Ask HN: My startup has more annual subscribers than monthly. What to make of it? | Hacker News Reader

Ask HN: My startup has more annual subscribers than monthly. What to make of it?

I very recently realized that my product has more annual subscriptions than monthly ones. This was very surprising because it goes against everything I've read online. I offer only one tier that gives you access to all features; it costs $X/month or $10*X/year (the typical two-months-free-if-you-pay-annual thing you see everywhere). The split in subscribers between the monthly and annual plans is 44% and 56% respectively and I don't know how to interpret this information.

Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? I'm know that HN always suggests increasing prices all the time, but I'm wondering if my situation is an even stronger signal to increase prices.

Does this mean I should offer more than one tier and segment the market with different features for different prices?

My product isn't very niche or anything like that. It's a typical internet/web SaaS, so I believe most advice should be generally applicable.

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2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I personally have a few items I pay for annually because I don't see myself stopping from using it AND there is no obvious replacement.

I would NOT recommend changing the 2 months off; you'll annoy your most loyal customers.

He can keep that pricing tier/billing plan for existing customers and create a less generous one for new customers. I would keep reducing the discount until sales fall way off.

What metric confirms that correlation?

It's basic pricing strategy:

Kevin Hale - Startup Pricing 101

https://youtu.be/jwXlo9gy_k4?t=578

So if you drop the price a dollar the day before Christmas Eve, sales drop, you can't drop the price any lower?

you can grandfather existing customers into old plans and still experiment with pricing.

I absolutely don't plan to change any existing subscription; everybody always gets grandfathered in forever. The early adopters' invaluable feedback + potential bad rep from raising prices is reason enough. I'm mostly looking for advice on how to price things for my future customers :)

>2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term.

I too pay for some things on an annual basis (e.g. email). I guess never expected my product to be sticky enough for people to want to go annual straightaway. To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?

A company I bought a plugin from, had a one fixed price for all time. They kept all the old customers in that bracked, but new customers have to buy a yearly fee.

So I would create a new subscriber role and simply let your new customers pay a bit more.

It is wise to be upfront with existing customers : say you have need for more funds or more investments, relay that to your existing customers, say you are keeping their price (indefinitely if possible) and that new customers going to go into the new tier.

If your product is priced well putting a year down makes sense. I only want to worry about you once a year.

I've often thought about giving a one month option and a three month option (quarterly) and yet I haven't really seen this in SaaS... do you think there might be some people who would prefer to only worry about it once every three months?

It's the worst thing you could possibly offer.

Customers will notice a "large" bill every three months. It's just infrequent enough that they don't remember what it was from 3 months ago. It's just large enough that they really want to check where the hell is all that money going to. Customers will investigate and that can only result in cancellation.

A monthly subscription is designed to be easily approved by a middle manager (and fly under the radar). A yearly subscription is designed for customers who plan ahead or cannot do recurring payments (recurring invoices/approvals is a huge pain to deal with).

I found this really helpful, thank you!

> how do I monetize this stickiness to extract maximum value from future customers?

Don't. Focus on acquiring more customers instead.

Or do it but without screwing current customers, use them as your free marketing force giving them even more discounts to honestly give you good reviews / recommend to their friends with a referral program. Instead of putting that money into adsense of fb ads, put into your current loyal customer base to help you grow it organically.

Worked for PayPal, Uber, AirBnB, etc..

> To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?

Addons/extras/upsells. Find some features that might make the most sense as something that exists outside of your current pricing structure, maybe due to specific fixed costs of some sort that don't make sense to roll into the plan pricing, and offer them a la carte at like $20/mo or something. This would allow you to bump your ARPU a bit.

Another option is services. Not knowing your product, its hard to make any concrete suggestion here, but data migrations and initial account setups are common ones.

If it's not broken don't fix it. I would focus on the top of your funnel to increase sales.

Also, you want to have more annual subscribers than monthly. It's almost certainly more profitable. You're essentially giving up 1/6 of revenue in exchange for guaranteed 0% monthly churn. A simple estimate of what your breakeven monthly retention is: 98.5% = (5/6)^(1/12). So if you're losing less than 1.5% of your customers monthly then this would be unprofitable.

I sooo disagree. Mispricing could be leaving massive value on the table plus increased margin can allow you to pay more for user acquisition.

Your approach sounds like the mindset of chasing growth instead of sustainability. Short term gains over long term value.

Quite the opposite. As a niche becomes saturated with competition, user acquisition costs rise to approach the level of the highest margin player. If you want to have a sustainable business it behooves you to have better optimized margins than the competition.

I don't really see any evidence that there is mispricing. Pricing is complicated and sure if you raise prices, maybe you make more money or maybe you kill your LTV while exposing yourself to potential undercutting from competitors.

