If one is to rate customer satisfaction, SaaS would surely be a 10. SaaS customers, owing to easy monthly subscriptions, enjoy a great deal of freedom and flexibility. They’re quite satisfied with it. But as a SaaS business, you want them to sign up for annual deals whenever possible. It’s fairly wanted since that greatly increases the cash flow and predictability, all while decreasing your churn. But given that they’re happy, how can you make them “let go” of the freedom and flexibility they enjoy and commit to your product for a whole year?
It’s all a step-by-step process. One shouldn’t rush to sell prepaid deals and annual contracts. But to know you’re not rushing or when the right time is, you must know when to start selling annual subscriptions.
When exactly should you start selling yearly subscriptions?
Suppose your SaaS startup is below $1 million in Annual Recurring Revenue or ARR, then it’s advised not to focus on selling annual deals.
Instead, try keeping the customers on monthly plans.
Why must you ask? Because first, you need to understand churn. See how long people choose to stick around.
On the other hand, if your business is above $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.
Understand that it doesn’t have to be a choice between monthly or annual plans. Even though most of the SaaS companies around choose to 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 customers opting for annual plans is desired by any SaaS business, one must also be acquainted with its fair share of downsides too.
- Churn is lower
- Visible red flags when customers don’t want to commit to your product
- Cash flow with prepaid deals
- Attracts higher-value customers, thus increasing ARPU (Average Revenue Per User)
Downsides of selling annual subscriptions are:
- Asks for forced commitment (unhappy customers have no other way but to stick around)
- Churn illusion.
Why should you be selling annual plans?
Despite the downsides, selling annual subscriptions should be preferred. The reason for that can be inferred from a recent study done by Price Intelligently. The study found that Saas companies –
- Without annual contracts, 9% churn rate
- ¼ customers on annual contracts, 7.5% churn rate
- ½ customers on annual contracts, 6% churn rate
- ¾ customers on annual contracts, 5% churn rate
- All customers on annual contracts, 3% churn rate.
If you’re a SaaS business selling monthly plans only, you’re probably wondering what a 9% churn rate isn’t a significant deal. But this small and seemingly insignificant 9% can amount to losing 67.7% customer base each year. Significant enough yet?
Crafting the perfect pitch is essential. The main idea that you want to sell them comprises –
- Once they know they love the product, they get ready for long term commitment (to be sold once they’re ready to commit)
- Offer them a meaningful benefit (for example – discounts, premium facilities, features that are usually accessible only on higher tiers)
- Frame the deal as an investment in the relationship (once you commit long term to us, we’ll work harder for you)
Many SaaS companies do not realize that they can offer a much higher value beyond simply providing a toolset for their customers. You get to “serve” them, and that is a whole different level of aesthetically pleasing outlook to the relationship. This outlook can really help you to stand out in the crowd, and differentiate yourself from other companies in the market.
But obviously, you can’t offer this level of service to customers who might not be with you after a month. So, who do you commit to? Why? Annual contract customers, of course!
But how exactly do you approach a customer who has been happily spending on monthly subscriptions for a while now?
For convincing a customer to switch from monthly to the annual plan, the best way is the old way – direct conversation. You can either:
- Email them, or
- Connect via phone call
#1. Email the customers
Here are some helpful sample email templates:
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*, for which we’re thankful. As an attempt to strengthen our bond, we’d like to offer you a better price for the same.
Do you see yourself continuing to use *product* a year from now? If yes, here are some options to get the most out of your bucks with a better deal –
Option 1. Year Contract (you save 10%, paying monthly)
Option 2. Annual Prepaid (you save 15%, paying annually)
Just let us know your preference before * date* and let us handle the rest.
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*, for which we’re thankful. As an attempt to strengthen our bond, we’d like to offer you a better price for the same. Let us have a quick conversation this week and come up with ways for you to make the best out of your bucks!
Reply to this mail with the best time plus day for a 10-15 minute phone call this week, all at your convenience!
Always remember to follow up, since that’s the key.
#2. Phone Script
Once you’re successful with scheduling a call, what’s next? 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 – What have you enjoyed most about using *product*? (remind them why they love your product)
- Customer – Our team loves features XYZ. But we’ve had this issue/We have a question about 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 and thus save money?
- Customer – How exactly does that work?
- You – It’s pretty simple. You could pre-pay for the year, thus switch to annual billing and get a 15% discount. This makes sure you don’t have to pay monthly, 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 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 while saving money. Fair enough?
- 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 then just make a sound financial decision.
Also, anytime you hire anyone new, you would automatically save money on each new license, without having to commit to keeping those licenses. Makes sense, right?
- Customer – We’re a Startup, so cash-flow matters the most.
You – Exactly, that’s why the one year contract is such a really 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 adapt to?
Choosing the perfect, suitable sales model is necessary. This decision is determined by the product itself. Factors influencing are –
- The complexity of the product,
- Assistance required to get started, and
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, the term referring to the sale of goods and services to an enterprise-level customer.
- It makes sense for enterprise-level customers, with specialized salespeople focusing on a very narrow group of prospects so as to broker strategic deals. These salespeople have the full support of marketing and product teams.
#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
- The majority of customers feel extra comfortable interacting with a salesperson prior to making an investment, especially when SaaS offerings are expensive.
- It provides an opportunity to verify the legitimacy of the business while they field their questions.
What SaaS Sales Metrics should you measure?
Sales have always been a game of numbers. Here are the main SaaS sales metrics you need to measure to boost MRR –
- Annual Contract Value (AVC)
It breaks down a customer’s contract’s value over a year, helping to get a clearer picture of 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 won opportunities by the total number of opportunities both won and lost.