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As someone who works at a SaaS company, the annual prepay has one downside: it narrows the middle portion of the funnel (qualifying leads) compared to month-to-
by kiyoto 12y ago
As someone who works at a SaaS company, the annual prepay has one downside: it narrows the middle portion of the funnel (qualifying leads) compared to month-to-month.
Of course, the biggest selling point of SaaS over licensed software is service: not having to manage your software (and often hardware) is a huge pain reliever for the buyer.
The other selling point is lack of financial commitment (at least with month-to-month): you do not have to buy into the service for the next whole year. Instead, you can try and see how it fits into your business. If you see no fit or can't get value, you can cut the loss and move on. You cannot do this with the annual prepay model.
Time and again, I've been surprised how customers who were unwilling to commit to a year ended up prepaying for a year when the time for renewal came. If you are forcing the annual prepay model to your customers, you are kicking this type of "cautious at first but eventually valuable" customers off your sales funnel.
A popular way to combat this is free trials (anywhere between two week and ninety days). This is a decent solution, but I've seen first hand that whether one is paying for a SaaS strongly influences usage/penetration into the customer organization.
edit: minor edits for clarification
- napoleond 12y agoI like the approach Jason Cohen describes in his MicroConf talk from 2013 (http://vimeo.com/74338272 http://vimeo.com/74338272) -- offer the annual plan, and encourage it by baking in a discount, but give people the option of choosing monthly if they'd rather pay a bit more for the option of leaving. That, combined with a money back guarantee, seems like it could be the sweet spot for a lot of SaaS businesses.
- kiyoto 12y agoThanks for sharing this. I think the truth lies somewhere between annual prepay and month-to-month. Most SaaS companies end up offering a mix of the two =)
- clarky07 12y agoI was planning on saying exactly this. There is no reason not to offer both plans. I suspect most people will find that people will start monthly, but if they are happy with the service and you offer the yearly in the right ways they will switch over time. (just send periodic emails saying hey here is a slight discount if you pay for a year is likely enough)
- jonobird1 12y agoA good point there. I've noticed over the past few years a few SaaS companies offering both monthly and yearly. I think the pre-pay could be a good idea if the LTV doesn't reach 1 year with most people so by having that pre-pay of a year, you might actually increase your LTV and thus more profit. But doing it this way exclusively over month-to-month might drop your customer signup rate. Interesting topic and I'd love to see data around this.