Introduction
In this post, we’ll explain the reasoning behind using discounts to boost renewals, detail the underlying model, and walk through a simple JavaScript solution that processes a CSV file to determine optimal discount levels.
The Renewal Challenge
Businesses often struggle with renewals. Even when customers are satisfied, friction in the renewal process or a perceived high price can lead to churn. A well-calibrated discount strategy can:
- Encourage Renewals: A small, strategically applied discount can push customers over the “renewal decision” threshold.
- Boost Volume: Even if each individual renewal comes at a slightly lower price, increasing the number of renewals can drive higher overall revenue
The Logic Behind Pricing Discounts
The idea is simple: for each user, determine the maximum discount you can offer without hurting your baseline revenue expectations. Consider these inputs:
- User ID: A unique identifier for the customer.
- Base Renewal Probability (%): The likelihood the user will renew at full price.
- Standard Price: The list price of the product.
The Pricing Model
Expected Revenue Without Discount
If a customer has a base renewal probability of p%, then the expected revenue from that customer will be:
Expected Revenue = (p/100) x Standard Price
Revenue With a Discount
Offering a discount d% reduces the price to:
New Price = Standard Price x (1−d/100)
We assume that if the discount is sufficient to convert a customer (i.e., the customer renews), you at least want the discounted price to be in line with or better than the expected revenue.
Maximum Allowable Discount
To ensure that offering a discount is beneficial, the discount should be capped by the gap between a perfect renewal probability (100%) and the current probability p. In other words:
d ≤ 100−p
If a user has a 90% chance to renew, you can offer at most a 10% discount. On the other hand, if a user has only a 40% chance, you can offer up to 60%, but in practice, you might choose a proposed discount (say, 30%) if that’s known to convert more renewals.
Applying the Model: A Practical Example
Standard pricing vs new discounted price
As shown above, a customer with an 80% renewal probability can only be discounted by 20%, while a customer with a 40% chance can receive the full 30% discount, lowering the price accordingly.
How It Works
- File Input and Button: You can select a CSV file (with columns
user_id,base_renewal_probability, andstandard_price) and click the "Process CSV" button - FileReader and Papaparse: The file is read as text, then parsed by Papaparse into a JavaScript array of objects.
- Discount Calculation: For each row, the script calculates the maximum discount, applies the proposed discount if possible, and computes the new price.
- Output CSV: The updated data is converted back into CSV format and a download link is created for you.
Benefits of Using Pricing Discounts for Renewals
Using targeted discounts based on a customer’s renewal probability offers several benefits:
- Optimized Revenue - Instead of offering a flat discount to all, you provide the right discount to each customer. This means high-probability renewers get a minimal discount, protecting your margins, while low-probability renewers get a more substantial discount to incentivize renewal.
- Data-Driven Decisions - base your pricing strategy on data rather than guesswork.
- Customer Segmentation - You can segment customers by price sensitivity.
Note: You will need to build a renewal probability model beforehand to score your users and then apply the appropriate discounts.
Final Thoughts
A strategic pricing discount model can be a powerful tool to increase renewal rates without sacrificing overall revenue. By using data and a simple model, you can tailor discounts to individual customer segments, encouraging renewals and boosting long-term growth.