Pricing is one of the most difficult things that entrepreneurs run into when launching their product. It’s even harder to figure out pricing when your company starts to scale. One of the biggest problems we came across ourselves was whether or not to set an annual subscription. We had a lot of internal meetings, asked a lot of mentors, and came to the final conclusion that we should not have an annual pricing, at least not for now.
Pros of Annual Pricing/Subscription
There’s pros and cons to everything, but annual pricing is extremely beneficial for a company, especially at the early stages. With an annual contract, you’re able to secure a customer for the long run. You will know for a fact that you will have a loyal customer for at least a year. Another good thing about annual pricing is that, it will give you enough cash flow to spend on the aspects of business. That could be hiring, marketing, or just paying out salaries. You pretty much have an entire year to impress your client and hope for a renewal by the end of the year.
Downside of Annual Pricing
A problem with annual pricing is that it takes a long time to close, and not every one of your customers can afford it. You also have to offer them a cheaper option for them to go on an annual contract. The customer won’t know whether or not your company will be around in a year or two, so you will have to build a lot of trust before hand in order to secure an annual deal. Timeframe could also be a problem. Annual contracts typically take a lot longer to close because it has to get through a lot of different people within the apartment before a final decision is made.
If you’re planning to do annual contracts only then you should keep in mind that by forcing your customers to opt for yearly billing you’re creating an adoption barrier, and although it’s really good to have all the revenue upfront, it’s better to have it monthly than having no revenue at all.
Benefits of month to month pricing
The alternative would be a month to month pricing, where a user can cancel anytime or upgrade anytime. This along with a free trial will usually be enough to hook a customer onto your product/service. The benefits of month to month pricing is that a customer will be more likely to sign on and test out your product rather quickly. With this option, you prefer to trust your gut feelings and create a product free of adoption barriers, accelerate your growth and users base. If you’re seeking rapid growth in user numbers, then this might be the way to go.
Cons of month to month pricing
The downside is that it will be extremely hard for a startup to get out of bootstrap mode if you’re only charging a customer $10 a month. With 10 customers at $10/month, you’ll only be making $100 a month. That is barely enough to run a decent Google Adwords ad. This would work well if your company is charging per user basis, because they can invite their co-workers and stack up into a good monthly recurring revenue from there.
For startups that are new and unproven from the market’s perspective, decision makers will need to evaluate how skeptical the market will be of the product or service being offered. This is a whole different story if your company is introducing a new product. While annual plans offer a number of advantages from a cash flow standpoint, monthly plans reduce the risk for the customer and are often more viable for new companies.
Once you’ve built the brand’s trust, you can easily hire out sales reps to hound down on annual contracts.
A lot of companies like WPCurve offers both annual and pricing options. User can choose whether they want to opt in for an annual contract or simply go for a monthly plan. This might be the best option if you are looking to test out the annual pricing idea to see if people are willing to pay for it.
At the end of the day the pricing model should be fully adjusted based on your product. Does it make sense to have an annual pricing model to start or is it best to wait until you get some traction to put out an annual option. Another thing you can do is offer monthly based at first, but then eventually try to sell annual contracts to your existing customers. Chances are that if you have a great product or a great service, then it shouldn’t be a problem.
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