Question

Do you prefer paying for software monthly or annually?

Almost every SaaS tool offers a discount if you pay annually—and some, including Salesforce, require annual contracts. But even with the discounts, paying up front can be prohibitively expensive as you typically have to pay for the whole year up front.

So which do you prefer: Would you rather pay a bit more overall but be billed monthly, or would you prefer to pay once a year? Or would you like annual contracts and discounts, but with the annual bill paid in 12ths each month?

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NBNite's avatar
a year ago
The 18% rule

Of course, there are a ton of factors that contribute to our decision making when onboarding a new platform, but if we're familiar with the tool and believe it will become an integral part of our stack, we follow the 18% rule:

If the discount is greater than 18% when paid annually, we pay annually; any discount below 18% - we remain on a monthly payment plan.

One approach to take:
1) Off the bat, you definitely want to exercise any free trial period with the software to test it out.
2) If you're unable to commit long-term after the trial and can't extend it, ask if your team can sign-up for a month-to-month plan and if within the first 1-2 months you can commit to the full year, have the remaining balance prorated at the annually discounted rate.

Depending on the time of year and size of the contract, you'd be surprised how often sales teams will honor this type of plan to appeal to new (and potentially long-term) customers.

10 points
maguay's avatar
@maguay (replying to @NBNite )
a year ago

That's very clever—and from some research I've been doing, the average annual discount on software is 19% but can be as low as 5% and as high as 30+%.

Without actually thinking about it, I've done the same. I pay annually for Creative Cloud Photography as its discount is >30% and for Ulysses as I got an early adaptor discount, but often go monthly with newer software unless it has a better-than-average discount as if I decide not to use it the whole year, I'd end up saving more than the 2 months off an average annual discount.

2 points
NBNite's avatar
@NBNite (replying to @maguay )
a year ago

I imagine you've done much more research than us but the 19% sounds about right - and has acted as the guide for us.

2 points
maguay's avatar
@maguay (replying to @NBNite )
a year ago

Sounds like you hit basically the same number which is fun to see :)

1 point
jamoses92's avatar
@jamoses92 (replying to @NBNite )
a year ago

Interesting approach. Cost-benefit makes complete sense. How did you land at 18% and why is this figure important?

1 point
NBNite's avatar
@NBNite (replying to @jamoses92 )
a year ago

A lot of had to do with the research we completed (what @maguay dove much deeper into above) - we found the average discount being in the 15-18% and made the decision that anything greater than "average" was worth the discount.

It's not a bulletproof model but one that has worked on our end.

2 points
forouzani's avatar
@forouzani (replying to @NBNite )
a year ago

I have a very similar approach - but my number is 20%.

My reasoning is along the lines of... I can put the capital to use and earn a 20% return on it (at least). But to get my return I have to take on a certain level of risk; so if a vendor is willing to guarantee me a 20% discount, then I will pay annually and take the guaranteed return.

4 points
GorkaPuente's avatar
@GorkaPuente (replying to @NBNite )
a year ago

One reason that I haven't seen in this discussion to go for the annual subscription, is to protect your company from price increments. If you pay one year (I've seen up to three years in advance), the price increments won't affect your subscription. One example is within the Atlassian ecosystem (Jira, Confluence, Trello...), from time to time, prices change, and depending on your license, you might be saving a lot of money $$$

1 point
NBNite's avatar
@NBNite (replying to @GorkaPuente )
a year ago

If you're willing and able to commit to a long-term contract (ie. are confident that you'll be using the tool for the next 12-24 months), you definitely get added protection.

Hubspot is another example of this - the pricing structure on the marketing side of the tool increases for every 1000 contacts you have in your database. On the month-to-month plans, your account is re-evaluated each month to determine which tier you should be billed in. On the annual/long-term plan though, you are locked in for the full contract at your initial contact tier, a significant saving if you end up adding thousands of contacts throughout that term.

3 points
maguay's avatar
@maguay (replying to @GorkaPuente )
a year ago

Great idea—essentially the software version of a long-term lease.

2 points
jmitch's avatar
a year ago
I suspect larger companies pay annually

My suspicion has always been that Enterprises and larger orgs prefer to pay annually because it coincides with budgets and it's easier to approve single purchases vs ongoing monthly fees. We are working on the paid plans for Yac right now so I'm interested to see what others from the community answer here.

