SaaS customers love the freedom and flexibility that monthly subscriptions give them. But you as a SaaS business want to sign them up for annual deals when possible since that's going to increase cashflow and predictability and decrease your churn. How can you make them "give up" freedom and flexibility and commit to your product for a whole year?
The scripts and templates you find below will answer that question and help you close more annual deals. But first, let's find out if now is the right time for your SaaS company to start selling annual contracts and pre-paid deals.
When should you start selling annual deals?
If your SaaS startup is below $1MM ARR then you probably should not focus on this. Instead, keep your customers on monthly plans. Why? Because you want to understand churn first and see how long people stick around by choice.
If you're above $1MM ARR it's probably a good time to start offering annual plans, either billed annually paid upfront (pre-paid), or billed in monthly installments.
Note that it's not a choice between either monthly or annual plans. While most SaaS companies still choose one or the other, you can absolutely be offering both. According to a research from our friends at Price Intelligently, 20% of SaaS companies offer both monthly and annual pricing.
A word of caution
Be aware that annual plans are not only a good thing, there are issues you need to be aware of choosing this route in SaaS:
Benefits & downsides of annual plans
+ Lower churn
+ Red flags when customers don't want to commit
+ Cashflow with pre-paid deals
+ Attracts higher value customers (increased ARPU)
- Forcing unhappy customers to stick around
- The great churn illusion*
* (including annual contracts in your churn math instead of only including customers who can churn in your churn numbers)
In their MRR churn study, Price Intelligently found that SaaS companies
- without annual contracts had a 9% churn rate,
- with up to 25% of customers on an annual plan had a 7.5% churn rate
- with up to 50% of customers on an annual plan had a 6% churn rate
- with up to 75% of customers on an annual plan had a 5% churn rate
- with up to 100% of customers on an annual plan had a 3% churn rate.
At first glance this might not look like much. What's nine percent in the big scheme of things? But a 9% churn rate compounds to losing 67.7% of your customer base in a year!
Crafting your pitch
The core idea you're selling them is basically this:
- Long term commitment once they know they love it (sell this when they are ready to commit)
- Give them a meaningful enough benefit (e.g. discount, premium support, access to features usually only available on higher tiers)
- Position it as an investment in the relationship (we can work harder for you / you commit longer term to us)
A lot of SaaS companies don't realize how much value they can offer beyond just providing a toolset for their customers. I often like to say that the most important word in SaaS (Software as a Service) is the word service.
Let me give you an example: We at Close are obsessively customer-focused. Yes, we're very proud that we've created the best inside sales CRM for startups and SMBs. But we don't stop there.
We heavily invest in helping our customers succeed, and customers appreciate that:
"The bonus of Close is I have a dedicated rep who is almost like a business consultant who I can reach out to with ideas and he can answer them back with his thoughts. Close CRM is awesome, but their customer service is above reproach—I have a lot to thank their Success Managers for when it comes to his aiding in my company's growth."
- Eden Bryant, Staff Accountant, Confirm BioSciences
Oftentimes customers have already committed to a specific toolset, and they will want your solution to connect with other solutions in their toolset:
“Our Close rep has been a helpful resource to our team. As we leverage Close to manage our pipeline, Close has worked closely with us to understand our business and ensure we get the most out of the CRM. Their expertise in Smart View optimization has offered clearer insights into lead funnel and faster follow-up. Further, their knowledge in integrating other tools through Zapier has brought great value to our team.”
- Amanda Mullet, Sales Operations Manager, HomeLight
Here's what another customer had to say about the level of service they receive:
“The Close team have been real partners in helping us get the most out of the Close CRM. We have had numerous business aspects that we've wanted to attack using Close, and they did a tremendous job of listening and coming up with solutions. For example, we needed help with our custom fields and data structure. They were quick to offer best practices that saved us a ton of time. We were working through how to use the bulk email sequences. They was at the ready walking me through some examples specific to our business. We needed to better integrate an electronic signature tool. They were my first call for recommendations. What I like the most, they have really gotten to know me and our business. I don't have to get them up to speed on what we do, just the particular issue we are trying to solve. If you've got business challenges in your sales organization that you are thinking through (and really, who doesn't!), these guys excel in understanding what you want to accomplish and proposing effective solutions.”
- J.T. Allen, President and CEO, myFootpath
I'm not sharing these quotes from our customers to showcase how great our Support and Success teams are.
I'm sharing these quotes to show you that this is a real opportunity for you to differentiate your company from alternative solutions in your market.
However, you can't offer this level of support to customers that might churn in two months from now. So how do you choose which customers do you commit to the most? Yes, you guessed right:
Annual contract customers. You commit to those that commit to you!
