Why offer both monthly and yearly subscription options
When we released our product we initially planned to charge a monthly subscription for our services. We soon realised the value of offering a yearly subscription as an additional option for customers who wanted to commit to us for a longer term.
After adding a yearly option, we found there are many benefits to this subscription type. When a yearly is purchased you get an instant influx of cash to use for continued growth, and lock in that customer for an extended period of time, without having to spend more on marketing. The customer also has less to think about. Instead of having to decide every month if they want to continue using your services (and possibly closing their account) they only have to think about it once a year. However the steep pricing can sometimes put off potential customers, meaning they might opt for monthly pricing if they don’t want to part with a lot of money all at once.
If you have both monthly and yearly pricing options, offer a discount on yearly to make it more enticing. You’re more likely to get people to commit to a longer term if they feel like they get something back. The most common option is to offer 2 months free on a yearly plan.
The challenge with selling a yearly plan is that churn can be harder to measure. The customer might stop using your product after 6 months, but you can’t tell from subscription stats alone to see when they dropped off. To overcome this with our own product, we looked at some metrics we could track. Does the user need to login to their account to access your product or take some other action? Set up a notification to highlight customers that haven’t triggered this action during the last 30 days, and have your team reach out to see what’s happening for some valuable feedback.
It doesn’t matter if you pick up a non-committing monthly customer or an all-in yearly customer, offering both options increases the likelihood of a conversion. When you offer a couple of months for free on the annual plan, you also guide those that can afford that option toward a longer lifetime value with your business.
What has been your experience with monthly and yearly subscriptions?
We offer both, but most go for the monthly. Not that we have a huge number of paid users tbh.
We do offer a discount on annual sub, and it did help us bring in a larger influx of cash but because our price point is so low, we're reconsidering the pricing. Will update once it's changed!
I’ve been working through this as I develop the pricing model and came to the same conclusion in terms of offering the discounted yearly model.
I hadn’t thought about what that meant for tracking metrics so that’s a really handy tip to keep in mind.
We don't offer yearly, simply because our product has a lot of upgrades/downgrades and dealing with presenting how that works on a longer term subscription felt difficult.
That said, we do have a small percentage of users who request yearly plans or one-off large payments because their company don't allow recurring payments. Something to consider when setting your annual discount, because they'd be happy paying full price for the product.