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Ask HN: My startup has more annual subscribers than monthly. What to make of it?

I very recently realized that my product has more annual subscriptions than monthly ones. This was very surprising because it goes against everything I've read online. I offer only one tier that gives you access to all features; it costs $X/month or $10*X/year (the typical two-months-free-if-you-pay-annual thing you see everywhere). The split in subscribers between the monthly and annual plans is 44% and 56% respectively and I don't know how to interpret this information. Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? I'm know that HN always suggests increasing prices all the time, but I'm wondering if my situation is an even stronger signal to increase prices. Does this mean I should offer more than one tier and segment the market with different features for different prices? My product isn't very niche or anything like that. It's a typical internet/web SaaS, so I believe most advice should be generally applicable.

takinola 5y ago
I would recommend a couple things 1) Ask some of your subscribers why they chose one plan over another 2) Increase prices. It never hurts to find out where the balance of pricing vs conversion lies 3) Create additional tiers. It is hard to imagine any product where all users prioritize the same features the same way. 4) Celebrate. You are achieving something effortlessly that lots of other businesses try very hard to get.
znpy 5y ago
Two things: 1. you could keep you customers happy by changing nothing. 2. if you have a money-back policy on your annual plan (eg: pay in january, cancel in june, get ~50% back on what you paid) that effectively means that you're giving a discount for an only apparently sure earning. I'd give a look into that.
- graeme 5y ago
  Number 2 is actually pretty common. Maybe not as an advertised policy but if you write to cancel reps will often give a pro rates refund. This may happen more in businesses which figure you may be back someday.
  - xemdetia 5y ago
    I would go further and expect number 2 to be the norm. If I pay for a service and I'm allocated and the service is up and available for 6 months and I have 6 months left I would expect the refund to be 6 months and not from the beginning of the contract. They've already spent the money and you've already earned the money at that point.
    - carstenhag 5y ago
      But then it doesn't make sense to have the yearly subscription (and 12 months of contract duration at a time). Then you can just have the monthly subscription.
      - krallja 5y ago
        Charging someone’s credit card 12 times a year has a definite cost. Having the funds ahead of time is also worth more than earning the funds one month at a time.
      - xemdetia 5y ago
        I think you are approaching it from a different place than I am. If I get into an annual contract I have the expectation that I would be paying the full amount up front to secure the discount and that I would be utilizing the full amount of the term. If after six months I stop then that's for some new reason that was not there in the start. At that time I would expect a rebate for the services that would not be rendered. I could be a six month customer or a ten year and six month customer and have the same expectation. Things change.
        barry27 5y ago
        So use the monthly subscription then. It's preposterous to expect someone to refund you simply because you changed your mind. If you bought a microwave, for example, and then subsequently decided you preferred to use your stove, you wouldnt take it back, would you. You bought access for a year. That is the indivisible product you now own.
glacials 5y ago
Where are your customers in the world? Many non-US countries have little/no credit card presence, so if you don't have an international-friendly payment option like PayPal your customers may be using "gift card credit cards" purchased from a store. It's easier to do this once a year than once a month. Ultimately though, talk to your users! That's how you'll find out.
- skinnymuch 5y ago
  Those gift card credit cards don’t have the first year free of service fees? I think In the US they do, but no idea how the market is world wide.
- traceroute66 5y ago
  > Many non-US countries have little/no credit card presence Was that statement accidental horrible wording or did you actually mean it ? If the latter, then you must be one of those many Americans that needs to travel more. The rest of the world are not neanderthals who've never heard of credit cards. Go to Kenya (Africa) and the only reason you might struggle to pay by credit card is if the merchant has decided to prefer payments via the M-PESA money transfer phone app instead which is what most of the locals use. So you could say a number of non-US countries are even ahead of the US ! But of course I hope your wording was accidental, in which case I apologise for the three paragraphs above. ;-)
  - r3drock 5y ago
    In Germany for example, a lot of people have no credit card.
  - JohnBooty 5y ago
    We should always be on guard against such things, but is parent's statement really bad? It didn't imply that other countries are backwards, or that their people are "neanderthals who've never heard of credit cards." It's a fact that credit cards simply aren't equally popular in all parts of the world and naturally this is something that must be taken into account. This includes places that are arguably more advanced than the US. Of which there are many many many many.
brundolf 5y ago
Not sure from a business perspective, but from a user perspective, I sign up for the annual plan when I feel confident I'm not going to stop using the service any time in the foreseeable future. So I'd take that as a good thing!
tylermenezes 5y ago
If it's b2b and low pricing, could be that it's not worth the effort to deal with monthly payments.
tln 5y ago
Are your customers individuals, small businesses, large businesses? Is there a usage component you might add? Gb stored, social posts per month, etc Have you reduced the risk for your users to choose annual, eg by emphasizing "cancel anytime"? Seems like your users expect to use your product for a long time, that's great.
alphabettsy 5y ago
I generally purchase annual for thing where I feel like the product is going to have the same utility for me the entire subscription period. Fastmail, which I’ve used for years, I’m willing to pay two or three years up front. The new thing I found last week I pay monthly was a disposable card. Maybe your customers believe your product is useful and they’re not concerned about it failing to work in 6 months and maybe it’s mostly used by businesses which typically think in terms of yearly rather than monthly when it comes to ongoing expenses.
ajaimk 5y ago
2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I personally have a few items I pay for annually because I don't see myself stopping from using it AND there is no obvious replacement. I would NOT recommend changing the 2 months off; you'll annoy your most loyal customers.
- DamnYuppie 5y ago
  He can keep that pricing tier/billing plan for existing customers and create a less generous one for new customers. I would keep reducing the discount until sales fall way off.
  - atat7024 5y ago
    What metric confirms that correlation?
    - radley 5y ago
      It's basic pricing strategy: Kevin Hale - Startup Pricing 101 https://youtu.be/jwXlo9gy_k4?t=578 https://youtu.be/jwXlo9gy_k4?t=578
      - atat7024 5y ago
        So if you drop the price a dollar the day before Christmas Eve, sales drop, you can't drop the price any lower?
- skrebbel 5y ago
  you can grandfather existing customers into old plans and still experiment with pricing.
- throwaway_23124 5y ago
  I absolutely don't plan to change any existing subscription; everybody always gets grandfathered in forever. The early adopters' invaluable feedback + potential bad rep from raising prices is reason enough. I'm mostly looking for advice on how to price things for my future customers :) >2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I too pay for some things on an annual basis (e.g. email). I guess never expected my product to be sticky enough for people to want to go annual straightaway. To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?
dumbfoundded 5y ago
If it's not broken don't fix it. I would focus on the top of your funnel to increase sales. Also, you want to have more annual subscribers than monthly. It's almost certainly more profitable. You're essentially giving up 1/6 of revenue in exchange for guaranteed 0% monthly churn. A simple estimate of what your breakeven monthly retention is: 98.5% = (5/6)^(1/12). So if you're losing less than 1.5% of your customers monthly then this would be unprofitable.
- orasis 5y ago
  I sooo disagree. Mispricing could be leaving massive value on the table plus increased margin can allow you to pay more for user acquisition.
  - astrocat 5y ago
    Your approach sounds like the mindset of chasing growth instead of sustainability. Short term gains over long term value.
    - orasis 5y ago
      Quite the opposite. As a niche becomes saturated with competition, user acquisition costs rise to approach the level of the highest margin player. If you want to have a sustainable business it behooves you to have better optimized margins than the competition.
