Dear SaaStr: Should I Remove Monthly Subscriptions to Drive Down Churn?
Generally — no. Annual plans only mask churn. They don’t eliminate it. And at least for SMBs and prosumer customers, not having a monthly edition can add significant friction to buying. That means less customers & less sales.
I’s a double-edged sword. It simplifies your revenue model and reduces churn on paper, but it also creates friction for SMBs who might hesitate to commit to an annual plan upfront.
Here’s how I’d think about it:
1. Pros of Removing Monthly Subscriptions
- Lower Churn: Monthly plans naturally have higher churn because customers can leave at any time. Annual plans lock in revenue for a longer period, giving you more predictability.
- Higher LTV: Annual plans typically result in 100-300% higher LTV compared to monthly plans because customers stick around longer
- Better Cash Flow — Potentially: Annual prepayments give you upfront cash, which is critical for reinvestment, especially in the early stages.
- Stronger Commitment: Customers who pay annually are more likely to invest time in onboarding and using your product, which increases stickiness.
2. Cons of Removing Monthly Subscriptions
- Friction in Sales: SMBs, especially smaller ones, often don’t want to commit to a full year upfront. For them, monthly plans are a way to test your product without a big financial commitment.
- Lost Leads: You’ll likely lose some potential customers who would have started with a monthly plan and later upgraded to annual.
- Longer Sales Cycles: Forcing annual contracts can slow down your sales process, especially if your product requires evaluation or budget approvals.
3. When Removing Monthly Makes Sense
- **Complex Onboarding**: If your product requires significant setup or business process changes, monthly plans often don’t work because customers don’t see value quickly enough. Smartsheet, for example, moved almost entirely to annual contracts for this reason.
- High Churn on Monthly Plans**: If your monthly churn is unmanageable (e.g., 10%+ per month), removing monthly might be the right move. But you need to address the root cause of churn too—whether it’s poor onboarding, lack of engagement, or product-market fit issues.
- Established Brand: If you’ve built enough trust and credibility in your market, customers are more likely to commit to annual plans. Early-stage startups often don’t have this luxury.
4. A Hybrid Approach
-Instead of completely removing monthly plans, you could de-emphasize them:
- Make Annual the Default: On your pricing page, highlight the annual plan as the primary option and show the monthly plan as secondary.
- Incentivize Annual.: Offer a meaningful discount for annual plans (e.g., “2 months free”) to nudge customers toward longer commitments
- Trial-to-Annual Flow Let customers start with a free trial or a short-term pilot, then convert them directly to an annual plan.
5. Test Before Committing
Removing monthly plans is a big decision, so test it first:
- A/B Test Pricing Pages: Show some users only annual plans and others both options. Measure conversion rates, churn, and LTV.
- Segment by Customer Type: For example, offer annual-only plans to larger SMBs while keeping monthly options for smaller ones.
Summary:
Removing monthly subscriptions can work if your churn is out of control or your product requires significant onboarding. But for SMB SaaS, monthly plans are often a necessary evil—they reduce friction and bring in customers who might not commit otherwise. Instead of removing them entirely, focus on nudging customers toward annual plans with better incentives and positioning.
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