One way to get more money from your customers is to charge them on a yearly basis instead of monthly. There are 3 major benefits to charging yearly:
1. No need to ask the customer for new credit card info when their credit card expires or is declined. (This is a major issue for all SAAS businesses)
2. If the average time a customer stays with your service is under a year , then by charging up front for a full year guarantees longer customer lifespan.
3. Cash in hand is worth way more than cash later. You can actually do things if you have the cash (like acquire more customers now instead of 11 months later).
Squarespace does a great job pushing the yearly plan onto the customer.
My top 3 favorite things about this page:
1. By default the yearly option is chosen
2. It is clear that they get a discount when they pay yearly
3. Even though they are paying yearly they show the monthly prices
What do you think the right amount of discount to give is if they sign up for a yearly plan?
Short Answer: 15-20% off
Long Answer: Figure out on average how long a customer stays. Lets say the answer is 9 months. Then give them 2 months off. If it is 6 months give them 50% off. If its 14 months give them 15% off.
If it is 36 months, then you have a really good business on your hands and don’t change anything and please give me some advice.
Rishi,
This sounds interesting, but it seems to me that this would increase the chargebacks that the merchant has, no ?
If I am a customer, and I see a monthly rate and am charged a yearly rate, I can only imagine that one of two things will happen:
a) The abandonment rate at the final checkout with the yearly figure will be very high
b) There will be an insane amount of chargebacks, refunds, cancellations, etc. as opposed to a monthly rate.
If you have some insight into those types of figures, I would love to hear it.
Thanks.
Hi Marc,
a) The best place to show the yearly upsell is towards the end of the sale. The point where the customer has already decided to sign up for your service. At this point offer them a discount to pay yearly (after the customer has put in their credit card info – a checkbox right above the “Charge-Me” button). You are no longer convincing them to buy your product at this point – you are just negotiating terms.
b) The key is to make sure your customers know that they are paying yearly and getting a discount for it.
If you trick people into thinking they are paying monthly but really geting charged yearly then of course you will get chargebacks, refunds, cancellations, and very very angry customers.
Does that clear things up for you?
Rishi,
Thanks for your reply.
Do you have any figures from real-world data to support these points ?
Yes.
In our old design we asked people to pay yearly during the initial sign up process. 1 out of every 25 stores paid yearly
In our new design we asked people to pay yearly after initial sign up (after they entered in their CC info and created their store). In this case 1 out of every 100 stores pays yearly.
Hi there,
I know I’m late to the game on this article so I might not get a response, but I’m really confused here. In the post, you say that one of the best things about this page is: “3. Even though they are paying yearly they show the monthly prices”.
In the comments, someone asked if defaulting them to the annual billing when they might *think* they’re getting a monthly billing might lead to chargebacks, etc., and your response was that “The best place to show the yearly upsell is towards the end of the sale.”, as in *after* the plans and pricing page (which is not what Squarespace does, and is the opposite of what you said is one of your “favorite things” about their plans & pricing page).
Later in the comments, you say that while showing them the annual pricing before they signed up led to 4% of customers paying yearly, showing them the annual pricing *after* they’ve put in their CC info (which you said was “the best place”) resulted in only 1% opting in. That seems obviously worse than the first scenario, so offering them the yearly price up front seems the naturally better choice.
What am I missing here? I’m very confused as to what is actually your recommendation in these cases, and I don’t know how to reconcile these disparate pieces of advice.
Hi Ramsay,
Thanks for the comment.
In order to avoid chargebacks you must be super clear at the time they input their credit card and how much they are being billed for. However, on the pricing page you can show the discounted monthly rate if you pay yearly. This is a common practice with most SaaS companies (Olark,com, Salesforce.com, etc)
The short answer here is you need to test your pricing, different pricing plans work for different sets of customers. But, you never know until you test! If you have yearly pricing displayed right now, I urge you to test displaying the monthly price and see if you get more conversions.