  - dumbfoundded 5y ago
    I don't really see any evidence that there is mispricing. Pricing is complicated and sure if you raise prices, maybe you make more money or maybe you kill your LTV while exposing yourself to potential undercutting from competitors. In a growth business, raising prices is usually the last thing you want to do to make more money. If pricing is broken, the costs only accumulate until you fix it while if you build value for users (and increase retention), you get returns on that in perpetuity. Obviously any advice is meaningless without full context but focusing on pricing is usually a sign of a business that can't find any other way to grow. Or that the unit economics were wrong. Unit economics are usually not a problem with SAAS businesses with a $0 marginal cost.
weaksauce 5y ago
personally I think it causes the least amount of bad will if you leave the existing plans at $10*X/year for the people that are grandfathered into those contracts. If you increase the price only on new signups you will keep your happy customers... this goes well with an email that says something like "we are raising the yearly fee on the SAAS however the good news is that you're grandfathered into your current pricing for as long as you maintain your subscription"
digi59404 5y ago
Here's my two cents.. I would first off send your customers a survey about where they find value and why they picked yearly over monthly. Next - I would not increase prices. I would add value, and increase pricing on that. Add more features, and add another pricing tier that people can find valuable with these new features. Continue to do that until you have multiple pricing tiers; (if you don't already). Then add value into those tiers and increase cost to reflect that extra value add as needed.
JohnBooty 5y ago
Is there a community aspect to your site? the typical two-months-free-if-you-pay-annual thing you see everywhere Anecdotal, but -- When I ran a dating/social site back in the ancient mists of time, it was $4/month or $20/year. So, more like seven-months-free-if-you-pay-annual. I felt it was successful at driving people towards the annual subscription. Since the annual subscription was such an obviously "better" deal. In my case I was actively trying to encourage the network effect. I wanted long term community members, not monthly ones. After all, when paying for a site like that, you're really paying for access to the community. Is there a value to having your customers around longer-term? Community aspects? Promotional aspects? ("40,000 active subscribers for $PRODUCT_NAME!") For many businesses perhaps the answer is "no" but it's worth considering perhaps.
c1c2c3 5y ago
Personally I hate monthly payments for things. If it is something I'm going to use I may as well get a bit of a discount and not have yet another payment coming out of my account each month. Additionally I'm in the UK, so this won't apply everywhere. Some (Many?) bank accounts charge a flat fee on top of the currency conversion rate - again a reason to make just one payment a year.
- frombody 5y ago
  I am another person that also avoids all monthly payments. Even yearly payments I always disable any recurring fees immediately after sign-up. I will decide when money comes out of my bank account, how much I am willing to pay, and whether your product is worth the money.. not you. And I'd rather not spend time and energy doing this monthly.
908B64B197 5y ago
Sounds like you are creating value, and customers are confident in doing business with you for a longer period of time. So good job!
bthomas 5y ago
Are the numbers current subscribers or new subscriptions? Hard to speculate without comparing churn.
IncRnd 5y ago
17% off is a very good deal for the consumer when prepaying a year. Always remember the axiom that a sale happens when you sell something the other party wants at a price you both believe is fair. Whatever you do, be careful not to add or modify plans in a way that would lose existing paying customers. As the other saying goes, a bird in the hand is worth two in the bush. An existing customer is worth a lot more than a prospective customer. There are lots of changes you could make, but you may want to ask your existing customers first as to why they made the choice they made. Ask them how you can improve their existing service. That will go a long way to inform your future decisions.
littlevache 5y ago
My 2 cents: I was once in your customer shoes, and I choose the annual plan because it meant encouraging the product, helping it not to go bankrupt. If your product/company is quite new, and provide something that people love and want to make sure stays available, they will help making sure it does. In your case, pay for the annual plan means pay more money to you in the short term, helping your balance sheet
NikolaNovak 5y ago
Depends on your product. If service is something that seems superfluous, temporary, a lark - such as Reface or the myriad AI-repainters etc - most people will do the shortest period of time. If it's a business / utility tool that people find reliable/useful, most don't want the hassle of constant billing. Two months off is a great incentive for something you KNOW you'll use. And believe it or not, some people want to support scrappy startups with useful tools - I've personally gone through so many useful things that have disappeared, that I'll actively support new ones so I can use them for a long time :) As to what you should do, again, depends. Are you happy with your income, are your customers satisfied, is your growth what you expect? Don't feel like you have to change anything :). Also, asking your customers may be a useful way to proceed to0 ;-)
bombcar 5y ago
Do you offer annual billed monthly? Some business prefer that - offer annual billed monthly at a $11*X/year, see what happens.
throw14082020 5y ago
Maybe you're defaulting to the annual billing on your website, like most companies do
marto1 5y ago
1. This is really good. Your niche/customers/market is oriented towards the long-term. Might be time to go to some of these customers and try to find out if they are. Long-termness indicates more enterprise clients which means it's time to offer some sort of a "Business plan". These tend to sell for much much more at the price of some special support, exclusive access, etc. 2. You're too cheap and people don't want to do monthly penny pinching. You can do some A/B and experiment with rising prices. Depending on how you execute on this you might end up in a situation where you raise 2-3x for the exact same product without losing customers. Both can be true at the same time...or none. Knowing your customers is half the battle.
jimnotgym 5y ago
> Does this mean I should simply increase prices? Does anyone else hear patio11's voice in their head shouting "YES"
devops000 5y ago
It might be your pricing is too low. Try to better evaluate how much value / saving they have using your product.
polote 5y ago
Nothing. Your price has probably nothing to do with the split. It just means people are with you for the long term and they like your product. Your price should be linked to the value you are offering. If you think your value is more than the price people pay today, then increase your price to a value you are comfortable with. What is your objective ? is it growth ? is it profitability ? is i number of customers ? do you have competitors ? are you selling to b2c or b2b ? I'm not sure we can give you any relevant advice without a lot more information
dheera 5y ago
I think your discount is pretty fair for a 1 year commitment. Wouldn't change anything. If you do decide to increase prices at any point, consider grandfathering your current customers into the old pricing to not piss them off, as long as they are still netting profit for you. They're probably your best customers for adopting and committing so early and will probably be some of the best word-of-mouth spreaders and sources of free advertising for you.
criddell 5y ago
Maybe change your pricing plans for new customers but tell existing annual customers that they can keep the current deal as long as they stay subscribed. Then you can compare the split for new customers and old customers and see how your price change affects it.
- carlhjerpe 5y ago
  Didn't netflix pull that one once?
paxys 5y ago
You need to look at a lot more data before drawing any conclusions. Are you selling to consumers or businesses? What's the split in monthly vs annual subscription for brand new users (vs those that changed plans on renewal)? IMO users switching to annual plans after using your product for a couple of months is amazing. It means that they see value in the product and decided to commit to it. Users opting for an annual subscription off the bat is still amazing - but also a tad suspicious. Maybe a combination of low cost and good marketing?
guillegette 5y ago
My opinion as someone who is running a SaaS business: - Annual contracts are better than month-to-month, because you will get a customer for a year in most cases, extending your LTV - Customer choose annual not only for the pricing discount but speaks to their commitment with your solution. I take it as a great product market fit indicator. - Your price should be aligned with your competition. You can increase prices for new users but don't increase the price for your existing pay customers. - Offer your monthly customers the option to upgrade to annual as well
