Monthly vs Annual Subscriptions
We're delving into monthly billing and annual billing subscriptions below, helping you to make your own informed decision on selecting the most effective pricing models for your business.
What is monthly billing?
A monthly billing subscription charges users on the same day each month for the services provided. Typically, customers are able to cancel at any point unless monthly billing terms outline otherwise.
Monthly billing: pros and cons
Monthly billing is a great way to entice new consumers towards trialling your product or service. They offer a flexible experience over a set period, without (unless specified) any fees should a customer choose to end their subscription at any point. While they're a great way to encourage new interest in your products or services, they aren't necessarily developed with long-term values in mind. It's may be harder to achieve and sustain customer retention through monthly billing initiatives.
What is annual billing?
Annual billing refers to a pricing model wherein a customer is charged the full balance for a yearly subscription — and they aren't charged during this period (providing there have been no major changes to your account, for example granting new users access to solutions).
Annual billing: pros and cons
Annual billing is a more measurable depiction of how customers value your services or solutions. Choosing an annual billing package demonstrates a clear willingness around customer retention, and it also portrays trust in your business. There are also effective ways to capitalise on having an annual subscription fee, including providing a discount on the total cost in comparison to a monthly billing 'pay-as-you-go' style plan.
Should I offer annual or monthly billing — or both?
Choosing between monthly and annual billing for your subscription pricing strategy can be complicated - but who said you had to choose? If you’ve taken a good look at our SaaS Pricing Page Blueprint eBook, you know that only 1 in 5 of the 270 SaaS companies we studied offer both monthly and annual pricing. When it comes to subscription models, most companies offer monthly plans exclusively; the lower prices appear friendlier, and the lack of a heavy commitment reduces friction for new customers.
Yet as long as the pricing structure isn’t too complex, a SaaS company can use both monthly and annual plans to boost revenue. Sure, monthly payments may be the lifeblood of your business, but annual subscriptions secure you more business upfront, increase cash flow, and reduce churn. Even a small percentage of larger contracts can have a huge impact on your bottom line.
Compromising between the two options doesn’t have to clog up your pricing page either, which is why we’re going to examine a couple company pages that keep it simple while ensuring buyers know they can sign up for bigger deals. First, let’s dive into why annual plans and cash upfront is so important to your SaaS subscription business.