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Annual vs Monthly Billing: Which to Choose for Your SaaS Business?

Annual and monthly plans are the most often used billing intervals in SaaS businesses.

Some entrepreneurs provide both monthly and annual subscriptions, some choose to put in their offer only one of them. How did they decide which pricing plan is right? What questions did they have to ask themselves before their offer took its final form?

Let’s take a look on both solutions and their workings, and determine which option would hit the spot for you.

Btw. If you don’t know how to use subscriptions (recurring payments) in your business here’s an article for you.

Annual Billings in Subscription/SaaS-Based Services

Using annual billing plans in your business means that the client makes only one payment for the whole year upfront. As nothing in the world is perfect, that one huge payment heads toward your bank account together with a set of advantages and disadvantages.

Pros:

Cons:

Monthly Payments in Subscription/SaaS-Based Products

With monthly fee you charge your product’s users every month. The customer pays more often, you get the money more often. Easy as that.

Is this a good option to implement? Just as with annual predecessor: both yes and no.

Pros:

Cons:

A Few Questions to Ask Yourself

Where is your business right now?

It’s not that I discourage you from offering annual plans. That’s not the point. Yearly subscriptions may be a great solution for both your company and its clients. However, if you have just created a fresh startup, this model might be a little too much to tackle. You might want to sell your product some other way first, get some money, build some value and have a processing history to show to a PSP. Then will come the time to bring out the big guns.

Is there mobility in your pricing?

If yes, annual is not the best option.

The number of licenses or the tier your client uses may change throughout the year. It would be unwise to tie the customer up to a solution they don’t need and don’t use fully .

If your pricing model is flexible, it’s value-based and/or leaves much room for changes in tiers, implementing annual billing won’t do you much good, or even make sense from the accounting standpoint.

Do you have processes in place to measure the metrics real-time?

With the annual payments it’s easy to lose touch with your clients, because of less interactivity. Less contact with your clients means less feedback and information on service’s overall performance. (Still, this option is much cheaper both for you and your client.)

Monthly payments are more interactive, but also cost more both from the merchant’s and the client’s perspective.

In Conclusion

Of course it would be best to offer both options to your clients, and let them decide, which option works best for them. Whether it is something you can do right now, will it serve your interests well, it is something you need to consider first.

As always, you are welcome to share your thoughts on this matter with us!

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PayLane's CEO with all kind of skills - programming, marketing, team leading and more. A movie lover and snowboard fan. @KarolZielinski

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