jnwatson 5y ago
Yeah we have month-to-month and 0% of our customers use it. Most organizations (and personally I'm the same way) prefer to make as few payments as possible.
Spooky23 5y ago
I know at work I would never do a monthly bill. Too much reconciliation to do.
vannevar 5y ago
If it truly represents the people trying to buy your service, it sounds like a great sign. But you should check that there isn't some UX issue causing you to lose customers trying to sign up for the monthly option. It might also reflect some order flow impediment that affects both paths, but since the annual subscribers are more determined, more of them overcome it.
jsty 5y ago
If your product has a lot of corporate customers, and paying yearly doesn't put them above their personal expense authorisation threshold, I wouldn't be so surprised - filling out 12 expense reports is a lot more irritating than 1.
fossuser 5y ago
I'm happy to pay annually if the product is good and the 2 months off makes it worth it. Without 2 months off I'd pay monthly because canceling is easier. With 2 months off the reasoning is I like the product and can save some and don't have to think about the monthly cost. If in a year I don't find myself using it I can then decide on renewal. Usually it's like $5/month or $50/year or something - I generally dislike tiny monthly subscriptions, it obscures costs and feels like death by a thousand cuts. With annual I can think about the value and decide and the 2 months savings makes it worth it.
147 5y ago
Please watch this video at this time stamp: https://youtu.be/otbnC2zE2rw?t=815 https://youtu.be/otbnC2zE2rw?t=815 Jason Cohen goes into why annual prepays are great for bootstrapped SaaS.
matco11 5y ago
Because the discount rate of the yearly plan is financially very attractive (17% off), there are really two main reasons people go for the monthly option: 1) they are unsure if they are going to like your product enough to be willing to go for the bigger commitment of the yearly subscription 2) they can’t afford the yearly payment upfront (this is especially valid for very expensive subscriptions) On the yearly subscription, do you charge for the entire year upfront? If not, you are eliminating reason 2) above to go for monthly How is the distribution of vintages of your user base? Depending on your growth (and churn) rate, the distribution of old (>1 year old) vs. new (<1 year) users might drive more yearly subscriptions: the slower you grow, the more old users you will have in your mix of paying users. Old users already know they like your product and are much more willing to take the commitment of the yearly subscription to get the financial savings. ...so that might explain why you have a majority of annual plans. It’s always a good idea to experiment with your prices and segment the market, it’s almost always a good idea to do it without disrupting (too much) your existing user base.
- aasasd 5y ago
  > On the yearly subscription, do you charge for the entire year upfront? I mean, to my knowledge, that's the whole reason to give a discount for the yearly payment. Isn't it?
  - carstenhag 5y ago
    Also, but not only. Yearly subscriptions in itself guarantee that the user commits to 12 months and can't cancel during those 12 months
    - leetcrew 5y ago
      if it's not upfront, they can always stop paying. you don't want to sue your users for breach of contract over a $5/month subscription.
    - aasasd 5y ago
      > can't cancel That's how you get angry posts on social media. See: Adobe.
PicassoCTs 5y ago
Reward early adopters by keeping there prices the same, up the prices for all who come afterwards, generate fear of missing out when it comes to word of mouth. After all, the early adopters got it for "practically nothing". Allow early adopters to bring in one friend a year at their price..
throwawayboise 5y ago
If it's B2B, it's easier for business customers to get a once-a-year expense paid than to get authorization for a monthly charge to a corporate card. Many organizations don't like having their corporate card numbers enrolled in open-ended recurring charge plans.
- bjornsing 5y ago
  Yup. Also if you’re in a more bureaucratic jurisdiction (like Sweden, where I am) then the bookkeeping of monthly charges can be more expensive than the SaaS.
- throwaway_23124 5y ago
  I see. My product is somewhat in between B2B and B2C (i.e. plenty of regular folks subscribing for their personal use, but also plenty of companies using it). Perhaps this is a strong signal in favor of price segmentation to make future B2B customers more than personal users?
  - stonesweep 5y ago
    B2C random internet user here, it's more complex than that for me and not always about price. I'd say the thoughts go something like this: - is this a product that involves a lot of personal time to get started with and migrate away from? (example: cloud hosting for files and photos)? With this type of product, I'm going to spend more time on the initial 30 day evaluation, and if it suits my needs then I go right for the (multi)year contract. The personal investment is large (get all those photos uploaded, e.g.) so my chances of leaving after a few months are statistically unlikely. - is this a product that I can walk away from with no real loss? (music streaming service) well this a service which quality can vary month over month, I'm more likely to use monthly pricing just so I can cancel at any time if I don't like it. I have no real investment to your brand, yeah it's nice but there's 100 others out there I can move too easily. Usually with a multi-year discount, I'll buy the first year just to be sure and if I still like it after the first year, I'll buy multiple years. Just so I never have to worry about randomly missing a payment or somehow "losing" it (my login, my access, my files, etc.) but balance that against "how long will this company be around, really?" - it's a sense of security over time because I've invested a lot of personal time into the product. Walking away is not in my plans at the time. Third reason that doesn't fit for you but is also a thought: is this a donation to (open source project)? Will I give them more money - less recurring middle-man processing fees - by paying one lump yearly sum instead of donating monthly? I use Liberapay for some FOSS donations and they tell you to do this straightaway, one lump sum is better for the receiver than monthlies.
shoto_io 5y ago
There are so many things one could say about this. But, from my own experience I have to tell you to do this: Talk to your customers. But not randomly. Talk to them immediately after they have bought their product. Then go and "interrogate" them. Don't ask directly, but indirectly why they chose this or the other plan. The key is to really understand what the circumstances were when they decided. What made them flip into one or the other direction. You won't find that knowledge "online". If you want to know more about the interview style, watch this video: https://www.youtube.com/watch?v=blTNLVuRU6k https://www.youtube.com/watch?v=blTNLVuRU6k - starts at around 14:30. I would watch the whole thing though.
AdrianB1 5y ago
Don't take the idea to increase prices seriously, it is sometimes illogical: people talk about increasing prices and helping people to afford services in the same sentence. Keeping the prices constant and increasing the userbase may be a good way to increase your startup value, but extracting more money from the current users is not right. Anecdotal evidence: if I perceive something as good value long term I am paying yearly for 2 reasons, one is the discount for doing it and second for the convenience of not having to care about monthly payment. I had Netflix suspended because they messed up the payment (they took the money, 3 times) and I had no solution at 1AM when I had the time to watch a movie, a yearly payment is a lot safer for such cases. Maybe some of your clients are like me.
spamizbad 5y ago
This is probably a signal you should raise your prices.
irscott 5y ago
I think it means you're dialed in just right.
pbreit 5y ago
I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices. But, yes, in general a lot of SaaS service could probably raise prices. And also in general, annual billing is appealing.
- throwaway_23124 5y ago
  > I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices. The way I see it, most customers are happy enough after a 30-day trial to commit to my product for at least a full year. That's a good signal for loyalty and the product being worth it for the price. While I agree that the discount aspect is a signal in the other direction, I think overall it looks like people will continue to subscribe even if it's pricier. That's why I'm leaning towards increasing prices. I don't know much about businessy things and I'm learning as I go, so take my opinions with a grain of salt. I've had some really good suggestions in this thread to talk to my most recent subscribers to really understand why they paid annually straight off the bat, so I'm going to do that first before taking any action.
  - frombody 5y ago
