Senior Writer: Paras Kela
Date: February 18, 2024SaaS products deliver a high level of customer satisfaction. Easy monthly subscriptions allow SaaS customers a great deal of freedom, affordability, and flexibility. Most customers seem happy with it. However, as a SaaS provider, you naturally want your customers to sign up for annual deals whenever possible.
Annual contracts increase the cash flow, create some level of predictability, and decrease your churn. But, how do you get your customers to commit to your product or service for a whole year?
It’s a step-by-step process. One shouldn’t be too aggressive in pushing prepaid deals and annual contracts. The key is to strike at the right time. You must know when to sell annual subscriptions.
When Should You Start Selling Annual Subscriptions?
Suppose your SaaS startup registers below $1 million in Annual Recurring Revenue or ARR. In this case, it is advisable to not focus on selling annual deals. Instead, try keeping the customers on monthly plans.
You may wonder why. Well, to understand this you must understand churn. You need to figure out how long people choose to stick around.
On the other hand, if your business brings in more than $1 million in ARR, it could be a good time for you to begin offering annual plans. These plans can be either billed
- Annually, paid upfront (pre-paid), or
- Billed in monthly installments.
It doesn’t have to be a choice between monthly or annual plans. Even though most of the SaaS companies offer one or the other, you can freely offer both. Researchers at Price Intelligently suggest that about 20% of SaaS companies offer both monthly and annual plans.
Benefits and Pitfalls of Selling Annual Subscriptions
While any SaaS business would love to have annual subscribers on board, one must also be acquainted with its downsides.
Benefits:
- Lower churn
- Visible red flags when customers seem reluctant to commit to your product
- Higher predictability
- Increased cash flow owing to prepaid deals
- Attracts high-value customers, thus increasing ARPU (Average Revenue Per User)
Downsides of Selling Annual Subscriptions:
- Forcing a commitment- your unhappy customers will have no other option but to stick around
- Churn illusion
Why Should You Be Selling Annual Plans?
Despite the downsides, selling annual subscriptions can be quite lucrative. Let’s take a look at this recent study done by Price Intelligently. The study found that Saas companies endure varying levels of churn rates depending on the number of annual subscribers they had. Here’s what they found:
- Without annual contracts, SaaS companies registered a 9% churn rate
- With 1/4th of their customers on annual contracts, SaaS companies had a 7.5% churn rate
- With half of their customers on annual contracts, SaaS companies saw a 6% churn rate
- With 3/4th of their customers on annual contracts, they registered a 5% churn rate
- When they had all their customers on annual contracts, SaaS companies observed a 3% churn rate
If you’re a SaaS business selling monthly plans exclusively, you’re probably thinking that a 9% churn rate isn’t a big deal. However, this small and seemingly insignificant 9% can cause you to lose 67.7% of your customer base each year. We’re sure you’re thinking differently now.
Drafting the Perfect Pitch
It’s important to pitch the idea of an annual subscription effectively to your customers. Here are some things to bear in mind:
- If your customers love using your product, it will be easier to get them to commit to an annual payment plan.
- Offer your customers a meaningful benefit for letting go of the flexibility and affordability of a monthly plan. Offer them discounts, premium facilities, features that are usually accessible only on higher tiers, and so on.
- Frame the deal as an investment in the relationship. You may subtly convey to your customers that if they commit to a long term plan, you will work harder for them.
Many SaaS products companies do not realize that they do not just provide their customers with a toolset. You get to “serve” them. This prompts a very completely different outlook on the vendor-customer relationship. Changing your approach in this manner will help you to stand out in the crowd, and differentiate yourself from other companies in the market. A service-oriented approach will improve your chances of getting more annual subscribers on board.
But, how exactly do you approach a customer who has been happily spending on monthly subscriptions for a while now? Let’s take a look.
#1. Email Customers
Here are some helpful sample email templates that you can send your customers when you want them to upgrade to an annual plan:
Email template if you wish that they upgrade to annual plan themselves:
Subject line – I want to offer you a better deal for *product*
Hi *first name*,
I hope you’re having a nice day. It’s been a while since you started using *product*. We are very thankful to you for that! As an attempt to strengthen our bond, we’d like to offer you a better price.
Do you see yourself continuing to use *product* a year from now? If yes, here are some better deals that will help you get more bang for your buck –
Option 1: Opt for an annual contract and make monthly payments and get a 10% discount
Option 2: You can opt for our prepaid annual contract and get a 15% off on the total price of *product*
Just let us know what you prefer before * date* and let us handle the rest!
Cheers!
*Your name/company*
Email Template for Setting Up a Phone Call:
Subject line – I want to offer you a better deal for *product*
Hi *first name*,
I hope you’re having a nice day! It’s been a while since you started using *product*. We thank you for that!. As an attempt to strengthen our bond, we’d like to offer you a better deal.
