Should you offer annual or monthly subscriptions to your SaaS customers?
We all know that the right pricing can make all the difference when it comes to SaaS. “How often should I bill my customers?” is a crucial question for any SaaS entrepreneur.
In the SaaS business, annual and monthly plans are the most common billing intervals. However, each revenue model has its pros and cons.
A tricky decision
Both monthly and annual subscriptions can be tricky, so make sure you know your strengths and weaknesses before you decide.
A recent survey highlighted that only 1 in 5 SaaS companies offer both and annual pricing. Before leaving the choice to your customers, make sure you know which revenue model better fits your service.
Monthly subscription: pros and cons
Monthly subscription means that you charge your users every month to use your service.
Monthly billing has become the standard billing period for many SaaS businesses because it is clear, flexible and plain. As a matter of fact, it reduces adoption barriers: users do not have to pay a big, one shot fee and they feel free to cancel the service at any moment. Also, monthly subscriptions in the end tend to be more expensive for customers than annual subscriptions.
However, flexibility also means that your revenues are less predictable and stable because customer churn more frequently. You need to constantly nurture your customers so that they do not leave you. Can you afford that? Moreover, rejected payments are more frequent, so you need a structured plan for those situations.
Annual subscription: pros and cons
Generally speaking, annual subscription means that your customers make only one payment for the whole year upfront. However, annual subscription could also mean that your customer commits to an annual contract, but pays monthly.
Annual billing provides all revenues at once. This will help you to increase your cash flow, therefore you will be able to invest on your product and grow. This is relevant especially for new SaaS businesses, which need money to reinvest for their activities. Your revenues will be predictable and stable, at least for the year. Also, when customers commit for an annual contract, they have time to see the value in your product and appreciate its benefits. In this way, you will experience less churn.
On the other hand, the higher price of annual billing can be an adoption barrier. In some cases, companies do not know whether they are really going to use the product or not, so they are not willing to commit for an entire year. Also, usually tend to expect you to have sales and support teams. Do not forget that you want your customers to renew their contracts after the first year: churn may not be a problem in the short run, but you still need to engage your users!
Billing Intervals in the Cloudesire marketplace
In the Cloudesire marketplace, software vendors are free to set up their billing interval without boundaries. Take a look at this video and see how easy it is.