So, if that's the case, you're better off taking the extra x% percent that a monthly plan gives you.
I think the author was also making the point that while you might have all your money upfront, you won't manage it well so it lasts all year. Could you? Yes. Will you? No.
And from personal experience, depending on who your customer is, a yearly plan can make revenue far less predictable.. for a corporate customer there is a big difference between a $12k annual charge, and $1k monthly charge. The first they will scrutinize every year and question its value, while the second they might not even notice.
I've been on the other side of this in the corporate world too, and paying for stuff was always a horrible experience taking weeks at best, but often months. We'd always try to use OSS when possible, and built rather than bought far more often than we'd have liked, precisely because of how much red tape there was. Sometimes our preferred option only allowed monthly billing, and we went with an alternative instead, because nobody wanted to go through a protracted, painful, soul-destroying process of getting authorisation to pay monthly.
So the received wisdom says, but particularly with card payments, churn rates due to random charge failures are insane. On top of that, the services that handle the payments and subscription management are often relatively new and prone to making changes up to and including things like dumping their whole API or doubling/trebling their prices overnight, making them terrible business partners to rely on. Literally every such service we have ever used has done something like that to us at some point.
We are seriously considering dumping any form of recurring subscription, and all the baggage that goes with them, at one of my businesses. The proposed alternative is a simple tiered pricing model where customers have a choice of periods, with the longer ones being more cost-effective for them, but all payments are single, one-off charges only. This would be combined with something I'm seeing a lot lately, which is saving the customer's payment details so that extending for a further period can be done with just a click or two.
The alternative we've been considering is one of the services that goes further, outsourcing our entire payment and sales tax infrastructure to them as merchant of record. Given how prohibitively complicated sales taxes are becoming on international transactions if you want to stay compliant, I wonder if this might soon become the only viable operating method for small businesses and startups anyway. However, these services all seem to be really cagey about telling you what using them will really cost and how legally robust their strategy for sales tax management really is, and I have no reason to believe they will be any more reliable as long term partners than the billing/subscription services, so right now we're hesitant to pursue this idea.
I'd be very interested in the results if anyone else has tried either of these changes recently and is willing to share their experience.
I also question whether annual billing increases retention, when your retention is good already (say, 3-5 years projected lifetime). Sure, it lifts your retention when your average lifetime is less than a year, but does it really when you have very low churn? Or are those big annual bills going to be scrutinized more thoroughly than a monthly cost?
Regardless of retention benefits, if you've got predictable growth then annual subscriptions should be well worth the discount.
If you have a runway, already then it is great and optimizing for the cashflow is great. If you do not have a runway, the last thing that you want to do is commit to a long term delivery of something rather than charge the customer monthly.
I absolutely agree with your metric however, in that from a cashflow and churn basis this is a worthwhile hassle.
This, as opposed to simply billing monthly, continuously providing value, and reducing the headache.
Also I wouldn't automatically renew the yearly subscription without prior communication as that can result in unexpected charge on CC statement and thus a risk of charge-back.
I strongly agree with your assessment that Yearly is better than Monthly.