Many of the companies I’ve invested in only offer annual pricing. The common denominator is:

  • they are products that require some real business process change to achieve the value from the product.
  • and that sell mainly larger deals ($50k ACV and up).

If your product can be used successfully in 5 minutes, without any need for business process change, a freemium / free trial model works well. And here, forcing annual pricing just creates gates to getting paid. Your smaller customers may want to pay as they go with a cheap, simple product.

But in the case of true “enterprise” applications, where you are changing the way entire companies work, you usually have business process change to manage. Freemium doesn’t work well here.

Also, real enterprise customers paying larger ticket sizes need to go through procurement. They don’t really want to pay monthly, and often cannot pay on credit card.

The real downside to annual billing is the quid pro quo in the early days is often a pilot first.

In the long run, it doesn’t matter much. You can migrate your real enterprise customers to annual plans when they renew. It will make their life easier (just one P.O. for procurement), and if they are happy with the product, they’ll just renew for a year, 9/10, even if they weren’t on an annual plan at first.

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