💎 Should you discount your subscription?
The pros and cons of discounts and a decision matrix to know if you should prioritize a test.
Ah, discounting…The silver bullet of monetization!
But is it, really?
Before we discuss the pros and cons for discounting, let me clarify that I’m referring to offering discounts to users who do not initially convert or cancel their trial /subscription (whether in-product or via email) as well as offering seasonal discounts (e.g., “Black Friday discount”). NOT to having a “discounted” yearly plan compared to monthly plan.
This kind of discounts are pretty safe bets to get a quick ARPU boost.
However, depending on a number of factors, it might not be the best course of action.
Now, before we dive in, here’s how this post is laid out:
Disclaimer: I understand that discounts might be a necessity, as it might be the best way to keep the business going. If you’re in that situation, things are different.
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I’ve been looking up and learning from Phiture’s blog Mobile Growth Stack since the company was created.
They recently launched the first articles of a series around What Makes a World-Class CRM Strategy?
Below is my favorite insight from it. Go read the first post and subscribe so you don’t miss out on the following ones!
Hell, yes!
1. You can’t miss out on additional paying users
Subscriptions have a “high floor, low ceiling”.
Problem is, everyone is in the same place on the price demand curve.
Most downloads never end up translating into dollars (77% of users are lost within the first 3 days) and discounting is a great way to get a higher volume of subscribers.
Most users will never come back. Not discounting means you miss out on converting lower-intent users at a discounted price.
💎 If you’re not discounting, you’re leaving money on the table.
Start with an offer when users close the first paywall
Show the offer again on every app open
Increase the offer for users that don’t convert but show intent later on (e.g., seeing your paywall and closing it again)
(27:30) by Steve P. Young (CEO at AppMasters) in How to win back lost customers: Proven strategies for re-engagement
Below an implementation of this kind of progressive discounts by Headway.
2. Some segments are just ready/ripe for a discount
And they even “tell you” they’re willing to purchase!
Show an offer to users that show intent to purchase. It doesn’t have to be just “re-opening the paywall” or “showing the native price sheet”:
💎 Use "abandoned cart"-type tactics (personalized approach, discount, etc.) for users that interacted with the paywall (i.e. swipes, selecting a price package, etc.) even if they did not try to start the subscription (i.e. hitting "subscribe now" button).
(16:52) by Andy Carvell (CEO & Co-founder at Phiture) in Increasing Mobile Subscription Revenue
If you have an actual freemium model, another relevant segment is free power users (long-standing free users). Here is what Ekaterina (ex-Mimo) shared with me:
💎 If you have a freemium model, look at your users’ engagement to see how big is the segment of users that have been with you for a while, had X paywall impressions, and yet, haven’t subscribed. If such users keep coming back to your app, they clearly see value in it so it might be that the price is the only blocker towards the upgrade. Converting some of these power users can lead to extra revenue which you probably wouldn’t get otherwise as well as better retention and word of mouth.
Ekaterina Gamsriegler (Red Bull, ex-Mimo)
3. Committing to a trial or subscription increases engagement
If a user pays (even at a discounted price), it increases the chances that they interact with your product, activate, and retain.
💎 In many apps, 80% of trials happen within the first two minutes. It only makes sense to keep offering discounts after that, because for everybody else that does not start a trial, you end up with an activation problem.
(46:20) by Hannah Parvaz (Founder at Aperture) in How to win back lost customers: Proven strategies for re-engagement
The commitment of starting a trial or a subscription increases engagement.
If a user does not convert, it’s like likely they will experience the value of your product.
4. Discounts encourage longer-term plans
Discounting is not just about converting those that would not have bought otherwise.
Assuming you’re discounting longer subscription durations (annual, lifetime), you can potentially:
Increase ARPPU vs. non-promo period, therefore improving cash flow
Increase subscription retention, since users who subscribe for longer have more time to experience value (and since renewals are usually higher)
5. You want as many users as possible in your product
Duh.
Here’s why I’m bringing this up, though.
It’s not just for the immediate revenue.
If you’ve tried improving retention (or even activation), you know it’s not that easy to move the needle and that cohorts get smaller quickly.
Having more active users in your product means more data to optimize user experience so you can eventually activate and retain more users (including the ones who convert with a discount).
It’s a virtuous circle!
6. Customers expect discounts (and your competitors do it)
This is particularly true in the US, or at least more times during the year than in the rest of the world.
New Year Year, President’s Day, etc. The list is actually quite long.
Each sale season you’re not offering a discount, your competitor(s) might. If customers go their way, you’ll never convert them.
