Annual contracts = commitment

An annual subscription makes your life easier. Because with them, your customer is making a deeper commitment. 

It feels more like love than lust, trust me. 

So—let’s go through the data, first revealing how annuals impact customer decisions.

Less purchasing decisions

The appeal of annuals comes down to the customer’s decision-making process. 

Annual contracts leave customers with only one purchasing decision per year—versus twelve. Data has shown there’s a strong correlation showing that as you increase the number of annuals, you’ll see a reduction in churn with those customers. So in comparison to their monthly counterparts, annuals are a big player in overall happiness.

Long-term commitment equates to long-term relationships.

The annual spectrum

Soooo, where should you be on the annual spectrum?

We’ve found that annual subscriptions as a proportion of overall subscriptions shift depending on your ARPU—with low and high ARPU products seeing annuals at over 50%, while mid-range ARPU companies drop to 20-30%. 

And it makes sense if you think about it like this: Low and high ARPU products are annual-friendly, because of the low relative price point on the low end and the forced annual contract on the high end. 

But you can definitely use those percentages as a gauge for your own numbers.

Optimize the relationship

A healthy relationship must also have communication. 

The biggest communication problem a lot of us have is that we listen only to reply, not to understand. 

You must optimize your user relationships by doing just that—understanding where the best point is to ask for an annual upgrade, which, for most businesses, is not directly in the initial buying cycle. 

You wouldn’t ask someone to marry you on the first date, right? I mean, more power to you if you do, but patience is a virtue, my friend.

If you can communicate this ask directly, clearly, and at the optimal moment, it’s time to pick out a venue and flowers (Oh, and a signature cocktail). 

Advice & more resources

Alright so, what are our life lessons here? I think we did pretty well for ourselves. A goodie bag of sorts, you can take away and implement. 

1. 1. Annuals reduce churn. 
      
      
   2. Your annuals should be at least 30% of your customers and much more if you’re a very low or very high priced product.
      
      
   3. You should ask for an annual commitment at sign up, but realize that most of your annuals should come from asking customers after they’ve been in your product for a month or two.

A yearly payment option is important for every SaaS company. Securing more business up front allows you to focus on your user, increase your cash flow, and foster the most solid user relationships moving forward. 

Here are some additional resources on annual contracts: 

To read how annual contracts reduce churn → click here

Click on the link to read more about annual contract value

📈7 day +1.06%     |      📈30 day +4.36%      |      📈90 day +12.73% How are churn and new revenue trending over time? MRR GAIN +0.26%