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.
Been a lifelong paying user of Instapaper. It’s just the best. When they asked people to pay (1 buck a month) I gladly did. Now Pinterest has taken over and it’s all free. Which sounds great, but then makes you wonder if and when they might have second thoughts and turn it off. Which would be genuinely painful if you have hundreds of archived links and it’s an integral part of your content consumption workflow. Better to start backing up and finding a second source, I guess.
Interesting article here on per-user pricing for SaaS products and what the alternatives are, specifically indexing into the number of employees in your customer’s organization or somehow tie into financial metrics, such as transaction volume.
A good question to ask and definitely worth a look, although in most cases you’ll end up staying with per-user based pricing.
Per employee only makes sense if your solution is designed to touch every single one of them (n which case it becomes almost identical to per-user).
Transaction-based is only achievable if your solution somehow directly touches the financials of the transaction itself, e.g. some kind of payment processor, and directly contributes to a measurable margin increase for that transaction.
So in most cases, especially for departmental/LoB solutions you’ll end up sticking with per-user. But don’t forget to model:
So today we apparently heard that WhatsApp is going to discontinue all consumer-centric monetisation, such as charging for the app or charging any subscription fees. Instead content owners and business that want to interact with me have to pay for connecting with the 900m user base.
Not obvious what that means for the WhatsApp user experience and how attractive this channel will be for advertisers. Seems like early days.
But what is obvious is that this is another indicator for how difficult it is to monetize consumer products, where advertising (especially on mobile and also in the context of communication services) really doesn’t work very well and where it’s incredibly hard to get people to pay beyond an initial app download fee.
And even that is hard enough.
Much talk about Google restructuring into holding company Alphabet and its various subsidiaries. Which is of course a brilliant move when it comes to solving their succession problem. So well done.
Many commentators have compared the new structure to Berkshire Hathaway, but that really doesn’t seem right. Berkshire buys mature companies, whereas I would assume that Alphabet will very much want to grow new businesses inside.
It might make more sense to compare Alphabet to the organizational model of a major film studio or entertainment company.
The parallels are obvious: A talent-driven business, with huge upsides and high downsides, a limited ability to predict success for any given project (so you better have a portfolio of them), and a reasonably short half-life for products with only a small handful of franchises enjoying mid- or long-term success.