Dear SaaStr: When Is It Worth Enforcing an Autorenewal Clause if the Customer Doesn’t Want to Pay?

Dear SaaStr: When Is It Worth Enforcing an Autorenewal Clause if the Customer Doesn’t Want to Pay?

Never.  Just turn it off.

Auto-renewal policies are definitively worth following. You really don’t want to have to go back to a customer for an affirmative renewal every year unless you have to.

But you don’t want to ever threaten to sue a customer, or get into an uncomfortable position. If they don’t want to use your product anymore, you failed, and so be it.

So my rough best practice is:

  • Try to get annual contracts for deals > $3k a year, if the customer is OK with it.  It can help a lot with cash flow — if you are good at collections.
  • Add an auto-renewal process to your standard contract, but allow them to cancel for any reason by providing notice prior to the renewal.
  • If they don’t pay for the renewal, you shut off the service. But no threats and no drama.
  • If they ask for cash back for a pre-payment, generally say no. The whole point of a discount for pre-payment is to get the cash upfront. But if there’s a lot of drama, sometimes it’s easier to make an exception and pay back the pro-rata amount for unused months.
  • If you leave them angry, do not expect them to come back.  Ever.  And many do come back later.

You have to re-earn your customers in SaaS. There are no shortcuts. And so let ’em out if they want out. But that doesn’t mean make life harder than it needs to be. Have an auto-renewal clause. Just don’t make it a prison.

(note: an updated SaaStr Classic answer)

Published on December 25, 2022

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