Let us have a quick conversation this week and come up with ways for you to save more while making the most out of *product*.
Please reply to this mail with the best day and time to reach you for a 10-15 minute phone call this week. We look forward to talking to you at your convenience!
Cheers!
*Your name*
When you do send the email, always remember to follow up with your customer, since that’s the key.
#2. Phone Script
Once you’ve successfully scheduled a call, you must prepare for it and perfect your pitch. Here’s a pre-written script for you!
- You – Hi *name*, is this still a good time for us to chat?
- Customer – Yes
- You – Great! You’ve been with us for quite some time now, and I just wanted to check with you to see how things are going.
- Customer – *Answer, Going great*
- You – May I know what have you enjoyed most about using *product*? (This is to remind them why they love your product)
- Customer – Our team loves features XYZ. But, we’ve had this issue/we have a question about the feature Z.
- You – *answer questions* Other than that, is everything else okay?
- Customer – Yes
- You – Do you see yourself using our product for another year?
- Customer – Yes.
- You – That’s awesome! Why don’t you switch to annual billing to get a better deal and save some money?
- Customer – How exactly does that work?
- You – It’s pretty simple. You could pre-pay for the year, thus switching to annual billing and get a 15% discount. In this way, you will not have to bother with making monthly payments, and you save some money. (Calculate the actual amount over an entire year for them. Mention that the savings will be even bigger if their team grows and they add more users)
- Customer – I see, but that’s a big at-once payment. We choose to keep paying monthly for our cash flow.
- You – That makes sense. So if you could pay monthly, and still manage a discount, would you still be interested?
- Customer – Yes.
- You – I have a great option. You can sign a 1-year contract with us, and thus you get a 10% discount. You still pay monthly, all the while saving money. How does that sound?
Objections
1. Customer – We don’t want to commit for that long. We’re running a small business, and things change often.
You – It’s understandable. Do you believe it is a safe bet that you will be around in a year? Do you believe you’ll hire more people later this year?
If yes, taking a discount now will just make good financial sense.
Also, anytime you hire anyone new, you will automatically save money on each new license, without having to commit to keeping those licenses. Makes sense, right?
2. Customer – We’re a Startup, so cash-flow matters the most.
You – Exactly. That’s why the one-year contract is such a great option. You save 10% on your bill monthly. That’s hundreds of dollars saved, making your cash-flow situation better than ever!
Which Sales Model Should You Use?
Choosing the perfect sales model is important. This decision can be determined by the product itself. Here are some factors to consider:
- The complexity of the product
- Assistance required to get started
- Price
The chosen sales model will then determine your priorities and working methods for your sales team. Here are some key sales models –
#1. Enterprise Sales
- It’s also known as complex sales. It is a term referring to the sale of goods and services to an enterprise-level customer.
- A group of specialized salespeople in your company can focus on a very narrow group of prospects and broker strategic deals. The efforts of these salespeople can be enhanced with the full support of the marketing and product teams. To further amplify their effectiveness,
partnering with Nuoptima SaaS SEO Agency could provide the strategic edge in digital
marketing, ensuring that the company’s online presence is optimized
#2. Self-Service in Sales
- It aims at making it as easy as possible for their customers to serve themselves.
- Customers can start paying for the platform without needing to be contacted by a salesperson.
#3. Transactional Sales
- A majority of customers feel more comfortable interacting with a salesperson before investing, especially when SaaS offerings are expensive.
- It allows them to verify the legitimacy of your business and have your answer their questions.
What SaaS Sales Metrics Should You Measure?
Here are the main SaaS sales metrics you need to measure to boost your monthly recurring revenue (MRR) –
Annual Contract Value (AVC)
It involves breaking down a customer’s contract’s value over a year, helping you to get a clearer picture of the MRR.
Annual Revenue per Account (ARPA)
Divide your MRR by the number of active accounts. This will give you an idea of the average revenue to be generated.
Customer Acquisition Cost (CAC)
Divide the entire sales and marketing costs by the number of new customers.
Win Rate
Divide the number of opportunities won by the total number of opportunities both won and lost.
Wrapping Up:
Selling annual SaaS contracts is one of the best ways to enhance customer retention, maximize profitability, and survive the competition. The key is to move with caution and strike when the time is right. Do let us know what you think in your comments!
Paras Kela is a highly skilled SaaS content writer with over 7 years of experience in the IT field. His expertise lies in simplifying complex technical concepts for easy comprehension. With a portfolio of over 100 high-quality blogs covering various SaaS topics, Paras’s writing style is engaging, informative, and SEO-friendly, ensuring maximum effectiveness. He continuously updates his skills and knowledge to stay current with industry trends, making his writing relevant and reliable.
