Our sales team gave away $480,000 in unnecessary discounts in Q3 because we had no discount policy.
A rep closed a $180K deal at 40% off because the prospect asked for it. Another rep gave 25% off a $90K deal to close before quarter-end. A third rep offered a 35% discount proactively because they were "competing with a cheaper alternative."
When I analyzed the deals, I discovered that most of these customers would have paid full price. They asked for discounts because sales reps telegraphed willingness to negotiate. We left half a million dollars on the table because we had no framework for when discounting was justified.
So we implemented strict discount controls. Every discount over 15% required VP approval. Every discount over 25% required CFO approval. We'd stop the bleeding and protect our margins.
The result: we lost $1.2 million in deals that died in approval hell over the next two quarters.
Deals that should have closed in two weeks took six weeks because reps were waiting for approval. Enterprise buyers got frustrated with our slow decision-making and chose competitors who could move faster. Our average deal cycle increased 40%, and quota attainment dropped below 70%.
We'd solved the discount abuse problem by creating a velocity problem. The cure was worse than the disease.
I spent the next year learning that discount governance isn't about control—it's about giving sales teams clear frameworks for making decisions fast while protecting revenue quality.
Why Discount Policies Fail
Most discount policies fail because they're designed by finance people who don't understand sales dynamics.
The typical policy looks like this:
- 0-10% discount: rep discretion
- 11-20% discount: manager approval
- 21-30% discount: VP approval
- 31%+ discount: CFO approval
This feels rational in a spreadsheet. In practice, it creates three problems:
Problem 1: Approval delays kill deals
Enterprise buyers operate on their own timelines. When they're ready to buy, they want to buy now. If your approval process adds a week to close the deal, they'll go with a competitor who can move faster.
We lost a $400K deal because our CFO was on vacation when a rep needed approval for a 32% discount. The prospect had budget that expired at fiscal year-end (three days away). They went with our competitor who could approve the deal same-day.
The discount approval cost us the entire deal, not just the discount margin.
Problem 2: Tiered approvals create arbitrary distinctions
Why does a 20% discount require manager approval but a 19% discount doesn't? The policy creates cliff effects where reps optimize for approval thresholds instead of deal quality.
I watched a rep structure a deal at exactly 20% discount (the maximum that didn't require VP approval) when the deal could have closed at 12% discount. The rep wasn't trying to maximize revenue—they were trying to avoid the approval process.
Tiered approval thresholds incentivize reps to ask for the maximum discount they can get without triggering escalation.
Problem 3: Policies don't account for deal context
A 30% discount on a $2M three-year enterprise deal with 95% gross margins might be great business. A 15% discount on a $20K one-year SMB deal with 60% gross margins might be terrible business.
But most discount policies treat all discounts the same regardless of deal size, customer quality, contract terms, or strategic value.
We had a policy that required CFO approval for any discount over 30%. This meant our CFO was approving $15K discounts on small deals while reps were giving away 25% on strategic enterprise deals without oversight.
The policy was optimizing for the wrong thing.
The Framework That Actually Works
After failing with tiered approval policies, I rebuilt our discount governance around a different principle: empower sales to make decisions quickly, but make the framework explicit so decisions are defensible.
Instead of approval tiers based on discount percentage, we created a decision framework based on deal characteristics.
The Discount Justification Matrix
Every discount request has to map to one of five justifications:
1. Multi-year commitment discount (10-20%)
If a customer commits to 2-3 years upfront, they get a discount in exchange for reducing our revenue churn risk.
The framework:
- 2-year commitment: 10% discount
- 3-year commitment: 15% discount
- 4-year+ commitment: 20% discount (requires VP approval)
Reps can offer these discounts without approval as long as the contract includes the multi-year commitment. No games, no negotiation. The discount is automatic if they commit.
This changed our sales motion completely. Instead of reps getting beaten up on price every deal, they'd say: "Our standard price is $100K annually. If you commit to three years, I can offer 15% off, which brings it to $85K per year. But the discount only applies if you sign the multi-year contract."
Prospects understood the tradeoff: lower price in exchange for longer commitment. Many took it. Some didn't. But the discount was tied to a business value (reduced churn risk) instead of being arbitrary.
2. Volume discount (10-25%)
If a customer commits to usage or seat volume significantly above our average deal size, they get volume pricing.
The framework:
- 2-5x average deal size: 10% discount
- 5-10x average deal size: 15% discount
- 10x+ average deal size: 20-25% discount (requires VP approval for >20%)
Our average deal was $50K. If a customer wanted to buy $500K worth of seats, that's 10x our average deal and justified a 20% discount.
The key detail: volume discounts are tied to committed volume, not potential volume. If they commit to 500 seats, they get the discount. If they want to start with 100 seats and "maybe expand to 500," they pay full price until they actually expand.
3. Competitive displacement discount (15-25%)
If we're displacing an incumbent competitor and the customer has real switching costs, we'll discount to compensate for those costs.
The framework requires proof:
- Customer must be an active user of competitor (not just evaluating)
- Customer must provide termination timeline for competitor contract
- Discount is capped at estimated switching costs (data migration, training, integration work)
Rep discretion up to 15%, VP approval for 15-25%.
This prevented the abuse we'd seen before where reps claimed every deal was "competitive" to justify discounts. Now they had to prove the competitor relationship and quantify switching costs.
We lost some deals where we couldn't justify the discount, but we stopped hemorrhaging margin on deals where prospects were bluffing about competition.
4. End-of-quarter timing discount (10-15%)
If a customer is ready to buy but wants to close next quarter, and we need the revenue this quarter, we'll discount in exchange for accelerated timing.