    The consumer's choice isn't always buying the monthly plan vs. yearly. It can also be yearly plan vs. nothing. You're trying too hard to extrapolate information from a single data point. You seem to be focusing on the yearly customers because you don't have the same mindset or budgeting habits. If it were me, I would be looking at the monthly subscribers. How long they sign up for, what the retention rates are like, how many switch to yearly, reasons people give for canceling, etc. I would be trying to find out why my product isn't good enough for people to be willing to commit to it in exchange for a lower fee. You've got a lot of good advice in this thread but you seem to be still seeing things from your own point of view.
jitl 5y ago
I think it’s working the way you want. Don’t mess with it.
xemdetia 5y ago
I'm with everyone else that I would prefer to pay annually up front if the cost is not too high and having the service contract up for that period makes sense. From a more basic business flow I would expect that if you offer a straightforward $10*X/year plan that your expenses are built around that cost. I would expect the monthly cost to be higher to reflect the risk of not having a committed customer base and the overhead of getting payment from those customers. As other people mention it would be assumed that $10*X/year would be billed upfront and that you would be 'paying' yourself out of that sum as each month is invoiced. Are you accounting for your liabilities vs. assets correctly and are still sustainable? Are you profitable month to month? Are you meeting your target income after expenses from whatever $10*X/year was supposed to be? Are you sure you are calculating all your expenses precisely from the prior calculations? If you have 'yes' to all of the prior questions maybe you need to decide where you want to take your business in other areas. It might make sense to just focus on overall growth and not sweat this signal. It would be good to establish the churn rate individually for annual and monthly customers by activity as well as cancellation. If any one is 'no' you might just have to raise prices because you have to raise prices because you're not getting out of the business what you expect. Raising prices to ensure that you are not just surviving but getting your piece is OK. At the same time maybe the price point is just a good price point and you could focus on growth. More philosophically how would you subscribe to your service as a customer? If you'd say annually maybe it's just a service that works better annually. I would say Netflix is better month to month because the moment I stop using it is the moment it stops providing value, while a DNS name I have multi-year agreements on because even if I stop actively using it, it's still worth having the arrangement because I am paying just to have it be there for me.
inopinatus 5y ago
Doing the accounts for monthly billed services is super annoying. I switch to annual at the earliest opportunity just to cut down on such drudgery.
Arubis 5y ago
Your ARR is more predictable. Celebrate! You're living the dream.
andy_ppp 5y ago
Sounds like people rate your product, time for an enterprise version at a higher monthly tier level I would think...
ChrisArchitect 5y ago
throwaway account?
hluska 5y ago
Two things: 1.) My first (and most imminently actionable) conclusion is that you should immediately stop what you’re doing and give yourself some deserved praise. You’ve accomplished something unbelievably cool and achieved what I’d consider the ultimate in validation. Not only have you found some form of product/market fit, but your clients commit. 2.) What does data tell you?? How is your pricing relative to competition? Do you have clusters of users inside of the same organization? Do annual users have anything interesting in common? What does support/suggestion volume look like between monthly and annual? Pick four users who you would like to smoke a joint/have a beer with - are they annual or monthly users?? Basically, figure this shit out - you might be running into pricing theory (charge more) or this might be real serious insight into your customer base.
- barry27 5y ago
  yes, hluska, figure this shit out, well done. It didn't occur to you that the existence of this post signals the author's desire to do exactly that? Also, "pick four users you'd like to smoke a joint with"....how, precisely, would the OP go about identifying these people?
dkubb 5y ago
One idea might be to focus on trying to convert monthly subscribers to yearly. You could offer a subset of monthly subscribers a one-time upgrade to a yearly subscription at a prorated discount. So people one month into their subscription could get the remaining 11 months for the annual cost minus the 1 month fee they already paid.
bArray 5y ago
Something I haven't seen in the comments is simply that some businesses operate on an annual budget allocation, usually older, larger companies. One thing I would suggest about pricing is not to get greedy - nobody likes to be charged more simply because they can be. If you're going to increase pricing, I believe the perceived value should also increase.
maxk42 5y ago
What is the average tenure of cancellations? Do you have a lot of users canceling after just a few months? If so, you may consider switching to offering annual pricing only and/or trying to find out why your customers are leaving
gnicholas 5y ago
> Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? Not necessarily. It indicates that people don't view your service as transactional, and that people like to feel like they're getting a deal. If you want to experiment with higher pricing, you might try gating some of your features establishing a premium tier. I have done this with my browser plugin, which is $22/yr if you just use one browser, but if you want to use multiple browsers it's $40/yr. That has allowed us to price discriminate between lower-intensity users and higher-intensity users. We also donate 5 licenses to students in low-income schools for each purchase at the higher tier.
floatingatoll 5y ago
Dealing with internet/web saas stuff is the sort of thing I don't want to deal with more than once a year, so I wouldn't interpret that tendency towards 1-year plans as any kind of statement about prices. Honestly, I would replace the 1-month plan with a 3-month plan (no discount) just to discourage short-term customers, but that might discourage some customers.
deleted 5y ago
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dataflow 5y ago
Maybe this is obvious, but the optimal thing for a user who needs your product is to pay for the first couple months, then go yearly once they know they'll keep using your product. So it should be expected that most people will be on yearly. There's no reason for most customers to continue on a monthly plan forever. The behavior would be the same no matter the price (unless it's so high that people might sign up monthly once in a blue moon and "batch" their usage then), so I'd only take this as a signal that your product is good and it has loyal customers, not that its price is too low or high per se.
trif1 5y ago
I think the only thing i can add is that a more complex tier system with more value added stuff is the only way to go. Its not necessarily a bad sign that you have more annual than monthly subscribers in fact its a sign of a healthy product campaign that is ingrained for long term exposure. Perhaps you could offer another tier of multi year subscriptions and see who is really a long term client and try to add some extra value for them rather than offering a discount. Cheers!
spsphulse 5y ago
Hi Trey, is that you?
benhurmarcel 5y ago
> Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? It's the opposite. People on the yearly plan have the lowest tier, it's the cheapest one.
throwawayffffas 5y ago
I think people just prefer the discount. Out of curiosity what is your product?
m-p-3 5y ago
Personally when I like a service I tend to commit to it, so if I can save a bit of money by taking the annual subscription instead of monthly then that's what I go with.
ElectricMind 5y ago
This stats is going to create mess without actual numbers Can you provide value of X ? Also #number of subscriptions? also growth rate? dropout rate? timeline? My point any advice without enough data is risky to give and take. I hope you understand.
gumby 5y ago
Annual customers are better than monthly: don’t kill that goose.
smsm42 5y ago
I always use annual subscription if I plan to use the service long term. Less clutter in my accounts, less things to think about. And if I get 15% off it's even better. In fact, if I plan to subscribe I always calculate the annual price anyway - if it looks too high, then the monthly is too high too. It's the "dollar a day" trick - once you realize what is being sold to you is $360+/year or so - you may look at it differently. I don't know the nature of your service but if it's such that people are likely to use it for more than a year, I don't see what's strange in them preferring a better deal. Think before you raise your prices though. Price, once paid, becomes an anchor. People would ask - he's asking for more, what extra services we're getting? If the answer is "nothing, I just feel I underpriced it and now I want more money", people would feel you're being unfair and bail, even if the original price was completely arbitrary. Once they paid it, it's now the fair price for them, and changing it requires "fair" explanation - even if the new price is as arbitrary as the old one.

