Annual Plans Reduce Churn Dramatically, Data Finds

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You've got the questions

and we have the data.

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This is the ProfitWell Report.

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What's up? It's Brendan.

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Quick question for you

on this fine morning.

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What portion of our subscription

should be monthly versus annual?

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Thanks.

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Welcome back, everyone. Neil

here for the ProfitWell Report.

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The beauty of the subscription

model is that for the first

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time in the history of business,

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relationships are baked directly

into how you make money.

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Every month, year,

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or however long the term

of the subscription is,

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your customer has a decision

to make around if they're

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receiving the value for

which they're paying.

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If they don't feel like

they're getting value, then they churn.

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If they do feel like they're

getting value, they'll renew.

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Having a longer term length or

an annual subscription can make

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this easier on you because the

customer is making a deeper

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commitment that allows you

to plead your value case with

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enough time to show value.

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Hence, why annuals can be instrumental

in lowering churn and ramping growth.

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To answer this, we looked at over two

and a half thousand subscription and

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SaaS companies.

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As to not bury the lead,

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annual subscriptions as

a proportion of overall

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subscriptions shifts widely

depending on your ARPU with low

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ARPU companies seeing over

fifty percent of their

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subscriptions on annual plans,

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mid range ARPU companies

dropping down to roughly twenty

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to thirty percent of their

subscriptions coming from annuals,

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and high ARPU companies

swinging back to a high

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proportion of annuals.

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This feels pretty intuitive

because low ARPA companies have

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annual subscriptions that are

nice round credit card numbers

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where a customer is more

willing to swipe for a hundred

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dollar annual charge.

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On the high end,

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you're likely looking at a mid

market or enterprise type deal,

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so an annual contract is simply

baked into the sales cycle.

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That being said, this

is deceptive in nature.

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So what's the data say around

what works and what doesn't work?

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Well, annuals do reduce churn

pretty substantially because your

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customers have one purchasing

decision per year versus twelve.

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And as you see in this data,

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there's a strong correlation indicating

that as you increase your annuals,

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you'll be reducing your churn with folks

with the majority of their contracts'

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annuals seeing almost a fifth

of their churn as those who

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don't have annuals.

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Ultimately, more annuals

are likely better,

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especially given the

churn implications.

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So I push for

optimizing those relationships by understanding

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where the best point to ask

for an annual upgrade is within

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your customer's life cycle.

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For most businesses,

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it's probably not directly

in the initial buying cycle

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because your customer doesn't

know about your product quite yet.

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So your research absolutely needs

to be done about your

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company specifically.

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Well, that's all for now.

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If you have any questions,

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feel free to send me an email

or video to neil at dot com.

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And if you enjoyed this report and

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Thanks. See you next week.

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