In a growth business, raising prices is usually the last thing you want to do to make more money. If pricing is broken, the costs only accumulate until you fix it while if you build value for users (and increase retention), you get returns on that in perpetuity.

Obviously any advice is meaningless without full context but focusing on pricing is usually a sign of a business that can't find any other way to grow. Or that the unit economics were wrong. Unit economics are usually not a problem with SAAS businesses with a $0 marginal cost.

But it could be an opportunity to improve, as well. I would start by investigating how customer segments are converting. One hypothesis could be that you have more annual subscribers because more uncertain users are not signing up at all. Maybe the monthly plan is too expensive for testing or the messaging is unclear.

Because the discount rate of the yearly plan is financially very attractive (17% off), there are really two main reasons people go for the monthly option: 1) they are unsure if they are going to like your product enough to be willing to go for the bigger commitment of the yearly subscription 2) they can’t afford the yearly payment upfront (this is especially valid for very expensive subscriptions)

On the yearly subscription, do you charge for the entire year upfront? If not, you are eliminating reason 2) above to go for monthly

How is the distribution of vintages of your user base? Depending on your growth (and churn) rate, the distribution of old (>1 year old) vs. new (<1 year) users might drive more yearly subscriptions: the slower you grow, the more old users you will have in your mix of paying users. Old users already know they like your product and are much more willing to take the commitment of the yearly subscription to get the financial savings.

...so that might explain why you have a majority of annual plans. It’s always a good idea to experiment with your prices and segment the market, it’s almost always a good idea to do it without disrupting (too much) your existing user base.

> On the yearly subscription, do you charge for the entire year upfront?

I mean, to my knowledge, that's the whole reason to give a discount for the yearly payment. Isn't it?

Also, but not only. Yearly subscriptions in itself guarantee that the user commits to 12 months and can't cancel during those 12 months

if it's not upfront, they can always stop paying. you don't want to sue your users for breach of contract over a $5/month subscription.

> can't cancel

That's how you get angry posts on social media. See: Adobe.

I think GP means "cancelling doesn't get you a pro rata refund" (which you wouldn't expect if billed annually) rather than you literally can't cancel :)

I suspect that has a lot to do with billing monthly for an annual plan. That leaves people deciding whether to continue paying for a service that they are not using or paying out a penalty in excess of the monthly rate to terminate the service. Both options leave the impression that the company is trying to punish the customer. Contrast that to paying for a year upfront, where the customer is more likely feel foolish for paying for something they did not need.

I think the angriness was from Adobe refusing to cancel now effective at the end of the contracted year - i.e. making a simple "does not renew" note - more than 30 days before end of contract, or somesuch. Therefore catching forgetful customers paying for a second unwanted year. "Understandable", as they say.

Yearly contracts paid monthly give a great income predictability already which mitigates risk. Also customer retention / CLV might be better, because users pay until the end of the 12 months despite stopping using the product earlier.

There's more risk there, though, no? A customer could cancel before the end of the year and simply stop making the remainder of the payments. Sure, there's recourse, both through the credit card companies and courts, but that takes time and effort and possibly lawyers (aka money).

If you require annual customers to pay the entire year up front, you get the money, and that's that, barring credit card chargebacks.

and they're a pita for business users -- they have to deal with either reimbursing or at least tagging 12x the charges on their personal or business card.

It's predictable revenue. I've committed for a year but paid monthly before. You generally get more of a discount if you pay up front, though.

>On the yearly subscription, do you charge for the entire year upfront?

Yes. The annual subscription is < $250/year, so I don't believe it's expensive enough to stop people purely because it's a big charge.

>How is the distribution of vintages of your user base?

My startup is fairly new (12-18 months old), so I don't have much insight into such statistics. However, I will note that growth has somewhat stagnated (<4% MRR growth every month). While I'm not looking to grow rapidly and I don't have any external pressure to grow (no VCs :)), perhaps the stagnation is a good motivation to introduce segmentation, higher prices, etc.

>it’s almost always a good idea to do it without disrupting (too much) your existing user base.

Absolutely. I always grandfather existing users and I have a few dozen very early users who are paying peanuts compared to the current pricing. I value their super early feedback a lot in shaping my startup, so I'm happy to grandfather their subscriptions forever. I even get emails every now and then from some early users asking if I could "upgrade" them to the current, higher pricing!

Sounds great. Maybe, in addition to working on price segmentation, one way to leverage the behavior (“stickiness” as you call it) of your users is to create a mechanism to make them refer new customers to you: you can create an inexpensive growth engine, for example like Dropbox did with its referral program.

> Yes. The annual subscription is < $250/year, so I don't believe it's expensive enough to stop people purely because it's a big charge.

