Annual Contract Plans for SaaS

Some good advice here re annual plans for SaaS contracts. Reduce churn and attract higher-value customers. Makes total sense. 

Some additional observations:

Annual plans are not just good for the vendor, they are also good for the customer, as they provide explicit budget control without any mid-year invoice surprises. So expect customers to ask for them.

Find a mechanic to deal with uncertain demand projections. Either work with user bands (contract size increases as they cross a threshold) or annual all-you-can-eat plans that get reindexed upon annual renewal. 

Don’t fret too much about cancellation mechanics required by customer legal. If they want out they will get out. So e.g. 90-day total contract cancellation clause would be OK.

For those cases where the customer wants a choice between annual and monthly make sure that there is a significant uplift on the monthly pricing and/or position that as an “on request” offer that will be handled as an exception and/or construct a mandatory bundling with professional services such as training or a rent-an-admin service package. This will differentiate the monthly plan quite a bit and also ensure that you have the resources required to make the customer instantly successful. 

And once you have a fixed-price annual contract then most customers will want to pay in advance, as opposed to quarterly or monthly invoicing. So if you offer several invoicing options, don’t discount the annual prepay by too much, 2-4% are a good place to start.

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