What are reasonable termination clause time frames with an annual fee?

It doesn’t matter.

On the face of it, there really should not be any termination clause in an annual contract, especially if the customer is paying a lower annualized rate vs. a monthly agreement, for example.

If a customer is prepaying for a discount, why should they be able to get out?

But the thing is, it doesn’t matter. If they do terminate, you’ve lost that customer. They are gone. Your MRR/ARR goes down. It really doesn’t matter if it goes down this month, or the next one. In SaaS, a customer lost and not re-acquired is a customer you never had. That’s the nature of recurring revenue.

Also, in practice, very few customers will use this clause. Only a handful, if your product is a high NPS, valued product. We just had 1 use a similar clause — the first in 5 years!

So don’t overanalyze this. It’s not material.

So what you want to do is at least take friction out of the buying process. That does help. The easier you make it to do business with you, the more business you will do.

So if a customer wants to be able to terminate after 6 months, just let them. If they want an “out” clause in the first 60 days (a pilot, really), probably just let them.

Maybe a few will cancel. And you’ll have to give a few nickels back.

But not many. And I bet you close more customers, faster, by letting them buy the way they want to buy.

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Published on July 18, 2019

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