One point to add - If I bought it for a month and liked in enough, I'd get annual for that price just to save me the hassle of getting invoices/receipts each month and having to run them through accounting. One payment, one invoice, done for the year.

Two things:

1. you could keep you customers happy by changing nothing.

2. if you have a money-back policy on your annual plan (eg: pay in january, cancel in june, get ~50% back on what you paid) that effectively means that you're giving a discount for an only apparently sure earning. I'd give a look into that.

Number 2 is actually pretty common. Maybe not as an advertised policy but if you write to cancel reps will often give a pro rates refund.

This may happen more in businesses which figure you may be back someday.

I would go further and expect number 2 to be the norm. If I pay for a service and I'm allocated and the service is up and available for 6 months and I have 6 months left I would expect the refund to be 6 months and not from the beginning of the contract. They've already spent the money and you've already earned the money at that point.

But then it doesn't make sense to have the yearly subscription (and 12 months of contract duration at a time). Then you can just have the monthly subscription.

Charging someone’s credit card 12 times a year has a definite cost. Having the funds ahead of time is also worth more than earning the funds one month at a time.

I think you are approaching it from a different place than I am. If I get into an annual contract I have the expectation that I would be paying the full amount up front to secure the discount and that I would be utilizing the full amount of the term. If after six months I stop then that's for some new reason that was not there in the start. At that time I would expect a rebate for the services that would not be rendered. I could be a six month customer or a ten year and six month customer and have the same expectation. Things change.

What I've seen that can be effective is to not have a pro rated refund but have the ability to pause the account. This means that the discount for the 1 year commitment still makes sense but shows that you're willing to work around the customer's life or issues.

I'm happy to pay annually if the product is good and the 2 months off makes it worth it.

Without 2 months off I'd pay monthly because canceling is easier.

With 2 months off the reasoning is I like the product and can save some and don't have to think about the monthly cost. If in a year I don't find myself using it I can then decide on renewal.

Usually it's like $5/month or $50/year or something - I generally dislike tiny monthly subscriptions, it obscures costs and feels like death by a thousand cuts. With annual I can think about the value and decide and the 2 months savings makes it worth it.

Not sure from a business perspective, but from a user perspective, I sign up for the annual plan when I feel confident I'm not going to stop using the service any time in the foreseeable future. So I'd take that as a good thing!

If it's B2B, it's easier for business customers to get a once-a-year expense paid than to get authorization for a monthly charge to a corporate card. Many organizations don't like having their corporate card numbers enrolled in open-ended recurring charge plans.

Yup. Also if you’re in a more bureaucratic jurisdiction (like Sweden, where I am) then the bookkeeping of monthly charges can be more expensive than the SaaS.

I see. My product is somewhat in between B2B and B2C (i.e. plenty of regular folks subscribing for their personal use, but also plenty of companies using it). Perhaps this is a strong signal in favor of price segmentation to make future B2B customers more than personal users?

B2C random internet user here, it's more complex than that for me and not always about price. I'd say the thoughts go something like this:

- is this a product that involves a lot of personal time to get started with and migrate away from? (example: cloud hosting for files and photos)? With this type of product, I'm going to spend more time on the initial 30 day evaluation, and if it suits my needs then I go right for the (multi)year contract. The personal investment is large (get all those photos uploaded, e.g.) so my chances of leaving after a few months are statistically unlikely.

- is this a product that I can walk away from with no real loss? (music streaming service) well this a service which quality can vary month over month, I'm more likely to use monthly pricing just so I can cancel at any time if I don't like it. I have no real investment to your brand, yeah it's nice but there's 100 others out there I can move too easily.

Usually with a multi-year discount, I'll buy the first year just to be sure and if I still like it after the first year, I'll buy multiple years. Just so I never have to worry about randomly missing a payment or somehow "losing" it (my login, my access, my files, etc.) but balance that against "how long will this company be around, really?" - it's a sense of security over time because I've invested a lot of personal time into the product. Walking away is not in my plans at the time.

Third reason that doesn't fit for you but is also a thought: is this a donation to (open source project)? Will I give them more money - less recurring middle-man processing fees - by paying one lump yearly sum instead of donating monthly? I use Liberapay for some FOSS donations and they tell you to do this straightaway, one lump sum is better for the receiver than monthlies.

> Perhaps this is a strong signal in favor of price segmentation to make future B2B customers more than personal users?

Only if you can differentiate value meaningfully also. And I don't think it's a strong signal of anything.

