Spoiler Alert : Based on my research I prefer the Monthly subscription but will choose annually revenue model based on specific criterias.
I have been thinking about this for the longest time. At first glance annually just seems so much better as a system as proven by the gym contractual model. However, due to this industry annual subscription has always felt “dirty” where I am cheating customers of their low usage time. The SAAS industry does it a little bit differently by approaching it as a bulk purchase discount. We need to evaluate many factors between these 2 revenue models, so let’s look at each individually first.
Annual subscription / Annual bulk purchase
The annual subscription model is technically an annual bulk purchase with auto-renewal every year. This is a really good model if a company fits these criteria.
- You need the bulk of investment ahead of time. Most common for early-stage companies. This is usually needed for buying content, expanding the team to build more features, investing in marketing to grow the user base and etc.
Pro
- Financial budgets are much easier to plan with the lower risk of preventing “surprises”.
- Side income from savings of users not using your service or even forgetting to stop the renewal.
Cons
- The customer feels “forced” into the decision. Here is an obvious “forcing” strategy hidden behind a bulk purchase discount
- CHURN disaster lag (0-365 days). Because customers’ decision to change or drop from your service is not known until they repurchase or stop auto-renewal there is a lag in understanding CHURN issues for customers. This can cause you to not be able to take action or even realise that there is a problem before it’s too late.
Monthly subscription
Pro
- Agile, being able to react faster to CHURN issues (0-31 days). When customers decide to stop your subscription we are able to react immediately to identify the problem and quickly find a way solution to prevent this from happening and perhaps even pull the customer back.
Cons
- Requires a full customer journey retention strategy in place to ensure we can catch all possible CHURN drops off and allow us to react to them. For example, have multiple options besides cancelling like freezing or promotion for the lowered price to continue. Survey before cancelling to find out what the problem is and have customer support quickly call them back to address their issue if they insist to cancel.
Research Courtesy of Tanit Jongwisetchok.