Your pricing strategy is solid. List prices are competitive. Packaging creates clear value at each tier.
Then your sales team discounts 40% to close deals.
All the strategic work means nothing if every deal gets negotiated down to whatever price the rep thinks will close today. Your pricing becomes a starting point for negotiation, not a reflection of value.
But locking down pricing too tightly creates a different problem: deals stall waiting for approval, competitive situations get lost, and sales blames pricing for every lost deal.
The answer isn't no discounting. It's governed discounting—clear rules about when, how much, and who can approve pricing flexibility.
Here's how to build pricing governance that protects strategy without killing deals.
The Three-Tier Approval Framework
Not every discount needs the same scrutiny. Small, strategic discounts should be fast. Large, margin-eroding discounts should face real oversight.
Tier 1: Pre-approved discounting (no approval needed)
Sales reps can offer these discounts without asking:
- Up to 10% off list price for annual commitment
- Up to 5% off for multi-year deals
- Standard volume discounts per published tiers
- Promotional discounts during approved campaigns
These discounts are baked into your pricing strategy. They're not exceptions; they're intended buying incentives.
Implementation:
- Document pre-approved discounts in sales playbook
- Configure CRM to allow these discounts without approval workflow
- Train sales on exactly when these apply
Tier 2: Manager approval required (quick turnaround)
Sales manager must approve, but expectation is same-day decision:
- 10-20% discount for competitive situations
- 20%+ discount for strategic accounts (Fortune 500, reference value)
- Non-standard payment terms (net 60 instead of net 30)
- Discounts in exchange for case study/reference commitment
These are judgment calls that need oversight but shouldn't slow deals significantly.
Implementation:
- CRM approval workflow routes to sales manager
- SLA: Manager approves/denies within 4 business hours
- Manager reviews deal context, competitive situation, customer value
- Approval includes documentation of why (gets tracked for pattern analysis)
Tier 3: Pricing committee approval (detailed review)
Requires review from pricing owner (product marketing, finance, or revenue ops):
- 25%+ discount off list price
- Custom pricing not in standard model
- Deals that set pricing precedents for new segments/verticals
- Multi-product bundles at non-standard rates
- Price commitments longer than standard contract term
These deals have strategic implications beyond the immediate revenue.
Implementation:
- Weekly pricing committee meeting (or ad-hoc for urgent deals)
- Submit deal memo with: customer profile, competitive situation, strategic value, discount requested, deal size, contract term
- Committee reviews whether this sets acceptable precedent
- Approval or counter-proposal within 48 hours
Discount Justification Categories: What Warrants Flexibility
Sales teams will ask for discounts on every deal if you let them. Governance means defining what actually justifies pricing flexibility.
Acceptable discount justifications:
1. Competitive displacement Customer is currently using competitor. Switching has friction costs (migration, retraining). Discount helps offset switching costs.
Limit: Discount should be roughly equivalent to estimated switching cost, not unlimited.
2. Strategic account value Customer has significant reference value (Fortune 500 logo, innovative use case, industry influence). Discount buys market validation.
Limit: Require concrete commitment (case study, reference calls, conference speaking) in contract. Discount isn't free; it's purchased marketing.
3. Multi-year commitment Customer commits to 2-3 year contract. Discount reflects lower customer acquisition cost amortized over longer relationship.
Limit: Discount percentage should correspond to contract length. 3-year deal might warrant 15-20% discount; 2-year deal maybe 10-15%.
4. Significant expansion potential Customer starts small but has documented expansion path (rolling out to multiple divisions, expanding to parent company, international expansion).
Limit: Structure deal as ramp agreement with committed expansion milestones. Initial discount contingent on hitting growth targets.
5. Annual vs. monthly payment Customer pays full year upfront instead of monthly. Discount reflects improved cash flow and reduced churn risk.
Limit: 10-15% discount is standard for annual vs. monthly. Don't go deeper.
Unacceptable discount justifications:
- "End of quarter, need to hit target" = No. Your quota isn't customer's problem.
- "They said competitors are cheaper" without proof = No. Call their bluff or validate claims.
- "Customer doesn't have budget" = No. If they don't have budget for list price, they don't have budget for discounted price either.
- "They're a nice company and I want to help them" = No. Pricing is business strategy, not charity.
Competitor-Based Discounting: When Price Matching Makes Sense
"Competitor X is 30% cheaper" is the most common discount justification. Sometimes it's real, often it's negotiation tactics.
Verify before discounting:
Don't take customer's word that competitors are cheaper. Confirm:
- Ask for competitor quote in writing: Real competing quotes will be provided. Bluffs won't be.
- Compare apples-to-apples: Competitors often quote entry tier vs. your growth tier. Normalize the comparison.
- Account for total cost: Include implementation, training, add-ons. Headline price isn't total cost.