This is entirely dependent on the business and the pricing of the product. Monthly SaaS was basically crafted in order to bypass the procurement process, to make it easier for business customers to buy software on the corporate card. Part of pricing a b2b product is to understand the procurement process as well. A lot of b2b products have price breaks built around common procurement limits (i.e., 249/mo and 499/mo because common customer single transaction procurement limits are 250 or 500)

My opinion as someone who is running a SaaS business: - Annual contracts are better than month-to-month, because you will get a customer for a year in most cases, extending your LTV - Customer choose annual not only for the pricing discount but speaks to their commitment with your solution. I take it as a great product market fit indicator. - Your price should be aligned with your competition. You can increase prices for new users but don't increase the price for your existing pay customers. - Offer your monthly customers the option to upgrade to annual as well

I generally purchase annual for thing where I feel like the product is going to have the same utility for me the entire subscription period.

Fastmail, which I’ve used for years, I’m willing to pay two or three years up front.

The new thing I found last week I pay monthly was a disposable card.

Maybe your customers believe your product is useful and they’re not concerned about it failing to work in 6 months and maybe it’s mostly used by businesses which typically think in terms of yearly rather than monthly when it comes to ongoing expenses.

There are so many things one could say about this.

But, from my own experience I have to tell you to do this: Talk to your customers. But not randomly. Talk to them immediately after they have bought their product.

Then go and "interrogate" them. Don't ask directly, but indirectly why they chose this or the other plan. The key is to really understand what the circumstances were when they decided. What made them flip into one or the other direction.

You won't find that knowledge "online".

If you want to know more about the interview style, watch this video: https://www.youtube.com/watch?v=blTNLVuRU6k - starts at around 14:30. I would watch the whole thing though.

Reward early adopters by keeping there prices the same, up the prices for all who come afterwards, generate fear of missing out when it comes to word of mouth.

After all, the early adopters got it for "practically nothing". Allow early adopters to bring in one friend a year at their price..

Where are your customers in the world? Many non-US countries have little/no credit card presence, so if you don't have an international-friendly payment option like PayPal your customers may be using "gift card credit cards" purchased from a store. It's easier to do this once a year than once a month.

Ultimately though, talk to your users! That's how you'll find out.

Those gift card credit cards don’t have the first year free of service fees? I think In the US they do, but no idea how the market is world wide.

> Many non-US countries have little/no credit card presence

Was that statement accidental horrible wording or did you actually mean it ?

If the latter, then you must be one of those many Americans that needs to travel more. The rest of the world are not neanderthals who've never heard of credit cards.

Go to Kenya (Africa) and the only reason you might struggle to pay by credit card is if the merchant has decided to prefer payments via the M-PESA money transfer phone app instead which is what most of the locals use. So you could say a number of non-US countries are even ahead of the US !

But of course I hope your wording was accidental, in which case I apologise for the three paragraphs above. ;-)

In Germany for example, a lot of people have no credit card.

We should always be on guard against such things, but is parent's statement really bad?

It didn't imply that other countries are backwards, or that their people are "neanderthals who've never heard of credit cards."

It's a fact that credit cards simply aren't equally popular in all parts of the world and naturally this is something that must be taken into account.

This includes places that are arguably more advanced than the US. Of which there are many many many many.

Dunno, in a lot of europe, though credit cards are readily available, most of my family (I have relatives in Germany, Austria, Slovenia, Croatia) doesn't have or want them. They have forms of payment which are strange to me but basically are some form of bank debit card, accepted everywhere. Or fancy phone / app payment methods we can only dream of here.

I didn't read the OP as necessarily implying technical or cultural superiority; credit cards are big in US and may or may not be big somewhere else, as you point out as well, so I felt the quoted statement is quite plainly factual rather than layered with hidden or interpreted meanings...

How do you know what cards your relatives in other countries have?

I mean, if genuine question, how do you know anything about your family? :)

You talk, you notice when you go shopping together, etc :)

Of course it's a genuine question. I am calling you out. You don't know what cards they have. You have gone shopping with your relatives in 5 different countries within the last year? You know that they haven't gotten new cards or changed their habits since you last saw them? You don't talk about credit cards that often. :)

You make an assumption because of some info at some point in time and think of it as a constant fact. :)

For example, I know my brother had a credit card. Does he still have it? I would have to call him and ask him. :)

When a form on a web-site says CC (Credit Card) I can always pay with my debit card. (Unless you're talking about another sort of debit card that isn't what I call a debit card - "a MasterCard/Visa/etc with no overdraft).

To me it seems like some people use the term "credit card" for any bank card, while some actually mean the "credit" part. While "credit" (non-debit) cards don't seem to be THAT popular in the European part of the world, I think that bank cards are pretty much ubiquitous.

For what it's worth, what you have is a Visa Debit (or Mastercard Debit) card, though the branding on them isn't consistent. Debit cards that can't interop with the Visa/Mastercard networks do exist, I have one .. mostly because I'm lazy and haven't asked for a change.

