How do I convince SaaS customers with monthly plans to upgrade to annual plans?
It’s too many calories expended for not enough benefit.
Let me explain what I mean …
Large customers only pay via invoices, especially for any deal of any material size (>$10k a year). Invoices have their own annoying set of characteristics (they can be Net 60+, you have to deal with procurement, etc.). But. Usually, you can get an annual deal here. The last thing a VP in a Fortune 5000 company wants to deal with is credit card payments or monthly invoicing. They want to budget annually for stuff.
The smaller the customer, the more important micro-cash management is. And the small the price per month, the more practical is it to put it on a credit card.
So products that are < $99 a month, many if not most of your customers will pay monthly.
So what do you do to maximize annual prepayments (which you do want)?
- For smaller customers, offer a 20% discount for prepaying annual. The folks that care about price will take it. The folks that care about micro-cash management won’t.
- For larger customers, make annual contracts the default, once you’ve gotten a few under your belt. But — you may need a good VP of Sales to help you make this stick, so don’t be too dogmatic here until you have a real VP. And incent your sales reps to close annual deals, with either a larger commission, or a smaller one for non-annual deals, and/or clawbacks on any deals that don’t last a year.
You can’t change the way your customers usually buy. Well, you can, but if you do, you add friction to the sale, which generally is ROI negative. Instead, you want to optimize around helping the customer prepay annually.