The framework:
- Customer must have completed technical validation
- Customer must have internal budget approval
- Contract must close within 5 business days
- Discount: 10% for closing this quarter vs. next quarter
Rep discretion up to 10%, manager approval for 10-15%.
This eliminated the "end of quarter panic discount" where reps gave away 30%+ discounts to hit quota. The discount was tied to actual timing value, not desperation.
5. Strategic customer discount (15-30%)
For customers who provide strategic value beyond revenue (reference-able logo, case study, integration partner, access to new market segment), we'll discount in exchange for explicit strategic commitments.
The framework requires written commitment:
- Reference calls with prospects (minimum 3 per quarter)
- Case study and logo rights
- Speaking opportunities at our events
- Beta access for new products
- Integration partnership or go-to-market collaboration
This requires VP approval and documented strategic value beyond revenue.
We used this for a Fortune 100 customer who would only pay $200K but was worth $500K+ in strategic value. They agreed to be a reference customer, speak at our user conference, and give us access to their ecosystem of vendors. The discount was justified by strategic value, not just revenue.
The Approval Process That Doesn't Kill Velocity
Even with clear frameworks, some deals require approval. The key is making approval fast enough that it doesn't kill deal velocity.
Pre-approved discount bands
Instead of requiring approval for every discount, we pre-approved discount bands based on deal characteristics.
For example:
- Any deal >$100K with 3-year commitment: pre-approved for 15% discount
- Any competitive displacement deal with proof: pre-approved for 15% discount
- Any end-of-quarter acceleration: pre-approved for 10% discount
Reps could apply these discounts immediately without waiting for approval, as long as the deal met the criteria. This kept 80% of deals moving fast.
The 20% of deals that didn't fit pre-approved bands went through approval, but those were usually complex strategic deals where a few extra days didn't matter.
24-hour approval SLA
For deals requiring approval, we committed to 24-hour response time. If a rep submitted a discount request with proper justification, they'd get approval or denial within 24 hours.
We enforced this religiously. If leadership couldn't review a discount request within 24 hours, it was auto-approved. This forced VPs to actually review requests promptly instead of letting them sit in email for a week.
The 24-hour SLA meant reps could tell prospects: "I need to get approval for that discount, but I'll have an answer for you tomorrow." That's fast enough to keep deals moving.
Documented denial reasons
When we denied discount requests, we documented why and what would have made it approvable.
Example: "This 25% discount is denied because the customer hasn't committed to multi-year contract. If they'll commit to 3 years, we can approve 15%. If they'll commit + provide case study, we can approve 20%."
This taught reps how to structure deals to get approval instead of just submitting random discount requests and hoping.
Over six months, our discount approval rate went from 45% to 78% because reps learned the framework and only submitted justifiable requests.
What to Do When Sales Demands More Discount Authority
The inevitable pushback from implementing discount governance: sales will say they need more flexibility to close deals.
"Our competitors offer 30% discounts and we can't compete if we need approval."
"Enterprise customers expect to negotiate and we're losing deals because we can't move fast enough."
"The discount framework is too rigid and doesn't account for unique deal circumstances."
I've heard all of these objections. Sometimes they're valid. Often they're not.
The framework that helped us navigate this:
Discount variance analysis
We tracked discount performance by rep, by deal segment, and by justification type. This data answered the objections:
Claim: "We need deeper discounts to compete" Data: Customers who got >25% discounts churned at 2.8x the rate of customers who got <15% discounts. We were winning bad customers with deep discounts.
Claim: "Enterprise customers expect to negotiate" Data: Our win rate on enterprise deals with 10-15% discounts was 47%. Our win rate on enterprise deals with 25%+ discounts was 42%. Deeper discounts didn't improve win rates.
Claim: "I need more flexibility for unique circumstances" Data: Rep A gave an average 23% discount with 8% quota attainment. Rep B gave an average 12% discount with 142% quota attainment. More discount authority correlated with worse performance.
The data made it clear: sales reps thought they needed more discount authority, but the data showed that more discounting didn't improve outcomes.
Pilot programs for high performers
When top-performing reps asked for more discount flexibility, we ran pilots.
We gave our top 3 reps (all >120% quota attainment) authority to approve discounts up to 25% without manager review for one quarter. We tracked their discount usage, win rates, and revenue quality.
Result: they used the expanded authority on 4% of deals, all of which were legitimate strategic situations. Their discount behavior barely changed because they were already good at selling value instead of discounting.
This validated that high performers don't need more discount authority—they just want the flexibility to move fast on rare situations where it's justified. The framework with pre-approved bands solved this.
The Uncomfortable Truth About Discount Governance
Discount policies fail because they're designed to control bad sales behavior instead of enabling good sales behavior.
If your sales team is constantly asking for approval to give deeper discounts, you don't have a policy problem—you have a sales hiring, training, or compensation problem.
Good sales reps don't want to discount. They want to sell value and close deals at full price. If your reps are leading every negotiation with discounts, it's because they don't know how to sell value or they're compensated in ways that incentivize bad behavior.
I've learned that the companies with the best discount discipline don't have the strictest approval policies—they have the best sales training and the clearest value propositions.
When your sales team understands your differentiation, can articulate value, and knows how to handle price objections, they don't need to discount. When they don't understand these things, no discount policy will save you.
The framework I built around discount governance helped, but the bigger impact came from improving sales enablement, strengthening our value proposition, and changing compensation to reward revenue quality instead of just revenue volume.
If you're trying to solve discount abuse with approval workflows, you're treating the symptom instead of the disease. The disease is that your sales team doesn't believe in your value enough to defend your pricing.
Fix that, and discount governance becomes easy. Until then, you're just choosing between giving away too much margin (no controls) or killing too many deals (strict controls).
The real answer is building a sales culture where discounting is the exception, not the default. That's not a policy—it's a capability.