Dunno how rare they are, I suspect rare, but I can't find any numbers with a quick search.

All of Canada uses debit cards that don't work over the credit network. Some banks allow you to request a VISA number that's linked to your chequing account (for online use only), but debit cards use the separate Interac system.

Interesting. I should have been clear:

I suspect debit-only cards are rare in the US. Outside the US: No clue at all.

I have heard debit-only cards in the US referred to as "ATM cards" occasionally, but that was a few years ago. I think if an account belongs to a minor child, it may not be possible to get a regular debit card (that also works with the credit card network), but an ATM card may be possible? That's the only reason I'm aware of to get one.

Yes, there's a different kind of debit card. I usually use a different term that's country-specific (like the cards themselves).

For Germany, a German debit card (the "other sort", as you put it) isn’t the same as any other. It doesn’t have Visa or MasterCard co-branding like other countries’ debit cards, nor a 16 digit number, so it can’t be used online. I might also use the term "bank card" for this, because there are actual debit cards with Visa/MC co-branding which are available in Germany, but less common than other types.

It's also common for Germans to use "Kreditkarte" to mean anything with Visa/MC co-branding, which probably spills over into English. This also leads to the hilarious term "echte Kreditkarten" (real credit cards) for cards that actually have a rolling line of credit attached (these are rarely offered).

However, in the UK I recall that people are usually specific about whether they mean a credit card or a debit card.

There is another debit card here in Germany.

I have such a card and it is neither a MasterCard or Visa card. It looks like a Credit card with a Chip and magnetic stripe, but it has my IBAN on the front instead of a Credit Card number. These cards are the standard here in germany. If you have a german bank account you get one of these.

You can use it pretty much like a Credit Card and you can even pay contactless with it, but I think you can only do so here in Germany. Though it does not work if you only support credit cards.

Since these cards are standard and free some people do not bother with a credit card.

>>When a form on a web-site says CC (Credit Card) I can always pay with my debit card.

Here in Canada, many debit/bank cards now have affiliation with Visa or Mastercard (obvious with a logo in corner), and CAN be used as Credit Cards.

But that hasn't been the case historically - debit/bank card would work on bank's ATM and related Interact/Plus systems. But until semi-recently would NOT work if you accidentally hit "Credit" instead of "Debit" on ATM or retailer's POS system, and would NOT work on websites requiring Credit card - completely different paths. And to my knowledge many bank/debit cards in Canada still cannot serve as credit cards - they just don't have that capability/afiliation baked in.

Note - I speak as a semi-observant customer, I have no systems-based knowledge of these things :-)

>which is what most of the locals use

That's the point GP is making. It's not that people can't use credit cards, just don't have one available at the moment they are ready to pay for your product.

Availability and usage is not the same. In Europe credit cards are widely available, but in some countries they are not used for various reasons, it can be cultural (ex: Germany) or bad conditions from the banks (ex: Romania).

I am in EU and around me people use credit cards only if America requires it for some reason. I don't even own it.

Credit cards are still pretty difficult to get in Colombia and some other countries in South America. You can get them, but you need a long relationship with your bank, and the process is expensive and time consuming for not very much cash back, so most people don't get them.

EU here. Credit cards are just a way to pay online. There are countless debit cards and every bank account comes with a card issued in partnership with a international service like VISA or Mastercard to enable online payments and money withdrawal at foreign ATMs.

Personally I hate monthly payments for things. If it is something I'm going to use I may as well get a bit of a discount and not have yet another payment coming out of my account each month.

Additionally I'm in the UK, so this won't apply everywhere. Some (Many?) bank accounts charge a flat fee on top of the currency conversion rate - again a reason to make just one payment a year.

I am another person that also avoids all monthly payments. Even yearly payments I always disable any recurring fees immediately after sign-up.

I will decide when money comes out of my bank account, how much I am willing to pay, and whether your product is worth the money.. not you. And I'd rather not spend time and energy doing this monthly.

Two things:

1.) My first (and most imminently actionable) conclusion is that you should immediately stop what you’re doing and give yourself some deserved praise. You’ve accomplished something unbelievably cool and achieved what I’d consider the ultimate in validation. Not only have you found some form of product/market fit, but your clients commit.

2.) What does data tell you?? How is your pricing relative to competition? Do you have clusters of users inside of the same organization? Do annual users have anything interesting in common? What does support/suggestion volume look like between monthly and annual? Pick four users who you would like to smoke a joint/have a beer with - are they annual or monthly users??

Basically, figure this shit out - you might be running into pricing theory (charge more) or this might be real serious insight into your customer base.

I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices.

But, yes, in general a lot of SaaS service could probably raise prices.

And also in general, annual billing is appealing.

> I'm a little confused on how you are interpreting the majority of your customers opting for discounted pricing as an indication that you should raise prices.

