The people, they love annual plans

Discussions
#1

Just thought I’d share…

We recently added an annual billing option. Yesterday, we sent out a short email encouraging people to switch. The response was surprisingly high. Especially since not many people had asked us for annual billing.

It’ll be nice to have a little more cash up front to help grow the business. The only wrinkle is reporting.

So far we’re keeping our reports based on “monthly revenue” by dividing the annual rate by 12. I guess that’s a decent way to understand growth. Though understanding cash flow seems like it’ll be more complex now.

1 Like
#2

Interesting. I’m very torn on this myself. I’m completely irrational on this as after 9 years of up and down revenues with HelpSpot the idea of extreme regularity with Snappy feels awfully comforting :slight_smile: Certainly from a business perspective money up front is always better than money later though.

#3

If you do offer annual plans, what happens if people want to cancel? Is non refundable generally acceptable, or do you have to divide up the annual amount by 12 and refund unused months?

#4

We used to offer monthly and annual plans, but after a few years noticed that we got a lot more support inquiries and complaints from the monthlies, providing more evidence that a lower price point generally attracts the kind of customer base that will result in higher support costs.

We eventually got rid of the monthlies and kept only the annual subscription.

Occasionally, we get a request for a partial refund, which we honor, but most people who want to cancel seem to just turn off the auto-renewal and allow the subscription to expire.

#5

Yeah, the monthly revenue model is cozy and predictable. You definitely do introduce some chaos when people switch to annual. I’m probably going to have to write a script to calculate our real monthly cashflow.

If people cancel and want their money back, we’ll give it to them. But so far 99% of people who switched to annual are existing customers. They know what they’re getting into. :slight_smile:

#6

We also offered yearly subscription, after about one year we dedided to drop them. We had way too many issues with them:

  1. refunds/partial refunds and all the headaches that goes with this
  2. due to certain limitations upgrades/downgrades were a huge pain and always involved partial refunds
  3. the financial impact was not that significant and in the end we made less money (yearly subscriptions came with 2 months free)
#7

Yes this last point is a main concern of mine. If you don’t actually need the cash flow up front there’s little reason to give away 20% of your revenue as the TVM won’t cover that difference.

#8

You don’t necessarily have to give a huge discount. Some people prefer it to simplify bookkeeping, or for a tax write-off.

#9

One of my first 3 customers actually purchased a full year for a few users. But it’s been 6 months and they still haven’t even used the system. I email and call them each month and they keep saying “not yet”.

Don’t quite know what to make of that, but when it comes to businesses, you never know what they’re willing to pay until you offer it.

#10

I’m thinking about restructuring our pricing, and advertising the per-month amount for the annual plan instead of the per-month amount for the monthly plan to try to get customers to opt for the annual plans more than they currently are. In my opinion, cash up-front for a year with a 10-20% discount is much better than ongoing cashflow because it costs so much to acquire customers.

For example, showing a plan at $39/mo on our pricing page with annual subscription but if they end up choosing monthly at the time of subscribing then it is $49/mo. It is a significant difference that will hopefully achieve more annual plan signups.

I’m also considering adding 2-year and 3-year plans so we can show the plans showing at even lower monthly amounts. In the above example, we can advertise a $29/mo plan based on a 3-year pre-paid plan, which is a 40% discount. That would give us $1,044 up front instead of $1,764 over 3 years. Not bad if our acquisition costs are significantly less than $1,044.

However I am a little reluctant to offer plans longer than a year because I’m not sure if anyone will sign up for them, and Stripe doesn’t currently support subscriptions longer than a year so it would require manual intervention.

#11

I always for for annual subscriptions if they’re available. I don’t want to go hunting for a bunch of invoices later.

#12

I believe it should be “not bad if our acquisition and support costs…”. A user is bound to require some attention over a 3 years span.

#13

It makes me think it is possible for some markets to set the annual price higher than the sum of monthly ones. I.e. the simplicity of the payment could be a benefit in itself; not necessary to add a discount to it.