takinola 5y ago

I would recommend a couple things 1) Ask some of your subscribers why they chose one plan over another 2) Increase prices. It never hurts to find out where the balance of pricing vs conversion lies 3) Create additional tiers. It is hard to imagine any product where all users prioritize the same features the same way. 4) Celebrate. You are achieving something effortlessly that lots of other businesses try very hard to get.

znpy 5y ago

Two things: 1. you could keep you customers happy by changing nothing. 2. if you have a money-back policy on your annual plan (eg: pay in january, cancel in june, get ~50% back on what you paid) that effectively means that you're giving a discount for an only apparently sure earning. I'd give a look into that.

graeme 5y ago
Number 2 is actually pretty common. Maybe not as an advertised policy but if you write to cancel reps will often give a pro rates refund. This may happen more in businesses which figure you may be back someday.
- xemdetia 5y ago
  I would go further and expect number 2 to be the norm. If I pay for a service and I'm allocated and the service is up and available for 6 months and I have 6 months left I would expect the refund to be 6 months and not from the beginning of the contract. They've already spent the money and you've already earned the money at that point.
  - carstenhag 5y ago
    But then it doesn't make sense to have the yearly subscription (and 12 months of contract duration at a time). Then you can just have the monthly subscription.
    - krallja 5y ago
      Charging someone’s credit card 12 times a year has a definite cost. Having the funds ahead of time is also worth more than earning the funds one month at a time.
    - xemdetia 5y ago
      I think you are approaching it from a different place than I am. If I get into an annual contract I have the expectation that I would be paying the full amount up front to secure the discount and that I would be utilizing the full amount of the term. If after six months I stop then that's for some new reason that was not there in the start. At that time I would expect a rebate for the services that would not be rendered. I could be a six month customer or a ten year and six month customer and have the same expectation. Things change.
      - barry27 5y ago
        So use the monthly subscription then. It's preposterous to expect someone to refund you simply because you changed your mind. If you bought a microwave, for example, and then subsequently decided you preferred to use your stove, you wouldnt take it back, would you. You bought access for a year. That is the indivisible product you now own.

glacials 5y ago

Where are your customers in the world? Many non-US countries have little/no credit card presence, so if you don't have an international-friendly payment option like PayPal your customers may be using "gift card credit cards" purchased from a store. It's easier to do this once a year than once a month. Ultimately though, talk to your users! That's how you'll find out.

skinnymuch 5y ago
Those gift card credit cards don’t have the first year free of service fees? I think In the US they do, but no idea how the market is world wide.
traceroute66 5y ago
> Many non-US countries have little/no credit card presence Was that statement accidental horrible wording or did you actually mean it ? If the latter, then you must be one of those many Americans that needs to travel more. The rest of the world are not neanderthals who've never heard of credit cards. Go to Kenya (Africa) and the only reason you might struggle to pay by credit card is if the merchant has decided to prefer payments via the M-PESA money transfer phone app instead which is what most of the locals use. So you could say a number of non-US countries are even ahead of the US ! But of course I hope your wording was accidental, in which case I apologise for the three paragraphs above. ;-)
- r3drock 5y ago
  In Germany for example, a lot of people have no credit card.
- JohnBooty 5y ago
  We should always be on guard against such things, but is parent's statement really bad? It didn't imply that other countries are backwards, or that their people are "neanderthals who've never heard of credit cards." It's a fact that credit cards simply aren't equally popular in all parts of the world and naturally this is something that must be taken into account. This includes places that are arguably more advanced than the US. Of which there are many many many many.

brundolf 5y ago

Not sure from a business perspective, but from a user perspective, I sign up for the annual plan when I feel confident I'm not going to stop using the service any time in the foreseeable future. So I'd take that as a good thing!

tylermenezes 5y ago

If it's b2b and low pricing, could be that it's not worth the effort to deal with monthly payments.

tln 5y ago

Are your customers individuals, small businesses, large businesses? Is there a usage component you might add? Gb stored, social posts per month, etc Have you reduced the risk for your users to choose annual, eg by emphasizing "cancel anytime"? Seems like your users expect to use your product for a long time, that's great.

alphabettsy 5y ago

I generally purchase annual for thing where I feel like the product is going to have the same utility for me the entire subscription period. Fastmail, which I’ve used for years, I’m willing to pay two or three years up front. The new thing I found last week I pay monthly was a disposable card. Maybe your customers believe your product is useful and they’re not concerned about it failing to work in 6 months and maybe it’s mostly used by businesses which typically think in terms of yearly rather than monthly when it comes to ongoing expenses.

ajaimk 5y ago

2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I personally have a few items I pay for annually because I don't see myself stopping from using it AND there is no obvious replacement. I would NOT recommend changing the 2 months off; you'll annoy your most loyal customers.

DamnYuppie 5y ago
He can keep that pricing tier/billing plan for existing customers and create a less generous one for new customers. I would keep reducing the discount until sales fall way off.
- atat7024 5y ago
  What metric confirms that correlation?
  - radley 5y ago
    It's basic pricing strategy: Kevin Hale - Startup Pricing 101 https://youtu.be/jwXlo9gy_k4?t=578 https://youtu.be/jwXlo9gy_k4?t=578
    - atat7024 5y ago
      So if you drop the price a dollar the day before Christmas Eve, sales drop, you can't drop the price any lower?
skrebbel 5y ago
you can grandfather existing customers into old plans and still experiment with pricing.
throwaway_23124 5y ago
I absolutely don't plan to change any existing subscription; everybody always gets grandfathered in forever. The early adopters' invaluable feedback + potential bad rep from raising prices is reason enough. I'm mostly looking for advice on how to price things for my future customers :) >2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I too pay for some things on an annual basis (e.g. email). I guess never expected my product to be sticky enough for people to want to go annual straightaway. To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?

dumbfoundded 5y ago

If it's not broken don't fix it. I would focus on the top of your funnel to increase sales. Also, you want to have more annual subscribers than monthly. It's almost certainly more profitable. You're essentially giving up 1/6 of revenue in exchange for guaranteed 0% monthly churn. A simple estimate of what your breakeven monthly retention is: 98.5% = (5/6)^(1/12). So if you're losing less than 1.5% of your customers monthly then this would be unprofitable.

orasis 5y ago
I sooo disagree. Mispricing could be leaving massive value on the table plus increased margin can allow you to pay more for user acquisition.
- astrocat 5y ago
  Your approach sounds like the mindset of chasing growth instead of sustainability. Short term gains over long term value.
  - orasis 5y ago
    Quite the opposite. As a niche becomes saturated with competition, user acquisition costs rise to approach the level of the highest margin player. If you want to have a sustainable business it behooves you to have better optimized margins than the competition.
- dumbfoundded 5y ago
  I don't really see any evidence that there is mispricing. Pricing is complicated and sure if you raise prices, maybe you make more money or maybe you kill your LTV while exposing yourself to potential undercutting from competitors. In a growth business, raising prices is usually the last thing you want to do to make more money. If pricing is broken, the costs only accumulate until you fix it while if you build value for users (and increase retention), you get returns on that in perpetuity. Obviously any advice is meaningless without full context but focusing on pricing is usually a sign of a business that can't find any other way to grow. Or that the unit economics were wrong. Unit economics are usually not a problem with SAAS businesses with a $0 marginal cost.