7. Increasing ARPU can unlock UA
If you think UA is just about decreasing CAC, think again.
As Thomas Petit puts it, it’s a “business model” competition.
Offering discounts can increase ARPU and make the difference between being able to compete on Meta and hitting the ceiling of organic and Apple Search Ads.
💎 For earlier-stage companies that want to run acquisition, look at revenue per user (ARPU). If it’s too low, you won’t be able to make Facebook profitable (you can still grow organically).
(15:25) by Thomas Petit in Data culture for startups
8. Your business survival might depend on it
This is correlated to point #1, but still worth stating.
Not everyone is VC-backed, and there’s no more “free money” anyway.
You might be approaching the end of your runway, need to pay rent, or have business/personal debt to pay.
Even if discounting might be seen as a short-term tactic, it’s possible that you don’t have a choice.
I’m missing something, or you want to back up these “Hell yes!” arguments? Join in on the LinkedIn discussion!
Hell, no!
1. It devalues your brand
Choosing the subscription model means that you want to build an ongoing relationship with customers.
Repeated or deep discounts “cheapen” your brand: users start questioning the true value of what you’re offering.
When you’re devaluing your offering upfront you make people less willing to stick comes renewal time.
You’re attracting the deal-seeking users, which starts a vicious circle
This is especially damaging for niche apps and/or apps that have audiences with higher willingness to pay.
2. It decreases LTV
When an app depends on regular promos or discounts to catch a user early in the journey (i.e., before the natural conversion curve flattens), LTV suffers because some users who would have purchased full price (at least at one point) end up purchasing at a discounted price.
Both me and Ekaterina have seen cases when running fewer discounts (i.e., full price purchase or trial) led to LTV boosts.
3. It trains users to wait
For some users, it’s not the right time to buy.
You might have reached them in an earlier phase of awareness. They’re just looking around (they might have seen your ad, or latest viral organic post) but are not ready to commit.
When you show them multiple discounts one after the other, that’s what they expect moving forward. It’s as if you had priced too low to begin with.
Don’t underestimate how many users convert a long time after downloading your app.
4. Price is not the real problem
The “price” problem with conversion or churn is often more of a “perceived value” problem.
💎 Price is usually the main reason for churn, but you can drill down into that reason, because the price is usually an indicator of “I’m not getting the value”. Talk to people to understand better what they were expecting. It can be through chat, getting them on the phone, as part of your survey in a cancellation flow, etc.
(13:20) by Hannah Parvaz (Founder at Aperture) in How to win back lost customers: Proven strategies for re-engagement
Can you make more sales with a discount offer? Probably.
But there are many cases where your time is better spent working on increasing the perceived value of your product.
5. It’s best to increase the deal value
Promotions ≠ discount.
For users that don’t convert, try offering an extended free trial (or a free trial if you don’t offer one by default) or a smaller subscription duration (particularly if you’re annual only).
💎 Try to be creative with your promotions, they don’t have to be only discounts. Example: 14-days trial instead of 7-day trial.
(36:18) by Annika Rabenstein (Product at Aampe) in Maximizing Subscription App Revenue with Holiday Discounts and Promotions
You’re not dropping the price, you’re increasing the value, and your margins will thank you.
You can even offer a complementary product (“freebie”) or special perks.
💎 There are other ways than heavy discounts to thank engaged customers and get them to renew: think about non-monetary benefits (content, thank you notes) that they could appreciate. Example: At Headspace, they’ve considered what it means to be an engaged user. Instead of giving a discount to users to thank them for sticking around one year or two years, they looked into offering specific meditation webinars with instructor/content users really like, thank you note from the founder, etc.
(34:25) by Keya Patel (Director of Product Growth; 23andMe, ex-Headspace) in Mastering mobile pricing experiments: Proven tactics for revenue growth
The Simply Piano example below was not in the context of a cart abandonment or seasonal discount, but it very well could be.
Other ideas: exclusive/VIP beta access to new features or charity tie-ins (e.g., “Your subscription funds X meals”).
6. Are you sure you’re priced correctly?
If you haven’t done proper price testing (possibly just on your monthly plan at first) and don’t yet have annual renewal data and LTV projections you’re confident in, you shouldn’t start discounting.
First, find a solid pricing baseline through experiments, and get .
Knowing your LTV in the early stages of a company is really hard because you’re constantly releasing new features, adding new channels, and changing prices, and it takes time for cohorts to mature. The better your retention is, the harder it is.
