For SAAS companies, what percentage of customers choose prepaid annual billing versus monthly?

echojason@gmail.com'

JASON LEMKIN

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.

View original question on quora

Published on July 23, 2017
Share This