weaksauce 5y ago

personally I think it causes the least amount of bad will if you leave the existing plans at $10*X/year for the people that are grandfathered into those contracts. If you increase the price only on new signups you will keep your happy customers... this goes well with an email that says something like "we are raising the yearly fee on the SAAS however the good news is that you're grandfathered into your current pricing for as long as you maintain your subscription"

digi59404 5y ago

Here's my two cents.. I would first off send your customers a survey about where they find value and why they picked yearly over monthly. Next - I would not increase prices. I would add value, and increase pricing on that. Add more features, and add another pricing tier that people can find valuable with these new features. Continue to do that until you have multiple pricing tiers; (if you don't already). Then add value into those tiers and increase cost to reflect that extra value add as needed.

JohnBooty 5y ago

Is there a community aspect to your site? the typical two-months-free-if-you-pay-annual thing you see everywhere Anecdotal, but -- When I ran a dating/social site back in the ancient mists of time, it was $4/month or $20/year. So, more like seven-months-free-if-you-pay-annual. I felt it was successful at driving people towards the annual subscription. Since the annual subscription was such an obviously "better" deal. In my case I was actively trying to encourage the network effect. I wanted long term community members, not monthly ones. After all, when paying for a site like that, you're really paying for access to the community. Is there a value to having your customers around longer-term? Community aspects? Promotional aspects? ("40,000 active subscribers for $PRODUCT_NAME!") For many businesses perhaps the answer is "no" but it's worth considering perhaps.

c1c2c3 5y ago

Personally I hate monthly payments for things. If it is something I'm going to use I may as well get a bit of a discount and not have yet another payment coming out of my account each month. Additionally I'm in the UK, so this won't apply everywhere. Some (Many?) bank accounts charge a flat fee on top of the currency conversion rate - again a reason to make just one payment a year.

frombody 5y ago
I am another person that also avoids all monthly payments. Even yearly payments I always disable any recurring fees immediately after sign-up. I will decide when money comes out of my bank account, how much I am willing to pay, and whether your product is worth the money.. not you. And I'd rather not spend time and energy doing this monthly.

908B64B197 5y ago

Sounds like you are creating value, and customers are confident in doing business with you for a longer period of time. So good job!

bthomas 5y ago

Are the numbers current subscribers or new subscriptions? Hard to speculate without comparing churn.

IncRnd 5y ago

17% off is a very good deal for the consumer when prepaying a year. Always remember the axiom that a sale happens when you sell something the other party wants at a price you both believe is fair. Whatever you do, be careful not to add or modify plans in a way that would lose existing paying customers. As the other saying goes, a bird in the hand is worth two in the bush. An existing customer is worth a lot more than a prospective customer. There are lots of changes you could make, but you may want to ask your existing customers first as to why they made the choice they made. Ask them how you can improve their existing service. That will go a long way to inform your future decisions.

littlevache 5y ago

My 2 cents: I was once in your customer shoes, and I choose the annual plan because it meant encouraging the product, helping it not to go bankrupt. If your product/company is quite new, and provide something that people love and want to make sure stays available, they will help making sure it does. In your case, pay for the annual plan means pay more money to you in the short term, helping your balance sheet

NikolaNovak 5y ago

Depends on your product. If service is something that seems superfluous, temporary, a lark - such as Reface or the myriad AI-repainters etc - most people will do the shortest period of time. If it's a business / utility tool that people find reliable/useful, most don't want the hassle of constant billing. Two months off is a great incentive for something you KNOW you'll use. And believe it or not, some people want to support scrappy startups with useful tools - I've personally gone through so many useful things that have disappeared, that I'll actively support new ones so I can use them for a long time :) As to what you should do, again, depends. Are you happy with your income, are your customers satisfied, is your growth what you expect? Don't feel like you have to change anything :). Also, asking your customers may be a useful way to proceed to0 ;-)

bombcar 5y ago

Do you offer annual billed monthly? Some business prefer that - offer annual billed monthly at a $11*X/year, see what happens.

throw14082020 5y ago

Maybe you're defaulting to the annual billing on your website, like most companies do

marto1 5y ago

1. This is really good. Your niche/customers/market is oriented towards the long-term. Might be time to go to some of these customers and try to find out if they are. Long-termness indicates more enterprise clients which means it's time to offer some sort of a "Business plan". These tend to sell for much much more at the price of some special support, exclusive access, etc. 2. You're too cheap and people don't want to do monthly penny pinching. You can do some A/B and experiment with rising prices. Depending on how you execute on this you might end up in a situation where you raise 2-3x for the exact same product without losing customers. Both can be true at the same time...or none. Knowing your customers is half the battle.

jimnotgym 5y ago

> Does this mean I should simply increase prices? Does anyone else hear patio11's voice in their head shouting "YES"

devops000 5y ago

It might be your pricing is too low. Try to better evaluate how much value / saving they have using your product.

polote 5y ago

Nothing. Your price has probably nothing to do with the split. It just means people are with you for the long term and they like your product. Your price should be linked to the value you are offering. If you think your value is more than the price people pay today, then increase your price to a value you are comfortable with. What is your objective ? is it growth ? is it profitability ? is i number of customers ? do you have competitors ? are you selling to b2c or b2b ? I'm not sure we can give you any relevant advice without a lot more information

dheera 5y ago

I think your discount is pretty fair for a 1 year commitment. Wouldn't change anything. If you do decide to increase prices at any point, consider grandfathering your current customers into the old pricing to not piss them off, as long as they are still netting profit for you. They're probably your best customers for adopting and committing so early and will probably be some of the best word-of-mouth spreaders and sources of free advertising for you.

criddell 5y ago

Maybe change your pricing plans for new customers but tell existing annual customers that they can keep the current deal as long as they stay subscribed. Then you can compare the split for new customers and old customers and see how your price change affects it.

carlhjerpe 5y ago
Didn't netflix pull that one once?

paxys 5y ago

You need to look at a lot more data before drawing any conclusions. Are you selling to consumers or businesses? What's the split in monthly vs annual subscription for brand new users (vs those that changed plans on renewal)? IMO users switching to annual plans after using your product for a couple of months is amazing. It means that they see value in the product and decided to commit to it. Users opting for an annual subscription off the bat is still amazing - but also a tad suspicious. Maybe a combination of low cost and good marketing?

guillegette 5y ago

My opinion as someone who is running a SaaS business: - Annual contracts are better than month-to-month, because you will get a customer for a year in most cases, extending your LTV - Customer choose annual not only for the pricing discount but speaks to their commitment with your solution. I take it as a great product market fit indicator. - Your price should be aligned with your competition. You can increase prices for new users but don't increase the price for your existing pay customers. - Offer your monthly customers the option to upgrade to annual as well

jnwatson 5y ago

Yeah we have month-to-month and 0% of our customers use it. Most organizations (and personally I'm the same way) prefer to make as few payments as possible.

