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.
I would NOT recommend changing the 2 months off; you'll annoy your most loyal customers.
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.
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.
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.
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.
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.
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.
After all, the early adopters got it for "practically nothing". Allow early adopters to bring in one friend a year at their price..
Ultimately though, talk to your users! That's how you'll find out.
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.
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.
But, yes, in general a lot of SaaS service could probably raise prices.
And also in general, annual billing is appealing.
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.
the typical two-months-free-if-you-pay-annual thing
you see everywhere
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.
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.
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.
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.
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 ;-)
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.
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.
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.
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.
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.
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.
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?
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
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.
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.
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.
It's the opposite. People on the yearly plan have the lowest tier, it's the cheapest one.
Jason Cohen goes into why annual prepays are great for bootstrapped SaaS.
Does anyone else hear patio11's voice in their head shouting "YES"
So good job!
Hard to speculate without comparing churn.