When competitor pricing justifies discounting:
- Competitor has genuinely better price for comparable capability
- You've validated they're a real alternative (not just customer negotiation tactic)
- Customer is qualified and would be good fit if pricing aligned
How much to discount:
Don't match competitor exactly. Discount enough to stay in consideration, not enough to eliminate differentiation:
- If you're 30% more expensive, discount 15-20% to close the gap but maintain premium positioning
- If you're 10% more expensive, hold firm or offer 5% discount for annual commitment
You're not the cheapest option. Discounting to match the cheapest option abandons your value proposition.
Volume Discounting: Predictable Tiers vs. Ad-Hoc Negotiation
Volume discounting can be governed or chaos. Don't let every large deal become custom pricing.
Publish standard volume tiers:
Create published volume discounts that sales can reference:
- 1-10 users: List price
- 11-50 users: 10% discount
- 51-200 users: 20% discount
- 201+ users: 25% discount, custom pricing available
Benefits:
- Sales knows exactly what to quote for any deal size
- No approval needed if within tiers
- Customers perceive fairness (volume discounts are expected)
- Prevents "largest customer gets biggest discount regardless of value"
When to customize beyond tiers:
- Deal size 10x your largest published tier
- Multi-year commitment with volume growth path
- Strategic account with significant expansion potential
Even then, keep customization within reasonable bounds. Don't give 50% off just because it's a big deal.
Payment Terms as Negotiation Currency
Price isn't the only variable customers negotiate. Payment terms often matter more, especially to cash-constrained buyers.
Standard payment terms:
Define your defaults:
- Monthly plans: Pay monthly via credit card
- Annual plans: Pay full year upfront (or quarterly installments)
- Multi-year: Pay annually on anniversary
Payment term flexibility as alternative to discounting:
Instead of discounting price, offer payment flexibility:
Customer: "We need 20% off."
You: "I can't discount 20%, but I can offer quarterly payments instead of annual upfront. Would that help with budget approval?"
This preserves list price while addressing customer's real concern (cash flow, budget approval process).
When to avoid payment term flexibility:
- Early-stage companies where cash flow is critical (you need the cash)
- Customers with credit risk (require upfront payment regardless)
- Low ACV deals where administration cost outweighs benefit
Tracking Discount Patterns: The Data That Improves Governance
Pricing governance isn't static. You should evolve rules based on what's actually happening in deals.
Track these metrics quarterly:
Average discount by rep
- Which reps discount heavily vs. hold pricing?
- Are top performers discounting less (suggesting discounting doesn't correlate with closing)?
Average discount by deal size
- Are small deals getting disproportionate discounts? (Bad—should be easiest to close at list price)
- Are largest deals getting biggest discounts? (Acceptable if justified by volume)
Discount justification categories
- What % of discounts are competitive vs. strategic vs. volume-based?
- Are justifications legitimate or just sales excuses?
Deals lost to pricing
- What % of pipeline is lost specifically due to price?
- Is it truly price or other factors disguised as price objections?
Time-to-close for discounted vs. non-discounted deals
- Do discounts accelerate deals or do they encourage more negotiation?
- Sometimes giving quick discount creates expectation of more concessions
This data tells you whether your governance is too tight, too loose, or targeting the wrong things.
The Discount Approval Process: Speed Matters
Nothing kills deals like slow approval processes.
Set and enforce SLAs:
- Tier 1 (pre-approved): Instant
- Tier 2 (manager approval): 4 business hours max
- Tier 3 (pricing committee): 48 hours max
If you can't meet SLAs, your approval tiers are wrong. Either pre-approve more or streamline committee process.
Emergency escalation path:
Sometimes deals need faster decisions. Create escalation path:
- Rep can escalate to VP of Sales for urgent decisions
- VP can approve up to [X%] discount for deal closing same week
- Escalation requires documented justification
- Track escalations to prevent abuse
Use escalation sparingly. If it happens weekly, your standard process is too slow.
Sales Training: Governance Only Works If Sales Understands It
Governance fails when sales sees it as obstacle rather than tool.
Train sales on:
Why pricing governance exists Not to prevent sales from closing deals. To protect long-term pricing strategy that keeps company profitable and able to invest in product.
What discounts are pre-approved and why If sales knows 10% discount for annual commitment is always available, they'll lead with it confidently instead of asking permission.
How to justify discounts that need approval Teach reps what strong justifications look like. "Competitive situation" needs specifics (which competitor, what price, why we're at risk).
When to hold firm on pricing Not every deal deserves a discount. Teach reps to recognize when customers are negotiating habitually vs. having real budget constraints.
The Real Goal
Pricing governance protects your pricing strategy while allowing necessary flexibility.
Good governance feels invisible. Sales gets approvals when needed, deals don't slow down, and pricing integrity is maintained.
Bad governance creates bottlenecks, frustration, and reps who work around the system.
Build governance that supports sales, not restricts them.