The way I see it, most customers are happy enough after a 30-day trial to commit to my product for at least a full year. That's a good signal for loyalty and the product being worth it for the price. While I agree that the discount aspect is a signal in the other direction, I think overall it looks like people will continue to subscribe even if it's pricier. That's why I'm leaning towards increasing prices. I don't know much about businessy things and I'm learning as I go, so take my opinions with a grain of salt.

I've had some really good suggestions in this thread to talk to my most recent subscribers to really understand why they paid annually straight off the bat, so I'm going to do that first before taking any action.

The consumer's choice isn't always buying the monthly plan vs. yearly.

It can also be yearly plan vs. nothing.

You're trying too hard to extrapolate information from a single data point.

You seem to be focusing on the yearly customers because you don't have the same mindset or budgeting habits.

If it were me, I would be looking at the monthly subscribers. How long they sign up for, what the retention rates are like, how many switch to yearly, reasons people give for canceling, etc. I would be trying to find out why my product isn't good enough for people to be willing to commit to it in exchange for a lower fee.

You've got a lot of good advice in this thread but you seem to be still seeing things from your own point of view.

I would recommend a couple things

1) Ask some of your subscribers why they chose one plan over another

2) Increase prices. It never hurts to find out where the balance of pricing vs conversion lies

3) Create additional tiers. It is hard to imagine any product where all users prioritize the same features the same way.

4) Celebrate. You are achieving something effortlessly that lots of other businesses try very hard to get.

Is there a community aspect to your site?

    the typical two-months-free-if-you-pay-annual thing 
    you see everywhere

Anecdotal, but --

When I ran a dating/social site back in the ancient mists of time, it was $4/month or $20/year.

So, more like seven-months-free-if-you-pay-annual. I felt it was successful at driving people towards the annual subscription. Since the annual subscription was such an obviously "better" deal.

In my case I was actively trying to encourage the network effect. I wanted long term community members, not monthly ones. After all, when paying for a site like that, you're really paying for access to the community.

Is there a value to having your customers around longer-term? Community aspects? Promotional aspects? ("40,000 active subscribers for $PRODUCT_NAME!") For many businesses perhaps the answer is "no" but it's worth considering perhaps.

If it's b2b and low pricing, could be that it's not worth the effort to deal with monthly payments.

I always use annual subscription if I plan to use the service long term. Less clutter in my accounts, less things to think about. And if I get 15% off it's even better. In fact, if I plan to subscribe I always calculate the annual price anyway - if it looks too high, then the monthly is too high too. It's the "dollar a day" trick - once you realize what is being sold to you is $360+/year or so - you may look at it differently. I don't know the nature of your service but if it's such that people are likely to use it for more than a year, I don't see what's strange in them preferring a better deal.

Think before you raise your prices though. Price, once paid, becomes an anchor. People would ask - he's asking for more, what extra services we're getting? If the answer is "nothing, I just feel I underpriced it and now I want more money", people would feel you're being unfair and bail, even if the original price was completely arbitrary. Once they paid it, it's now the fair price for them, and changing it requires "fair" explanation - even if the new price is as arbitrary as the old one.

If it truly represents the people trying to buy your service, it sounds like a great sign. But you should check that there isn't some UX issue causing you to lose customers trying to sign up for the monthly option.

It might also reflect some order flow impediment that affects both paths, but since the annual subscribers are more determined, more of them overcome it.

Something I haven't seen in the comments is simply that some businesses operate on an annual budget allocation, usually older, larger companies.

One thing I would suggest about pricing is not to get greedy - nobody likes to be charged more simply because they can be. If you're going to increase pricing, I believe the perceived value should also increase.

Depends on your product.

If service is something that seems superfluous, temporary, a lark - such as Reface or the myriad AI-repainters etc - most people will do the shortest period of time.

If it's a business / utility tool that people find reliable/useful, most don't want the hassle of constant billing. Two months off is a great incentive for something you KNOW you'll use. And believe it or not, some people want to support scrappy startups with useful tools - I've personally gone through so many useful things that have disappeared, that I'll actively support new ones so I can use them for a long time :)

As to what you should do, again, depends. Are you happy with your income, are your customers satisfied, is your growth what you expect? Don't feel like you have to change anything :).

Also, asking your customers may be a useful way to proceed to0 ;-)

> Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"?

Not necessarily. It indicates that people don't view your service as transactional, and that people like to feel like they're getting a deal.

If you want to experiment with higher pricing, you might try gating some of your features establishing a premium tier. I have done this with my browser plugin, which is $22/yr if you just use one browser, but if you want to use multiple browsers it's $40/yr. That has allowed us to price discriminate between lower-intensity users and higher-intensity users. We also donate 5 licenses to students in low-income schools for each purchase at the higher tier.

