Ask HN: What percent of my subscribers should be monthly vs. annual? | Hacker News Reader

Ask HN: What percent of my subscribers should be monthly vs. annual?

4 pointsgnicholas7 comments

Like many HNers, I run a software business with a recurring subscription. The vast majority of my B2C customers are on my monthly plan, and only a small percent are on my annual plan, which is discounted.

What should I be thinking about when considering the annual discount? Is there a 'right' number that I should be targeting?

So far, I've considered that the fees I pay are lower for annual customers, and the risk of mid-year churn is somewhat lower. Are there other relevant considerations?

I understand why new customers would sign up for a monthly plan, to try it out (there's also a 2-week free trial, before having to pay). Should I be contacting customers who are still with me after a couple months and encouraging them to switch to annual subscriptions? Or should I not really care?

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It is difficult to answer your question without much information about all the numbers.

At a high level, you need decide whether you have figured out a product market fit, calculate CAC (customer acquisition cost), Churn rate for monthly vs annual.

If you are still testing your product and are not sure whether you have a fit then I would recommend continue with monthly plan and don't worry about annual plan. You will learn plenty about your product (based on Churn) from monthly subscribers.

If you are past the product market fit stage, annual plan provides you the best option. a) Average CAC is lower b) Churn is lower c) Most importantly, you generate cashflow by getting more money upfront.

There is also the hybrid option you can try, which is annual contract with monthly payments.

This is helpful! I guess one of the things I'm trying to understand is if startups shift from mostly-monthly to mostly-annual at some point in their maturity. It's hard to tell from the outside, since most SaaS products I see offer both subscriptions, and I can't tell what their split is between the two.

I have worked in multiple b2b startups and one of them was reasonably successful. Based on what I saw, split ratio changes as the startup matures. Earlier we had mostly monthly sign ups. monthly >> annual. As we hired a bigger sales team and created incentives for them to close on annual contracts annual brought in a significant revenue. More like monthly ~ annual.

It also was based on the market type we went. Initially it was small b2b businesses (employee size of around 50k). Once we started moving up market, the contract amount and deal size increased.

the annual-prepaid cashflow trick is discussed by Jason Cohen in this ancient 2013 microconf presentation, starting at around the 13:20 mark : https://www.youtube.com/watch?v=otbnC2zE2rw

My uninformed hunch is that the time and attention spent to optimize your payment-processing fees would be better spent either

a. Finding additional markets of customers

b. Making your product more appealing to increase your conversion rate

c. Maybe switching payment processors to one with lower fees and a lower churn rate

Appreciate these thoughts! I'm not looking just to optimize these processing fees. I'm also trying to figure out what an appropriate discount is, and also (indirectly) whether my monthly or annual pricing is out of line. That is, perhaps the solution is not to lower the price of my annual subscription, but rather to increase the price of my monthly subscription.

I'm also in the process of experimenting with subscription pricing models and have found podcast interviews with Patrick McKenzie and Lynne Tye to be really helpful. You've probably heard of these people, but I share them here in case not.

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