For SAAS companies, what percentage of customers choose prepaid annual billing versus monthly?
The percent that want to.
Annual billing is a wonderful thing. In the early and middle days, it’s magical for cash flow. It decreases churn, at least in terms of timing (even if they churn, it takes a year to ‘happen’). And it’s sometimes easier to administer — automated monthly credit card payments are easy, but manual monthly invoices are a disaster.
But the thing is, there is a natural and organic pattern to this:
- Very small businesses generally prefer to pay monthly. As much as 70%–80% of the time, small businesses buying a product <= $299 a month will want to pay monthly, period.
- Large enterprises almost always want to pay annually. There is no way they want to get 12 invoices a year through procurement. Too much hassle.
- And in the middle? It depends.
So mark up your monthly pricing by 20% (so you can discount annual contracts by 15–20%). And let the customer pick what is best for them.
This is the way to close the most customers.