Don't take the idea to increase prices seriously, it is sometimes illogical: people talk about increasing prices and helping people to afford services in the same sentence. Keeping the prices constant and increasing the userbase may be a good way to increase your startup value, but extracting more money from the current users is not right.

Anecdotal evidence: if I perceive something as good value long term I am paying yearly for 2 reasons, one is the discount for doing it and second for the convenience of not having to care about monthly payment. I had Netflix suspended because they messed up the payment (they took the money, 3 times) and I had no solution at 1AM when I had the time to watch a movie, a yearly payment is a lot safer for such cases. Maybe some of your clients are like me.

I'm with everyone else that I would prefer to pay annually up front if the cost is not too high and having the service contract up for that period makes sense. From a more basic business flow I would expect that if you offer a straightforward $10*X/year plan that your expenses are built around that cost. I would expect the monthly cost to be higher to reflect the risk of not having a committed customer base and the overhead of getting payment from those customers.

As other people mention it would be assumed that $10*X/year would be billed upfront and that you would be 'paying' yourself out of that sum as each month is invoiced. Are you accounting for your liabilities vs. assets correctly and are still sustainable? Are you profitable month to month? Are you meeting your target income after expenses from whatever $10*X/year was supposed to be? Are you sure you are calculating all your expenses precisely from the prior calculations?

If you have 'yes' to all of the prior questions maybe you need to decide where you want to take your business in other areas. It might make sense to just focus on overall growth and not sweat this signal. It would be good to establish the churn rate individually for annual and monthly customers by activity as well as cancellation.

If any one is 'no' you might just have to raise prices because you have to raise prices because you're not getting out of the business what you expect. Raising prices to ensure that you are not just surviving but getting your piece is OK. At the same time maybe the price point is just a good price point and you could focus on growth.

More philosophically how would you subscribe to your service as a customer? If you'd say annually maybe it's just a service that works better annually. I would say Netflix is better month to month because the moment I stop using it is the moment it stops providing value, while a DNS name I have multi-year agreements on because even if I stop actively using it, it's still worth having the arrangement because I am paying just to have it be there for me.

1. This is really good. Your niche/customers/market is oriented towards the long-term. Might be time to go to some of these customers and try to find out if they are. Long-termness indicates more enterprise clients which means it's time to offer some sort of a "Business plan". These tend to sell for much much more at the price of some special support, exclusive access, etc.

2. You're too cheap and people don't want to do monthly penny pinching. You can do some A/B and experiment with rising prices. Depending on how you execute on this you might end up in a situation where you raise 2-3x for the exact same product without losing customers.

Both can be true at the same time...or none. Knowing your customers is half the battle.

17% off is a very good deal for the consumer when prepaying a year. Always remember the axiom that a sale happens when you sell something the other party wants at a price you both believe is fair.

Whatever you do, be careful not to add or modify plans in a way that would lose existing paying customers. As the other saying goes, a bird in the hand is worth two in the bush. An existing customer is worth a lot more than a prospective customer.

There are lots of changes you could make, but you may want to ask your existing customers first as to why they made the choice they made. Ask them how you can improve their existing service. That will go a long way to inform your future decisions.

Maybe this is obvious, but the optimal thing for a user who needs your product is to pay for the first couple months, then go yearly once they know they'll keep using your product. So it should be expected that most people will be on yearly. There's no reason for most customers to continue on a monthly plan forever. The behavior would be the same no matter the price (unless it's so high that people might sign up monthly once in a blue moon and "batch" their usage then), so I'd only take this as a signal that your product is good and it has loyal customers, not that its price is too low or high per se.

If your product has a lot of corporate customers, and paying yearly doesn't put them above their personal expense authorisation threshold, I wouldn't be so surprised - filling out 12 expense reports is a lot more irritating than 1.

This stats is going to create mess without actual numbers

Can you provide value of X ? Also #number of subscriptions? also growth rate? dropout rate? timeline?

My point any advice without enough data is risky to give and take. I hope you understand.

You need to look at a lot more data before drawing any conclusions. Are you selling to consumers or businesses? What's the split in monthly vs annual subscription for brand new users (vs those that changed plans on renewal)?

IMO users switching to annual plans after using your product for a couple of months is amazing. It means that they see value in the product and decided to commit to it.

Users opting for an annual subscription off the bat is still amazing - but also a tad suspicious. Maybe a combination of low cost and good marketing?

Your ARR is more predictable. Celebrate! You're living the dream.

Nothing. Your price has probably nothing to do with the split.

It just means people are with you for the long term and they like your product.

Your price should be linked to the value you are offering. If you think your value is more than the price people pay today, then increase your price to a value you are comfortable with.