7 points
maguay's avatar
@maguay (replying to @jmitch )
a year ago

From the company perspective (in my experience), SaaS vendors themselves strongly prefer annual plans since they lower churn, bring forward revenue, and get customers locked into a product long enough that they're likely to stick with it long term.

2 points
samantha____a's avatar
a year ago
Monthly, THEN Annually

I always prefer to start monthly for tools I haven't used before. If it's a tool we feel like we can't live without after vetting it and integrating it into our workflows, we sign up annually for the discounts.

We're offering a 50% annual discount at launch of our new product and we're super-interested to see how many go for the discount vs. staying on monthly. Will report back!

7 points
jamoses92's avatar
@jamoses92 (replying to @samantha____a )
a year ago

Congrats on the launch!

2 points
samantha____a's avatar
@samantha____a (replying to @jamoses92 )
a year ago

I appreciate it!

2 points
maguay's avatar
@maguay (replying to @samantha____a )
a year ago

Ohhhh very interesting, would love to hear your monthly vs annual breakdown if you can share it once you have some data!

50% is a very appealing annual discount, over 2.5x the average annual discount of 19%.

1 point
jamoses92's avatar
a year ago
Free/Monthly -> Annual

At the risk of stating the obvious, I’ve always made use of free trials to determine whether a SaaS product meets the needs of my company. I’ve found that free trials, even if not listed, can be acquired from most companies by simply contacting support and expressing interest. From there, it’s usually a month long process to familiarize myself with the offering and determine whether it’s actually needed/if there’s a better alternative. Once I’ve decided it’s business critical, I then subscribe to an annual payment plan for the savings.

6 points
maguay's avatar
@maguay (replying to @jamoses92 )
a year ago

It's also usually very easy to get trials extended—a quick email can often double your trial period. And if you forgot about a product during the trial you can also often get the trial restarted with a support email.

Not tons but even a free month saves ~8% of a year's subscription.

1 point
NBNite's avatar
@NBNite (replying to @jamoses92 )
a year ago

Definitely all for maximizing your time with any possible free trials.
And for company's that don't offer free trials/need you to contact them for pricing - they don't even make a short-list of worthy options.

1 point
hhaIvi's avatar
a year ago
Monthly

The not so secret secret is most SaaS providers don't have a good refund policy in place. If you hate the service 2-3 months down the line or the quality/uptime metrics degrade as you start using them it becomes a terrible thing to get out of. Unless i know what i am getting into (w.r.t annual subscriptions) and there is a proper (& pro-rated) refund policy in place i end up paying monthly over annually.

5 points
awwstn's avatar
@awwstn (replying to @hhaIvi )
a year ago

I tend to be the same way. Often end up keeping things for well over a year, but seem to always prefer monthly commitments.

1 point
NBNite's avatar
@NBNite (replying to @awwstn )
a year ago

Same here.
I think it would be a great client experience if a company actually threw a little bonus/discount to any customer who had been using the service for over a year but on a monthly payment plan... sort of like "hey, we have trouble committing long-term as well - but if you're ready to do this together, here's an additional 5% off of the annual discount."

2 points
maguay's avatar
@maguay (replying to @NBNite )
a year ago

That's genius. I may steal your idea next time I'm working on retention emails for SaaS ;)

2 points
esoneill's avatar
a year ago
yearly, hands down

Overwhelmingly, I prefer yearly. Every $ counts in our budget, and at our size (about 300 employees), cancelling or changing software requires tons of planning, so a yearlong commitment isn't too much to ask.

5 points
awwstn's avatar
@awwstn (replying to @esoneill )
a year ago

Have you seen products like Zoom or Slack start out with handfuls of users or teams on monthly plans before moving into a company-wide annual plan?

3 points
esoneill's avatar
@esoneill (replying to @awwstn )
a year ago

Yes, I have - that's exactly what happened at our organization, for both products. We started on free plans or trials, graduated to per-month pricing, and then when it became budget time, moved to yearly.

2 points
JesseBouman's avatar
@JesseBouman (via Twitter)
a year ago
SMB prefers flexibility of monthly

In my experience, SMB prefers flexibility of monthly while larger businesses prefer annual for accounting reasons.

2 points
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