Preference is to treat it as a convenience option and not a discounting method. Have the annual option paid annually with no discount for $2,988, but debate is strong.
Note that the monthly option is $249/month.
Most Software as a service vendors generally don't book annual deals except in highly specialized cases. Most customers prefer to be able to cancel/change anytime they choose. Also, deals done "offline" end up actually often being more trouble than they are worth to administrate especially for a $2988 ticket.
Generally, companies don't view prepaying for SaaS products a year in advance as a "convenience" (to them) so if the debate is internal (not customer driven), I'd set this debate aside until it's requested by the customer. Most customers will request a discount to pre-pay annual service.
Happy to talk this through with you in a call, to work through the specifics of your situation in more detail.
In the B2B environment, especially with medium businesses, it's common to subscribe for a long period of time. It's even more common if you solve a business critical problem (accounting, finance etc...), companies are not going to change solution overnight.
Annual payment is also a great way for SaaS vendors to generate revenue fast in order to invest massively in new acquisition. Annual payment allows you to recover your CAC and make a profit in just a few days (against months for monthly payment).
If you don't give any incentives to users to subscribe annually, then I don't see why they would. They better use the software and pay as they go. So I would advice you to create a little incentive to make your annual payment a bit more appealing to users (5% or 10% may even be enough).
I would also advice you to test those different assumptions on your real customers. Maybe they're used to paid annually without any discount.
I'd be happy to help you with the particulars on the phone or via email. Don't hesitate to contact me if you have any further questions.
I would suggest that the convenience of annual payments is actually for the vendor - especially early stage firms who haven't yet automated charging clients. The only exception I can think of is if you are willing to give clients net 30 terms on the annual charge. I suspect you might see larger companies take this up.
In the common B2B world (often under $250/month) I suspect most buyers will see annual payment as a contract that handcuffs them and will slow down the buying cycle because of the larger cost. This could be as simple as additional approvals for a spend above $1000 or purely psychological.
For example I have seen Salesforce.com run into this with small offices, even after they do a successful trial they suffer from sticker shock when they see the annual per seat rate they are quoted. If Salesforce.com had automatically moved these same businesses into a monthly per seat charge on a credit card they wouldn't have batted an eye but instead it drags the buying cycle out.
It depends greatly on the industry. If it is seen as a B2B convenience by your customers, especially if you don't see any real value in using it to reduce churn, then pricing should remain the same so that monthly clients don't feel like they're being screwed. If you're trying to push people towards it for your own convenience because of cashflow or other issues, I'd say that the "common" SaaS practice seems to be offering two months free per year (so it would go down to $2,499/yr. Anything less than that and you're asking your customers to pre-fund you for no benefit to themselves, which won't work very well.
These are difficult times as 2021 is still fighting with Covid-19. I believe you need to plan a fresh for 2021.
Churn is a significant driver of valuation because it touches upon all the key factors that impact the perceived future cash flows of a SaaS business. The importance of this metric should not be underestimated when you consider the long-term impact on the business. A high churn rate has all the inverse effects and can also say to investors that the product does not adequately fit the customer’s needs, sits in a market with limited demand or there are stronger competing products. However, it is less easy to find consensus on the acceptable rate of monthly revenue churn for SaaS businesses. Here the line again blurs between smaller, SDE-valued SaaS businesses and the larger EBITDA revenue-valued VC-funded SaaS businesses. Bessemer Venture Partners, an investor in VC-funded SaaS businesses, says an acceptable churn rate for these is in the 5 – 7% range annually. This is also supported by Pacific Crest’s Private SaaS Company Survey that shows roughly 70% of surveyed large SaaS companies had annual churn.
You can read more here: https://feinternational.com/blog/saas-metrics-value-saas-business/
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
