Relationships are complicated, even in SaaS.
If you don't meet your friend or your partner's needs, the relationship will probably end. In SaaS, if you don't meet your customers' needs, they'll churn.
Today on Recur Now, I'm sharing how you can build solid commitment with your users, all in the name of annual contracts.
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.
- Annuals reduce churn.
- Your annuals should be at least 30% of your customers and much more if you’re a very low or very high priced product.
- 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
To read more about annual contract value → click here
How is the B2B SaaS market trending?
📈7 day +1.06% | 📈30 day +4.36% | 📈90 day +12.73%
MRR LOSS -0.77%
Your B2B SaaS Index is up +1602 points—with overall growth increasing 1.06% over the last week.
The MRR gain Index, aka upgrades and new revenue, is up at +0.26% over the last 24 hours, while MRR loss (namely, representing churn in the market) has gone down a bit at -0.77% over the last 24 hours.
Be sure to check your subscriber newsletter for regular updates to your index.
You can also share the data with friends and fellow industry players that could use it right now. Send me their email address to email@example.com and I’ll get their name on the list. Or they can subscribe directly at index.profitwell.com.
The state of growth and funding in 2020
Join us for a live discussion this Thursday (7/16) at 3pm ET | 12pm PT with our very own Patrick Campbell as he's joined by tech operator, Kyle York from York IE to run through what you need to know in order to not just survive as a business, but to also thrive.
We’re breaking down the following:
- Updated B2B industry data and benchmarks from 15k companies to show what is happening in the subscription and respective investor markets
- Growth and funding advice to stay competitive
- Tactical retention and monetization tips to minimize churn, protect your revenue and come out of this uncertainty with the most customers
- And of course, there will be time for some Q&A
Head here to sign up.
A remote Notion Capital experience
Notion Now is also happening this week—July 17th at 7:30 AM EST.
Notion Now is a virtual gathering of SaaS founders and industry experts—so you can get the Notion Capital experience, remotely.
And ProfitWell’s very own Peter Zotto is giving a SaaS Pricing MasterClass, lessons from 18,673 companies.
If you’d like to attend—register here.
Today’s featured ProfitWell user is Output, a new music company that develops innovative software instruments for musicians, composers, producers, and sound designers. The Output focus is simple: Enable music makers to be creative.
For more on output → click here.
That is a wrap on this week’s B2B SaaS happenings. Catch you back here next time with more news and more data. Make sure you're subscribed at recurnow.com or wherever you listen to podcasts.