You might not have the credibility to pull off annual pricing.
I’m blogging about my learnings founding and growing Circuit, my Route Optimizing SaaS startup. I’m doing this partly so I can refer to them later, partly to promote Circuit, and partly so others can learn from my mistakes.
Doing the Research
Being new to SaaS, when it came to making a decision on pricing for Circuit, I looked elsewhere at what all the other successful SaaS companies were doing.
Edit: Admittedly, I should have looked specifically at B2C SaaS companies, rather than SaaS in general, but I would have got similar results.
For the most part, most startups we looked at:
- Had multiple plans.
- Had an obvious “preferred plan” that they wanted to direct users to.
- Pushed users towards annual subscriptions.
Eventually we settled on (a variation of) this:
Two upgrade plans, with the current free plan at the top so we could centre the plan we thought would be most popular. Two payment options for each plan, with the annual option prioritised.
Over the next two months, we sold ~90 subscriptions to Circuit, 80% of which were for the Plus plan (which was to be expected).
Out of ~90 subscriptions we sold, zero were annual subscriptions. Zero.
Surely this had to be a mistake. There was obviously some bug preventing users from buying the annual subscription, right?
Nope. Users were just not purchasing the annual subscription.
Talking to customers
After managing to talk to a few customers who did purchase the monthly subscription, it couldn’t have been more obvious the reason why were struggling to sell the annual (which we could definitely use, being bootstrapped).
“What if you’re not still around in a year?”
“I don’t mean to be rude, but I don’t trust you with a year upfront.”
Thinking about it, I’m not sure how I’d feel about trusting a brand new company that had only been around for <2 months with a years upfront payment either.
Fixing the problem
We removed the annual payment option once we figured out users weren’t ever going to use it.
Once we’d waited long enough for the statistics to be meaningful, we could see that dropping the annual payment options had increased Circuit’s conversion rate by ~20%.
Whether that was because of the now simpler pricing page, or because we were no longer forcing the users to question “Can I even trust this company with my money?” is debatable, but it was definitely the correct decision.
When you’re a brand new company, your app has less than 1000 downloads, your website sucks and your customers have never heard of you before, trying to get them to pay a year upfront probably just isn’t going to happen.
This lesson probably applies to a bunch of other things too. Things that work for large startups with millions of dollars in revenue and venture capital funding aren’t necessarily going to work for your brand new startup.