Building advanced analytics such as dynamic deal scoring into the core commercial process helps software sales organizations price smarter, streamline the approval process, and win more deals.
According to a new report from McKinsey, written by By Walter Baker, Michael Kiermaier, Paul Roche, and Veronika Vyushina, discount management is returning to the center stage of commercial management in enterprise software. Vendors migrating to subscription models, or to software as a service (SaaS,) find that discounts in initial deals are the main determinant of future customer lifetime value.
Traditional software players face increasing discount pressure as they compete with disruptive next-generation players, says the report. Loose discounting practices are hard to rein in:
Sales reps often argue that higher discounts are necessary to win deals, but McKinsey research across companies consistently shows the opposite to be true: successful deals almost always have lower average discounts than deals that were lost.
Management usually responds in one of two ways to counter excessive discounting:
The root of the problem is a lack of insight into objective comparison points. Although sales reps have a good feel for the market, they don’t have much information about how their colleagues price similar deals. And to managers, every deal can look unique, forcing them to make approvals based more on gut, or accept the sales reps’ argument that the proposed discount is what it takes to win the deal, instead of an actual objective fact base.
Concluding, the report says that, in software, as in other B2B industries, the pricing challenge is not so much how to deal with big data, it’s how to get valuable insights out of limited data sets.
For additional insights and information, please visit McKinsey here.