What is your objective ? is it growth ? is it profitability ? is i number of customers ? do you have competitors ? are you selling to b2c or b2b ? I'm not sure we can give you any relevant advice without a lot more information

I think the only thing i can add is that a more complex tier system with more value added stuff is the only way to go. Its not necessarily a bad sign that you have more annual than monthly subscribers in fact its a sign of a healthy product campaign that is ingrained for long term exposure. Perhaps you could offer another tier of multi year subscriptions and see who is really a long term client and try to add some extra value for them rather than offering a discount. Cheers!

Here's my two cents.. I would first off send your customers a survey about where they find value and why they picked yearly over monthly.

Next - I would not increase prices. I would add value, and increase pricing on that. Add more features, and add another pricing tier that people can find valuable with these new features.

Continue to do that until you have multiple pricing tiers; (if you don't already). Then add value into those tiers and increase cost to reflect that extra value add as needed.

I think your discount is pretty fair for a 1 year commitment. Wouldn't change anything. If you do decide to increase prices at any point, consider grandfathering your current customers into the old pricing to not piss them off, as long as they are still netting profit for you. They're probably your best customers for adopting and committing so early and will probably be some of the best word-of-mouth spreaders and sources of free advertising for you.

My 2 cents: I was once in your customer shoes, and I choose the annual plan because it meant encouraging the product, helping it not to go bankrupt. If your product/company is quite new, and provide something that people love and want to make sure stays available, they will help making sure it does. In your case, pay for the annual plan means pay more money to you in the short term, helping your balance sheet

Dealing with internet/web saas stuff is the sort of thing I don't want to deal with more than once a year, so I wouldn't interpret that tendency towards 1-year plans as any kind of statement about prices. Honestly, I would replace the 1-month plan with a 3-month plan (no discount) just to discourage short-term customers, but that might discourage some customers.

Sounds like people rate your product, time for an enterprise version at a higher monthly tier level I would think...

One idea might be to focus on trying to convert monthly subscribers to yearly.

You could offer a subset of monthly subscribers a one-time upgrade to a yearly subscription at a prorated discount.

So people one month into their subscription could get the remaining 11 months for the annual cost minus the 1 month fee they already paid.

Are your customers individuals, small businesses, large businesses?

Is there a usage component you might add? Gb stored, social posts per month, etc

Have you reduced the risk for your users to choose annual, eg by emphasizing "cancel anytime"?

Seems like your users expect to use your product for a long time, that's great.

Maybe change your pricing plans for new customers but tell existing annual customers that they can keep the current deal as long as they stay subscribed. Then you can compare the split for new customers and old customers and see how your price change affects it.

Didn't netflix pull that one once?

Maybe you're defaulting to the annual billing on your website, like most companies do

What is the average tenure of cancellations? Do you have a lot of users canceling after just a few months? If so, you may consider switching to offering annual pricing only and/or trying to find out why your customers are leaving

> Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"?

It's the opposite. People on the yearly plan have the lowest tier, it's the cheapest one.

Please watch this video at this time stamp: https://youtu.be/otbnC2zE2rw?t=815

Jason Cohen goes into why annual prepays are great for bootstrapped SaaS.

personally I think it causes the least amount of bad will if you leave the existing plans at $10*X/year for the people that are grandfathered into those contracts. If you increase the price only on new signups you will keep your happy customers... this goes well with an email that says something like "we are raising the yearly fee on the SAAS however the good news is that you're grandfathered into your current pricing for as long as you maintain your subscription"

Personally when I like a service I tend to commit to it, so if I can save a bit of money by taking the annual subscription instead of monthly then that's what I go with.

Yeah we have month-to-month and 0% of our customers use it. Most organizations (and personally I'm the same way) prefer to make as few payments as possible.

Doing the accounts for monthly billed services is super annoying. I switch to annual at the earliest opportunity just to cut down on such drudgery.

I think it means you're dialed in just right.

Do you offer annual billed monthly? Some business prefer that - offer annual billed monthly at a $11*X/year, see what happens.

It might be your pricing is too low. Try to better evaluate how much value / saving they have using your product.

> Does this mean I should simply increase prices?

Does anyone else hear patio11's voice in their head shouting "YES"

Sounds like you are creating value, and customers are confident in doing business with you for a longer period of time.

So good job!

Are the numbers current subscribers or new subscriptions?

Hard to speculate without comparing churn.

I think people just prefer the discount. Out of curiosity what is your product?

I know at work I would never do a monthly bill. Too much reconciliation to do.

Annual customers are better than monthly: don’t kill that goose.

I think it’s working the way you want. Don’t mess with it.

This is probably a signal you should raise your prices.

Hi Trey, is that you?

throwaway account?

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