Subscription growth hack (by PayKickstart)
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More often than not, SaaS businesses rely on recurring payments.
But how often do these payments need to re-occur? In other words, how long should your subscription cycles be and which ones do you need to prioritize.
In many ways, the answer will rely on the nature of your business and your customers’ lifecycle but generally annual subscriptions tend to decrease churn, increase average revenue per customer, and result in lower maintenance fees.
Here’s why you probably need to prioritize annual billing and how to do that:
Any SaaS business has to face one important challenge: Churn
And one of the best ways to combat churn is to start billing more annual subscriptions.
ProfitWell did a study of 941 SaaS businesses and found a strong correlation between the amount of annual subscriptions and the percent of churn. While businesses offering no annual billing saw 9% of churn on average, companies that had 75% of annual contracts reported only a 5% churn.
On top of all, annual contracts seemed to attract higher-value customers: Those users who were confident in your brand enough to make a year-long commitment. Those customers are willing to engage more actively with the brands and tend to be their most active users which results in more benefits, including:
According to Price Intelligently, only 1 in 5 of the 270 SaaS companies they studied offered both monthly and annual pricing. If your SaaS business is one of those that don’t offer both of these options, you may want to reconsider!
But where should your focus be? Which model is more important for your SaaS business: Monthly or yearly billing?
Both of these models have their pros and cons. Monthly billing is easier to commit to, so it will be easier to convert your premium or trial users into paid customers.
On the other hand, monthly subscribers are more prone to canceling earlier than past one year, they are also likely to ask for a refund as they often upgrade without clearly understanding if this is something they are going to use.
So monthly billing plans often trigger inactivity, churn and refunds business owners have to deal with.
People who pay annually are harder to come by but these are likely to be your best customers. They research better prior to paying, so you won’t have to worry about refund requests that much. Plus, yearly subscribers pre-pay 12 months ahead, so you don’t have to convince them to stick around.
Annual subscribers are generally better motivated and more active than monthly paying customers.
Besides, people who pre-pay one year ahead have more time to use your product and become your platform’s loyal users whereas many of your monthly users will likely give up after their second payment notifications.
This one is obvious: If you want more people to upgrade to your annual plans, offer these plans at a discount price. Paykickstart, for example, offers two free months for free if you opt for an annual billing:
Many SaaS businesses show an annual option by default. You can see this trick in action on Sumo pricing page: It open up on the annual option first and you can switch to a monthly option to get quite disappointed by the price:
How easy is it for your paying customer to switch from monthly billing to annual billing?
Taking care of your current customers first is your best decision. If someone has been paying you monthly, they may be willing to switch to an annual billing to save money and time keeping track of those payments.
But do they know how to do that?
Make sure there’s an easy and clear way for your current users to switch from a monthly plan to an annual billing plan.
Email automation is one of the most powerful customer engagement methods. You can set up easy rules to reach out to customers who have been your monthly paying users for a while.
Another idea is to promote your annual subscriptions in free trial expiry notifications. Or you could reach out to those users who viewed your pricing page but never upgraded.
PayKickstart offers a wide variety of email marketing integrations including ConvertKit, Mailchimp, Getresponse and more. You can integrate your current marketing automation solution by going to your PayKickstart Dashboard by opening “Integrations” and clicking “Email” tab:
To be able to segment and personalize your email notification, select “tags” you want to either add based on each customer’s actions. This will help you to personalize some of your email marketing triggers.
Finally, if you feel like annual billing is something you really want to focus on, consider creating and promoting exclusive features that will be available only within your annual plans.
This is what Skillshare is doing: Just about any advanced feature they are promoting is only available to their annual subscribers:
Converting your free and monthly users to annual subscribers will improve your cashflow and increase your retention rate. This is a great way to boost your subscription business.
If you are looking for a new way to increase your revenue and build brand loyalty, start working on generating more annual subscribers. This way, you will lower your churn and create a more predictable revenue. Good luck!
Ann Smarty is the Brand Manager at Internet Marketing Ninjas, as well as co-founder of Viral Content Bee. Ann has been into Internet Marketing for over a decade, she is the former Editor-in-Chief of Search Engine Journal and contributor to prominent search and social blogs including Small Biz Trends and Mashable. Ann is also the frequent speaker at Pubcon and the host of a weekly Twitter chat #vcbuzzRead More About Ann Smarty