It’s commonplace for SaaS companies to offer incentive discounts to customers willing to pre-pay for services one year in advance. Of the 200+ SaaS companies who responded to our 2014 survey, 52% percent offered discounts to encourage up-front payments. The average discount they reported offering to their customers was 11.5%.
Sounds pretty reasonable. Get all your cash up front and only pay 11.5%. It’s cheaper than VC money for sure. In practice, however, the cost of that capital is much more expensive than 11.5% in two critical ways.