Spooky23 5y ago

I know at work I would never do a monthly bill. Too much reconciliation to do.

vannevar 5y ago

If it truly represents the people trying to buy your service, it sounds like a great sign. But you should check that there isn't some UX issue causing you to lose customers trying to sign up for the monthly option. It might also reflect some order flow impediment that affects both paths, but since the annual subscribers are more determined, more of them overcome it.

jsty 5y ago

If your product has a lot of corporate customers, and paying yearly doesn't put them above their personal expense authorisation threshold, I wouldn't be so surprised - filling out 12 expense reports is a lot more irritating than 1.

fossuser 5y ago

I'm happy to pay annually if the product is good and the 2 months off makes it worth it. Without 2 months off I'd pay monthly because canceling is easier. With 2 months off the reasoning is I like the product and can save some and don't have to think about the monthly cost. If in a year I don't find myself using it I can then decide on renewal. Usually it's like $5/month or $50/year or something - I generally dislike tiny monthly subscriptions, it obscures costs and feels like death by a thousand cuts. With annual I can think about the value and decide and the 2 months savings makes it worth it.

147 5y ago

Please watch this video at this time stamp: https://youtu.be/otbnC2zE2rw?t=815 https://youtu.be/otbnC2zE2rw?t=815 Jason Cohen goes into why annual prepays are great for bootstrapped SaaS.

matco11 5y ago

Because the discount rate of the yearly plan is financially very attractive (17% off), there are really two main reasons people go for the monthly option: 1) they are unsure if they are going to like your product enough to be willing to go for the bigger commitment of the yearly subscription 2) they can’t afford the yearly payment upfront (this is especially valid for very expensive subscriptions) On the yearly subscription, do you charge for the entire year upfront? If not, you are eliminating reason 2) above to go for monthly How is the distribution of vintages of your user base? Depending on your growth (and churn) rate, the distribution of old (>1 year old) vs. new (<1 year) users might drive more yearly subscriptions: the slower you grow, the more old users you will have in your mix of paying users. Old users already know they like your product and are much more willing to take the commitment of the yearly subscription to get the financial savings. ...so that might explain why you have a majority of annual plans. It’s always a good idea to experiment with your prices and segment the market, it’s almost always a good idea to do it without disrupting (too much) your existing user base.

aasasd 5y ago
> On the yearly subscription, do you charge for the entire year upfront? I mean, to my knowledge, that's the whole reason to give a discount for the yearly payment. Isn't it?
- carstenhag 5y ago
  Also, but not only. Yearly subscriptions in itself guarantee that the user commits to 12 months and can't cancel during those 12 months
  - leetcrew 5y ago
    if it's not upfront, they can always stop paying. you don't want to sue your users for breach of contract over a $5/month subscription.
  - aasasd 5y ago
    > can't cancel That's how you get angry posts on social media. See: Adobe.

PicassoCTs 5y ago

Reward early adopters by keeping there prices the same, up the prices for all who come afterwards, generate fear of missing out when it comes to word of mouth. After all, the early adopters got it for "practically nothing". Allow early adopters to bring in one friend a year at their price..

throwawayboise 5y ago

If it's B2B, it's easier for business customers to get a once-a-year expense paid than to get authorization for a monthly charge to a corporate card. Many organizations don't like having their corporate card numbers enrolled in open-ended recurring charge plans.

bjornsing 5y ago
Yup. Also if you’re in a more bureaucratic jurisdiction (like Sweden, where I am) then the bookkeeping of monthly charges can be more expensive than the SaaS.
throwaway_23124 5y ago
I see. My product is somewhat in between B2B and B2C (i.e. plenty of regular folks subscribing for their personal use, but also plenty of companies using it). Perhaps this is a strong signal in favor of price segmentation to make future B2B customers more than personal users?
- stonesweep 5y ago
  B2C random internet user here, it's more complex than that for me and not always about price. I'd say the thoughts go something like this: - is this a product that involves a lot of personal time to get started with and migrate away from? (example: cloud hosting for files and photos)? With this type of product, I'm going to spend more time on the initial 30 day evaluation, and if it suits my needs then I go right for the (multi)year contract. The personal investment is large (get all those photos uploaded, e.g.) so my chances of leaving after a few months are statistically unlikely. - is this a product that I can walk away from with no real loss? (music streaming service) well this a service which quality can vary month over month, I'm more likely to use monthly pricing just so I can cancel at any time if I don't like it. I have no real investment to your brand, yeah it's nice but there's 100 others out there I can move too easily. Usually with a multi-year discount, I'll buy the first year just to be sure and if I still like it after the first year, I'll buy multiple years. Just so I never have to worry about randomly missing a payment or somehow "losing" it (my login, my access, my files, etc.) but balance that against "how long will this company be around, really?" - it's a sense of security over time because I've invested a lot of personal time into the product. Walking away is not in my plans at the time. Third reason that doesn't fit for you but is also a thought: is this a donation to (open source project)? Will I give them more money - less recurring middle-man processing fees - by paying one lump yearly sum instead of donating monthly? I use Liberapay for some FOSS donations and they tell you to do this straightaway, one lump sum is better for the receiver than monthlies.

shoto_io 5y ago

There are so many things one could say about this. But, from my own experience I have to tell you to do this: Talk to your customers. But not randomly. Talk to them immediately after they have bought their product. Then go and "interrogate" them. Don't ask directly, but indirectly why they chose this or the other plan. The key is to really understand what the circumstances were when they decided. What made them flip into one or the other direction. You won't find that knowledge "online". If you want to know more about the interview style, watch this video: https://www.youtube.com/watch?v=blTNLVuRU6k https://www.youtube.com/watch?v=blTNLVuRU6k - starts at around 14:30. I would watch the whole thing though.

AdrianB1 5y ago

Don't take the idea to increase prices seriously, it is sometimes illogical: people talk about increasing prices and helping people to afford services in the same sentence. Keeping the prices constant and increasing the userbase may be a good way to increase your startup value, but extracting more money from the current users is not right. Anecdotal evidence: if I perceive something as good value long term I am paying yearly for 2 reasons, one is the discount for doing it and second for the convenience of not having to care about monthly payment. I had Netflix suspended because they messed up the payment (they took the money, 3 times) and I had no solution at 1AM when I had the time to watch a movie, a yearly payment is a lot safer for such cases. Maybe some of your clients are like me.

spamizbad 5y ago

This is probably a signal you should raise your prices.

irscott 5y ago

I think it means you're dialed in just right.

pbreit 5y ago

I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices. But, yes, in general a lot of SaaS service could probably raise prices. And also in general, annual billing is appealing.

throwaway_23124 5y ago
> I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices. The way I see it, most customers are happy enough after a 30-day trial to commit to my product for at least a full year. That's a good signal for loyalty and the product being worth it for the price. While I agree that the discount aspect is a signal in the other direction, I think overall it looks like people will continue to subscribe even if it's pricier. That's why I'm leaning towards increasing prices. I don't know much about businessy things and I'm learning as I go, so take my opinions with a grain of salt. I've had some really good suggestions in this thread to talk to my most recent subscribers to really understand why they paid annually straight off the bat, so I'm going to do that first before taking any action.
- frombody 5y ago
  The consumer's choice isn't always buying the monthly plan vs. yearly. It can also be yearly plan vs. nothing. You're trying too hard to extrapolate information from a single data point. You seem to be focusing on the yearly customers because you don't have the same mindset or budgeting habits. If it were me, I would be looking at the monthly subscribers. How long they sign up for, what the retention rates are like, how many switch to yearly, reasons people give for canceling, etc. I would be trying to find out why my product isn't good enough for people to be willing to commit to it in exchange for a lower fee. You've got a lot of good advice in this thread but you seem to be still seeing things from your own point of view.