Now let's talk about actionable specifics. How do you actually get a customer that's happily paying month after month to sign an annual contract?
Email your customers
In general, we found that the best way to get customers to switch from a monthly to an annual plan is to have a real conversation with them. Figure out first what they like about your product, what their plans for the company for the next 12 months are, and if switching to annual is actually a good choice for them.
If you have a sales team, or you're a founder that's making these calls themselves, here's an email template you can use to schedule phone calls. (We've been getting a 89% open rate and 60% response rate when we sent this email to our customers.)
Email template for setting up a call:
Subject line: I want to offer you a better price for [product]
Hope you're doing well. You've been with [product] for a while now and we would like to thank you and deepen our relationship by offering you a better price for [product]. Let's jump on a quick call this week and explore all ways to make this happen for you!
What's a good time for a 15min call this week on either Wednesday or Thursday afternoon?
Email template if you want people to upgrade to annual themselves:
Subject line: I want to offer you a better price for [product]
Hope you're doing well. You've been with [product] for a while now and we would like to thank you and deepen our relationship by offering you a better price for [product].
Do you see yourself using [product] over the next year? If so, then here are 2 great options to get a better deal before the end of April:
Option 1: 1 Year contract - You pay monthly and save 10%
Option 2: Annual Prepaid - You pay annually and save 15%
All you need to do is to let me know by April 30 which options works best for you and I can take care of the rest.
Here's also an simple but excellent email from Hunter.io to incentivize customers to upgrade:
The email is short and straightforward, just the right tone for the audience Hunter is selling to. Conveys the benefits, avoids unnecessary marketing jargon and offers assistance when needed.
As always, the fortune is in the follow-up. Make sure to follow up with customers that aren't responding to your emails. (In our book, we share exactly how and when to follow up for maximum results. You can download a free copy today!)
Once you succeeded at scheduling a call with a customer, what do you actually say? Here's a simple script for you to go off:
Sales rep: Hi [Name], is this still a good time for us to chat?
Sales rep: Great! You’ve been with us now for months, and I wanted to first check-in with you to see how things are going?
Customer: [Answer – Going great]
Sales rep: What have you enjoyed to most about using our software? [remind them of why they love your product]
Customer: Our team loves feature X. But we've had this issue/have a question about X.
Sales rep: [Manage issues, answer questions.] Other than that, are things going well?
Sales rep: Do you see yourself using our product for the next 12 months?
Sales rep: That’s great, then why don’t you guys switch to annual billing and save money?
Customer: How does that work?
Sales rep: Pretty simple, you could pre-pay for the year, switch to annual billing, and get 15% discount , so you don’t have the haste of paying monthly and you save some money. [Calculate the actual dollar amount over an entire year for them, not just the percentage. Also mention that the savings will be even bigger if their team grows and they add more users.]
Customer: I can see, but that's a big upfront payment. We'd rather keep paying monthly for the sake of our cashflow.
Sales rep: That makes sense. So if you could pay monthly, and still get the discount, would you be interested?
Sales rep: I have a great option, you can sign a 1 year contract with us, and you get a 10% discount. You still pay monthly, and save money doing it. Sounds fair?
1) We don’t want to commit for that long. We’re a small business and things change.
I hear you. Do you think it’s a safe bet that you will be around in a year? Do you think you’re likely to hire more people later this year?
If yes, then you’re just making a sound financial decision by taking the discount now.
Plus anytime you hire anyone new, you would automatically save money on each new license, without actually committing to keeping those licenses. Makes sense?
2) We want to have the flexibility to switch if we outgrow you.
I hear you. You want the flexibility of being able to switch to other tools as you grow. But let me ask you, do you really want to make the switch once again this year [remind them of the pain of switching], specially when you already have our solution working well for you? You still have the flexibility to re-evaluate after 12 months.
Consider also that you currently have X people on the team using our tool. Did you know that many of our customers have more than five times [or whatever the accurate number for your business is] users with Close and still love our software?
3) We’re a startup, so cash-flow is the most important thing.
Exactly, which is why the 1 year contract is such a great option. You save 10% on your bill every month. That’s hundreds of dollars saved and makes your cash-flow situation even better.
Once you're running a SaaS business that's starting to generate significant revenue (more than $1MM in ARR), consider offering annual plans.
It will reduce your churn numbers, help make your cashflow more predictable, and allow you to focus on customers that are most committed to using your software.
Offering annual plans doesn't mean that you have to stop offering monthly plans—it's totally fine to offer both.
Make sure to create the right incentives for your customers to make committing for an entire year worth it. And if you can, think beyond just discounts—there are so many creative ways to incentivize customers to switch to annual.
Want more tips on selling SaaS? Get a free copy of my book SaaS Sales For Startup Founders!