Highlight annual subscription to reduce SaaS churn
Annual subscription reduces churn, improves cashflow, and makes revenue predictable. Encourage, motivate, and incentivize customers to opt for annual billing instead of monthly.
Buffer offers both monthly and annual billing. Customers save 20% with annual billing.
Mailerlite offers both annual and monthly billing and clearly displays the actual dollars a customer will save per year.
Segment also has an annual billing option. To show some contrast, these two are presented in details side-by-side in a dynamic calculator
How to use the technique
- Add annual subscription option without removing the monthly subscription. It is best to offer monthly, quarterly, bi-annual, and annual plans. Give maximum discount on the annual plan. Refer to our free churn optimization framework to get more details.
- Offer discount on annual plans. No incentive works better than immediate savings. Clearly show how much a customer will save with an annual plan. Mention amount as well as percentage. Highlight savings.
- Offer other incentives to annual subscribers. For example, priority support, a dedicated account manager, free access to webinars for the whole year, etc. Convert annual billing into a complete package with savings and additional incentives.
- Communicate the benefits of opting to an annual subscription. Highlight benefits and make them prominent on the pricing page.
- Send emails to monthly subscribers and encourage them to switch to the annual plan. Before you charge a customer’s card for the next month, send an email and clearly tell the benefits of switching to annual.
- Show customers how much they missed to save. Send a history of monthly payments a customer has made and show how much could have been saved if it was an annual plan in the first place. Highlight the savings they missed just because they weren’t on the annual plan.
- Test multiple annual billing options. You can test different variations of annual billing: Annual only, optional annual billing, and annual default. Also test CTAs, benefits, and savings. Optimize for conversions. We have crafted a grea free churn optimization framework to help you with conversion optimization.
Mistakes to avoid
- Removing monthly subscription. Removing monthly billing and switching to annual only is a big mistake that might turn-off people ready for only small & safe commitments. Don’t do it. Monthly payments are better than no payments at all.
- Ignoring annual subscribers. Not engaging with them assuming they're sure to stick with your company. Ignore them and they won’t renew their plan. Give these customers special attention.
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David Skok argued that SaaS should focus on three things: Acquiring, retaining, and monetizing customers. He further explained how SaaS businesses can deal with negative cashflow is early years (which is a common SaaS challenge) by switching from monthly to an annual subscription. Annual subscription reduces months to recover CAC which converts negative cashflow into positive right from the first few months.
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