jitl 5y ago

I think it’s working the way you want. Don’t mess with it.

xemdetia 5y ago

I'm with everyone else that I would prefer to pay annually up front if the cost is not too high and having the service contract up for that period makes sense. From a more basic business flow I would expect that if you offer a straightforward $10*X/year plan that your expenses are built around that cost. I would expect the monthly cost to be higher to reflect the risk of not having a committed customer base and the overhead of getting payment from those customers. As other people mention it would be assumed that $10*X/year would be billed upfront and that you would be 'paying' yourself out of that sum as each month is invoiced. Are you accounting for your liabilities vs. assets correctly and are still sustainable? Are you profitable month to month? Are you meeting your target income after expenses from whatever $10*X/year was supposed to be? Are you sure you are calculating all your expenses precisely from the prior calculations? If you have 'yes' to all of the prior questions maybe you need to decide where you want to take your business in other areas. It might make sense to just focus on overall growth and not sweat this signal. It would be good to establish the churn rate individually for annual and monthly customers by activity as well as cancellation. If any one is 'no' you might just have to raise prices because you have to raise prices because you're not getting out of the business what you expect. Raising prices to ensure that you are not just surviving but getting your piece is OK. At the same time maybe the price point is just a good price point and you could focus on growth. More philosophically how would you subscribe to your service as a customer? If you'd say annually maybe it's just a service that works better annually. I would say Netflix is better month to month because the moment I stop using it is the moment it stops providing value, while a DNS name I have multi-year agreements on because even if I stop actively using it, it's still worth having the arrangement because I am paying just to have it be there for me.

inopinatus 5y ago

Doing the accounts for monthly billed services is super annoying. I switch to annual at the earliest opportunity just to cut down on such drudgery.

Arubis 5y ago

Your ARR is more predictable. Celebrate! You're living the dream.

andy_ppp 5y ago

Sounds like people rate your product, time for an enterprise version at a higher monthly tier level I would think...

ChrisArchitect 5y ago

throwaway account?

hluska 5y ago

Two things: 1.) My first (and most imminently actionable) conclusion is that you should immediately stop what you’re doing and give yourself some deserved praise. You’ve accomplished something unbelievably cool and achieved what I’d consider the ultimate in validation. Not only have you found some form of product/market fit, but your clients commit. 2.) What does data tell you?? How is your pricing relative to competition? Do you have clusters of users inside of the same organization? Do annual users have anything interesting in common? What does support/suggestion volume look like between monthly and annual? Pick four users who you would like to smoke a joint/have a beer with - are they annual or monthly users?? Basically, figure this shit out - you might be running into pricing theory (charge more) or this might be real serious insight into your customer base.

barry27 5y ago
yes, hluska, figure this shit out, well done. It didn't occur to you that the existence of this post signals the author's desire to do exactly that? Also, "pick four users you'd like to smoke a joint with"....how, precisely, would the OP go about identifying these people?

dkubb 5y ago

One idea might be to focus on trying to convert monthly subscribers to yearly. You could offer a subset of monthly subscribers a one-time upgrade to a yearly subscription at a prorated discount. So people one month into their subscription could get the remaining 11 months for the annual cost minus the 1 month fee they already paid.

bArray 5y ago

Something I haven't seen in the comments is simply that some businesses operate on an annual budget allocation, usually older, larger companies. One thing I would suggest about pricing is not to get greedy - nobody likes to be charged more simply because they can be. If you're going to increase pricing, I believe the perceived value should also increase.

maxk42 5y ago

What is the average tenure of cancellations? Do you have a lot of users canceling after just a few months? If so, you may consider switching to offering annual pricing only and/or trying to find out why your customers are leaving

gnicholas 5y ago

> Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? Not necessarily. It indicates that people don't view your service as transactional, and that people like to feel like they're getting a deal. If you want to experiment with higher pricing, you might try gating some of your features establishing a premium tier. I have done this with my browser plugin, which is $22/yr if you just use one browser, but if you want to use multiple browsers it's $40/yr. That has allowed us to price discriminate between lower-intensity users and higher-intensity users. We also donate 5 licenses to students in low-income schools for each purchase at the higher tier.

floatingatoll 5y ago

Dealing with internet/web saas stuff is the sort of thing I don't want to deal with more than once a year, so I wouldn't interpret that tendency towards 1-year plans as any kind of statement about prices. Honestly, I would replace the 1-month plan with a 3-month plan (no discount) just to discourage short-term customers, but that might discourage some customers.

deleted 5y ago

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dataflow 5y ago

Maybe this is obvious, but the optimal thing for a user who needs your product is to pay for the first couple months, then go yearly once they know they'll keep using your product. So it should be expected that most people will be on yearly. There's no reason for most customers to continue on a monthly plan forever. The behavior would be the same no matter the price (unless it's so high that people might sign up monthly once in a blue moon and "batch" their usage then), so I'd only take this as a signal that your product is good and it has loyal customers, not that its price is too low or high per se.

trif1 5y ago

I think the only thing i can add is that a more complex tier system with more value added stuff is the only way to go. Its not necessarily a bad sign that you have more annual than monthly subscribers in fact its a sign of a healthy product campaign that is ingrained for long term exposure. Perhaps you could offer another tier of multi year subscriptions and see who is really a long term client and try to add some extra value for them rather than offering a discount. Cheers!

spsphulse 5y ago

Hi Trey, is that you?

benhurmarcel 5y ago

> Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? It's the opposite. People on the yearly plan have the lowest tier, it's the cheapest one.

throwawayffffas 5y ago

I think people just prefer the discount. Out of curiosity what is your product?

m-p-3 5y ago

Personally when I like a service I tend to commit to it, so if I can save a bit of money by taking the annual subscription instead of monthly then that's what I go with.

ElectricMind 5y ago

This stats is going to create mess without actual numbers Can you provide value of X ? Also #number of subscriptions? also growth rate? dropout rate? timeline? My point any advice without enough data is risky to give and take. I hope you understand.

gumby 5y ago

Annual customers are better than monthly: don’t kill that goose.

smsm42 5y ago

I always use annual subscription if I plan to use the service long term. Less clutter in my accounts, less things to think about. And if I get 15% off it's even better. In fact, if I plan to subscribe I always calculate the annual price anyway - if it looks too high, then the monthly is too high too. It's the "dollar a day" trick - once you realize what is being sold to you is $360+/year or so - you may look at it differently. I don't know the nature of your service but if it's such that people are likely to use it for more than a year, I don't see what's strange in them preferring a better deal. Think before you raise your prices though. Price, once paid, becomes an anchor. People would ask - he's asking for more, what extra services we're getting? If the answer is "nothing, I just feel I underpriced it and now I want more money", people would feel you're being unfair and bail, even if the original price was completely arbitrary. Once they paid it, it's now the fair price for them, and changing it requires "fair" explanation - even if the new price is as arbitrary as the old one.