(09:55) by Dan Layfield (Founder at Subscription Index, ex-Uber, Codecademy) in Maximizing LTV with Annual Plans: Pricing, Tactics & Strategies
7. It distracts from focusing on what matters
Everybody loves a quick win…But it’s not worth it if it distracts you from focusing on bigger levers like onboarding, paywall messaging/subscription mix, and activation (for free or paid users).
💎 For personal development apps, user motivation is the highest at the beginning of the journey and gradually decreases. So a big lever to improve LTV is to increase the trial opt-in rate to help users commit early on and at full price rather than rely too much on post-paywall discounts.
(08:06) by Ekaterina Gamsriegler (Head of Marketing + Product Growth at Mimo) in How to use monetization experiments to drive dramatic LTV improvements for subscription apps
It distracts users as well:
An in-app offer after the paywall is friction on the path to activating a free user
A discount email that replaces an onboarding/activation email is a missed opportunity to educate/engage
Transactional push notifications can be effective (despite low conversion rates) but you might need more engagement push notifications instead
Even if it discounts can increase ARPU, is this the best way for you right now?
8. A good discounting strategy requires time and money
Sure, if all you do is show an offer after the paywall, you should be able to have a quick turnaround.
But if you want to get more sophisticated, especially via lifecycle marketing, you’ll have to pay a hefty price for CRM tools (e.g., Braze), and the time to integrate the tool and set up flows is very often underestimated…The math is not always worth it.
If you’re going the “ad retargeting” route, this also means managing additional campaigns.
And, if you’re not doing actual retargeting but instead use “bottom of funnel” creatives, then you are also most likely showing creatives with discounts to users that may have purchased full price.
9. It complicate analytics
Once you introduce discounts, everything gets more complicated: understanding cohort behaviors (you already have people with different plans, now you also have people with different prices for the same plan!), analyzing A/B tests, assessing LTV, etc.
Another analytics challenge: since promotions are typically ran during peak seasonality, it’s always going to look like the promotion is crushing it!
Do you really know what will happen if you do not discount at that time, or even increase prices? You might be surprised.
10. It disrupts the event signal you send back to networks
As soon as you discount you’re disrupting the signal you send back to ad networks like Meta:
The value of the event (whether it’s a free trial or not) is not the same anymore (even for the same subscription duration) which means your cost per target should change
Volume changes, either up or down (depending on your setup and optimization event)
That nice monetization win might end up hurting your paid campaigns, or at least might confuse your UA colleagues.
I’m missing something, or you want to back up these “Hell, no!” arguments (or trash me…)? Join in on the LinkedIn discussion!
It depends…Here’s how to choose.
Of course, it depends!
Let’s try to break this down by growth stage.
Tactics to mitigate the downsides of discounting
You’re already discounting your subscription app or planning to do so shortly?
Next week I’ll detail the tactics I know in order to mitigate the cons and maximize the impact.
Stay tuned!
🔗 Sources:
How to win back lost customers: Proven strategies for re-engagement (RevenueCat webinar)
Data culture for startups (WHAT the Data?! podcast)
Maximizing LTV with Annual Plans: Pricing, Tactics & Strategies (Subscription Index webinar)
How to use monetization experiments to drive dramatic LTV improvements for subscription apps (Mobile User Acquisition Show podcast)
Picking a mobile lifecycle marketing tool (Retention.Blog newsletter)
The Subscription Value Loop: A Formula for Growth (RevenueCat webinar)
Smart discounting strategies: When, why, and how to offer deals (RevenueCat article)
App Monetization Masterclass (App Masters podcast)
How Lifesum 2x'd Their Impact on M1 Retention by CRM: Case Study (App Promotion Summit)
But also…
15 years in the mobile app industry
5 years in growth at Babbel (language learning app)
Hundreds of growth webinars and podcasts “mined” for insights 💎
I hope this helps you decide what to prioritize for maximum impact.
Stay curious!
— Sylvain
Chief Insights Miner at Growth Gems ⛏️
(Fractional) Head of Growth at Reading.com
Growth Consultant/Advisor for high-potential subscription apps (hit reply if you want to chat - bonus if you’re in Education, Meditation & Cooking categories)
Acknowledgments 🙏
Huge thanks to Thomas Petit, Kurtis Morrison, and Ekaterina Gamsriegler for their feedback on this edition.
I think the worst part about heavy discounts is, that whenever I see this cheap price (especially on these "Once in a lifetime deal, if you close this you will lose this discount forever"-pages), it feels almost impossible to me to pay the full price afterward. It would feel so bad that I would only do it if the value was so huge and there was no alternative...