Last editedMar 20232 min read
Most SaaS providers opt for a subscription pricing model. Some businesses take SaaS monthly payments, while others find an annual payment plan to be more advantageous. While annual pricing plans offer long-term income, there are benefits to monthly plans as well. In this guide, we’ll go through the pros and cons of SaaS monthly payment vs. annual payment strategies.
Reasons to choose an annual SaaS payments model
We’ll start with the benefits of annual billing plans. With this type of SaaS payments model, the client makes one upfront payment to cover the full year. Here are the primary advantages of this billing cycle:
You don’t have to worry about manually renewing the subscription each month.
The customer has more time to give your services a change and adapt to them.
There’s a lower churn rate with annual subscriptions as the customer is locked in for the full year of service.
Businesses enjoy improved cash flow with a big lump sum paid each year.
The costs of processing transactions are reduced since you’re only charged once a year.
With reduced per-transaction fees, you can pass on savings in the form of promotional discounts and special offers.
On the flip side, there are a few disadvantages of an annual pricing model. The first is that it requires greater incentive. You’ll need to make the annual SaaS plan more affordable if you want to convince new customers to commit for a full year of service. Even with money saved on transaction fees, this can reduce earnings. Annual contracts also reduce contact with your customers. With monthly contracts, you’ll have regular contact to answer questions and promote customer satisfaction.
Reasons to use SaaS monthly payments
While there are plentiful benefits to charging an annual fee for your SaaS subscriptions, monthly payments can also be advantageous.
Customers often prefer the flexibility of SaaS monthly payments. There’s less pressure and commitment involved because they can cancel the contract at any point.
Merchants also benefit because they can charge more in monthly payments compared to an annual subscription fee. Provided you can retain your customer all year, you’ll earn more over time.
You have regular contact with your customers which gives a better chance of fostering relationships and improving the customer experience.
You’ll have better visibility over how your customers are using your SaaS products with increased interaction. This lets you tweak the product throughout the year rather than at longer intervals.
The downside of a monthly SaaS payments model is the fact that the client can cancel at any time. Smaller, frequent transactions also cost more in processing fees. Without a good, automated billing system, you’ll spend more time and money chasing up on monthly payments. Finally, there’s an increased chance of involuntary churn if the customer’s payment details change without notification.
SaaS monthly payment vs. annual payment: which should you choose?
As you can see, there are reasons to choose both types of SaaS payment model. If you prefer the stability that annual payments provide, you should choose this pricing model. However, if you prefer greater flexibility and increased interaction with your customers, a monthly model might be better. Similarly, monthly billing lets you be agile with active responses to customer feedback. Because customers have different preferences, many businesses simply choose to offer both options.
How to find a SaaS payment solution
No matter the billing cycle, you’ll need to find a SaaS payment solution to automate subscription payments. GoCardless offers a recurring payments solution that’s ideal for both annual and monthly SaaS subscriptions. Use one of our out-of-the-box payment pages or build your own customer checkout experience. Our intelligent payments technology minimizes payment failure at every interval for satisfied customers like Docusign and Deel.
You’ll also be able to reduce the cost of payment collection and maintenance by automating your processes. GoCardless integrates with over 300 partners, including top accounting and invoicing software like Xero and others. These are just a few reasons why customers love us – we’re ranked number one ahead of competitors like Stripe, Amazon Pay, and Worldpay. Save time and money while improving customer retention for stress-free SaaS payments.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.
