-margin products offset those on lower-margin items.

3. Implement CPQ to automate pricing processes.

CPQ (configure, price, quote) software is a sales tool designed to configure products and bundles, automate pricing calculations (including discounts), and streamline the quoting process. It’s a centralized system that guarantees accurate pricing for every product, service, or bundle you offer.

As a part of CPQ implementation, you’ll integrate it with your CRM. This gives your sales team the ability to retrieve customer data and segment accounts so they can offer discounts according to customer value and preferences.

You’ll also integrate CPQ with ERP. That way, you’ll have up-to-date information on production costs, availability, and pricing rules for each product. When your CPQ runs pricing calculations, it’ll factor in your cost structure and margins to help you make discounting decisions.

4. Set up discount limits, hierarchies, and approval workflows.

You need to define clear guidelines for offering discounts, including:

• Who is authorized to offer them
• Under what conditions a discount is allowed
• How much can be offered (percentage or amount)
• When discounts expire
• The maximum impact on margins and revenue
• Maximum discount amounts based on customer segments, product categories, and deal sizes

For example, you might limit discounts by product or customer type, allow custom discounts for deals over a certain value, or have a discount percentage threshold.

Then, create approval workflows in the backend of your CPQ (this is especially important if you allow sales reps to offer custom discounts for high-value deals). With an approval workflow, any deal that meets a certain threshold will automatically be routed to a higher-ranking member of your team for review and approval before it’s applied.

Approval workflows are a guardrail that ensures discounts are strategic, controlled, and within the constraints of your discounting policy.

5. Train sales reps on how to offer discounts effectively.

While your team will have guardrails thanks to your software, it won’t be able to teach them how to mention these special offers to customers.

Train your sales reps on the following:

• How to present discounts as a limited-time or one-of-one offer
• When to offer discounts (e.g., after a certain amount of purchase resistance)
• Signs to look for that indicate a customer needs a discount
• How to explain the value of discounts without devaluing your products or services
• How much they can offer (to avoid overselling the deal before hitting a guardrail)
• Closing techniques for customers who still resist the deal (e.g., increased urgency)

When providing this training, make sure to use real-life scenarios and examples of how to handle different types of customers. It could help to add your discount strategy to your sales playbook as well.

6. Track and analyze the impact of your discounts over time.

There are a few metrics you should monitor over time to get a feel for how your discounts are helping or harming your business:

• Conversion rate (how many opportunities turn into deals)
• Deal size (both average and median)
• Margin impact (how much your margin is decreasing due to discounts)
• Revenue impact (how your topline revenue is changing because of discounts)
• Discounts as a percentage of total sales
• Qualitative metrics like demand, price sensitivity, and brand perception

If you’re seeing an increase in conversions and sales revenue, compare that with your margin impact to know whether the hit to your margins is justified by the results.

You might find, for example, that a 20% discount on a particular product brings in more volume than a 10% discount, but the lower margin reduces overall profits and hurts brand perception. In that case, you’d choose to sell fewer products at the higher list price to maintain profitability and perceived value.

It’s also important to analyze the data by customer segment, product category, and sales team to identify patterns that can help you refine your discounting strategy on a more granular level.

Benefits of Discount Management Software

Discount management software is a specialized tool that helps businesses to efficiently and effectively manage their discount strategies. It’s built into CPQ, subscription management, and billing software, making it easier for companies to offer and track discounts.

Here are some of the key benefits of using discount management tools:

Streamlined processes

With discount management software, you can manage all your discount rules and current offers in one centralized system, eliminating the need for manual calculations or approvals. You’ll save time and reduce the risk of human error.

Enhanced control and security

Discounting tools enforce rules and hierarchies, assign roles and permissions, and automate discount approval processes. That way, you can be 100% certain that discounts are only offered to eligible customers and are within acceptable margins.

Improved discount accuracy and consistency

CPQ software integrates with your CRM, ensuring accurate data on customer accounts, purchase history, and preferences. Your sales reps will be able to offer personalized discounts that are consistent with customer data and their buying behavior.

Simplified pricing negotiations

When you don’t have specific guidelines for discounts, every deal is subject to negotiation. This can be especially time-consuming and frustrating for your sales reps. With a tool to manage this, customers and sales reps both know what to expect.

Better visibility into discount performance

By tracking metrics like conversion rates, deal size, and revenue impact over time, you’ll get insight into how your discounts are impacting your business. This data can help you make informed decisions about future discounting strategies.

Increased customer satisfaction and loyalty

When used strategically, discounts improve the customer experience and boost overall satisfaction with your product. You’ll get customer loyalty, repeat business, and positive word-of-mouth.

Additional Considerations for RevOps Managers

As a RevOps leader, you play a critical role in defining and implementing your company’s discount management strategy. That means you have a few additional considerations to keep in mind:

Integration capabilities

When selecting a tool for managing discounts and enforcing your policy,  you need to consider the tools it integrates natively with.

There are plenty of quoting and pricing management tools that are built to run on Salesforce Sales Cloud, for example. If that’s what you use, you might choose a platform like Conga CPQ, or even a plugin tool like Nue.io.

Implementation and features

The less coding, the better. The more consolidated your tech stack, the better.

Ideally, you want to look for a no-code CPQ that offers everything in one — quoting, contract management, a powerful rules engine (for pricing and discounting), and additional tools for sales and billing. DealHub CPQ is the perfect example of this.

That way, everything is easy to implement, and your team members will only have to work in one UI.

Aligning discount management with overall revenue goals

How aggressively you target customers with discounts depends on a number of factors. If you’re entering a new market or introducing a new product, you might slash prices to drive adoption. But if you’re in a well-established market that values your product, relying on deep discounts to win customers can be harmful.

You will also have to consider whether you’re selling an exclusive or luxury product vs. a low-cost one. If you want customers to think your product is a cut above the rest, heavy discounting is probably not the way to go.

Depending on your growth stage, you may prioritize growth over profitability or vice versa. Generally, earlier-stage companies focus on customer acquisition, while later-stage ones shift their attention to retention and upselling. Your discount strategy should align with your company’s maturity.

Communicating discount management strategies to stakeholders

Your discount management strategy is not just about your sales and finance teams; it also affects marketing, customer success, and even product development. So, it’s crucial to communicate your policies, rules, and goals to all stakeholders.

Make sure everyone understands the reasoning behind your discounts and how they align with overall company objectives. This will ensure a unified approach across departments and help maintain consistency in discounting practices.

Staying on top of discount compliance

Discount management is an ongoing process that requires regular monitoring and adjustments. It’s crucial to track the impact of discounts on your revenue, margins, and customer satisfaction.

There are a few ways to do this:

• Set up regular reporting and analysis to measure discount performance.
• Implement controls and approvals to ensure discounts are compliant with company policies.
• Monitor customer feedback and satisfaction levels related to discounted purchases.

You’ll also need to ensure that the discounts offered align with your policies and approvals are obtained when necessary. Regular audits can help catch any discrepancies or misuse of discounting rules.

FAQs

Andrew Parker

Andrew is a professional copywriter with expertise in creating content focused on business-to-business (B2B) software. He conducts research and produces articles that provide valuable insights and information to his readers.