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Ask HN: My startup has more annual subscribers than monthly. What to make of it?

106 points by throwaway_23124 ↗ HN
I very recently realized that my product has more annual subscriptions than monthly ones. This was very surprising because it goes against everything I've read online. I offer only one tier that gives you access to all features; it costs $X/month or $10*X/year (the typical two-months-free-if-you-pay-annual thing you see everywhere). The split in subscribers between the monthly and annual plans is 44% and 56% respectively and I don't know how to interpret this information.

Does this mean I should simply increase prices? Is it fair to interpret this as the majority of the market saying "I'm happy to pay the highest tier your product offers"? I'm know that HN always suggests increasing prices all the time, but I'm wondering if my situation is an even stronger signal to increase prices.

Does this mean I should offer more than one tier and segment the market with different features for different prices?

My product isn't very niche or anything like that. It's a typical internet/web SaaS, so I believe most advice should be generally applicable.

135 comments

[ 3.4 ms ] story [ 145 ms ] thread
takinola
I would recommend a couple things

1) Ask some of your subscribers why they chose one plan over another

2) Increase prices. It never hurts to find out where the balance of pricing vs conversion lies

3) Create additional tiers. It is hard to imagine any product where all users prioritize the same features the same way.

4) Celebrate. You are achieving something effortlessly that lots of other businesses try very hard to get.

znpy
Two things:

1. you could keep you customers happy by changing nothing.

2. if you have a money-back policy on your annual plan (eg: pay in january, cancel in june, get ~50% back on what you paid) that effectively means that you're giving a discount for an only apparently sure earning. I'd give a look into that.

graeme
Number 2 is actually pretty common. Maybe not as an advertised policy but if you write to cancel reps will often give a pro rates refund.

This may happen more in businesses which figure you may be back someday.

xemdetia
I would go further and expect number 2 to be the norm. If I pay for a service and I'm allocated and the service is up and available for 6 months and I have 6 months left I would expect the refund to be 6 months and not from the beginning of the contract. They've already spent the money and you've already earned the money at that point.
carstenhag
But then it doesn't make sense to have the yearly subscription (and 12 months of contract duration at a time). Then you can just have the monthly subscription.
krallja
Charging someone’s credit card 12 times a year has a definite cost. Having the funds ahead of time is also worth more than earning the funds one month at a time.
xemdetia
I think you are approaching it from a different place than I am. If I get into an annual contract I have the expectation that I would be paying the full amount up front to secure the discount and that I would be utilizing the full amount of the term. If after six months I stop then that's for some new reason that was not there in the start. At that time I would expect a rebate for the services that would not be rendered. I could be a six month customer or a ten year and six month customer and have the same expectation. Things change.
[dead] barry27
So use the monthly subscription then. It's preposterous to expect someone to refund you simply because you changed your mind. If you bought a microwave, for example, and then subsequently decided you preferred to use your stove, you wouldnt take it back, would you. You bought access for a year. That is the indivisible product you now own.
nicolas_t
What I've seen that can be effective is to not have a pro rated refund but have the ability to pause the account. This means that the discount for the 1 year commitment still makes sense but shows that you're willing to work around the customer's life or issues.
glacials
Where are your customers in the world? Many non-US countries have little/no credit card presence, so if you don't have an international-friendly payment option like PayPal your customers may be using "gift card credit cards" purchased from a store. It's easier to do this once a year than once a month.

Ultimately though, talk to your users! That's how you'll find out.

skinnymuch
Those gift card credit cards don’t have the first year free of service fees? I think In the US they do, but no idea how the market is world wide.
traceroute66
> Many non-US countries have little/no credit card presence

Was that statement accidental horrible wording or did you actually mean it ?

If the latter, then you must be one of those many Americans that needs to travel more. The rest of the world are not neanderthals who've never heard of credit cards.

Go to Kenya (Africa) and the only reason you might struggle to pay by credit card is if the merchant has decided to prefer payments via the M-PESA money transfer phone app instead which is what most of the locals use. So you could say a number of non-US countries are even ahead of the US !

But of course I hope your wording was accidental, in which case I apologise for the three paragraphs above. ;-)

r3drock
In Germany for example, a lot of people have no credit card.
JohnBooty
We should always be on guard against such things, but is parent's statement really bad?

It didn't imply that other countries are backwards, or that their people are "neanderthals who've never heard of credit cards."

It's a fact that credit cards simply aren't equally popular in all parts of the world and naturally this is something that must be taken into account.

This includes places that are arguably more advanced than the US. Of which there are many many many many.

NikolaNovak
Dunno, in a lot of europe, though credit cards are readily available, most of my family (I have relatives in Germany, Austria, Slovenia, Croatia) doesn't have or want them. They have forms of payment which are strange to me but basically are some form of bank debit card, accepted everywhere. Or fancy phone / app payment methods we can only dream of here.

I didn't read the OP as necessarily implying technical or cultural superiority; credit cards are big in US and may or may not be big somewhere else, as you point out as well, so I felt the quoted statement is quite plainly factual rather than layered with hidden or interpreted meanings...

Graffur
How do you know what cards your relatives in other countries have?
NikolaNovak
I mean, if genuine question, how do you know anything about your family? :)

You talk, you notice when you go shopping together, etc :)

Graffur
Of course it's a genuine question. I am calling you out. You don't know what cards they have. You have gone shopping with your relatives in 5 different countries within the last year? You know that they haven't gotten new cards or changed their habits since you last saw them? You don't talk about credit cards that often. :)

You make an assumption because of some info at some point in time and think of it as a constant fact. :)

For example, I know my brother had a credit card. Does he still have it? I would have to call him and ask him. :)

hurflmurfl
When a form on a web-site says CC (Credit Card) I can always pay with my debit card. (Unless you're talking about another sort of debit card that isn't what I call a debit card - "a MasterCard/Visa/etc with no overdraft).

To me it seems like some people use the term "credit card" for any bank card, while some actually mean the "credit" part. While "credit" (non-debit) cards don't seem to be THAT popular in the European part of the world, I think that bank cards are pretty much ubiquitous.

banana_giraffe
For what it's worth, what you have is a Visa Debit (or Mastercard Debit) card, though the branding on them isn't consistent. Debit cards that can't interop with the Visa/Mastercard networks do exist, I have one .. mostly because I'm lazy and haven't asked for a change.

Dunno how rare they are, I suspect rare, but I can't find any numbers with a quick search.

frosted-flakes
All of Canada uses debit cards that don't work over the credit network. Some banks allow you to request a VISA number that's linked to your chequing account (for online use only), but debit cards use the separate Interac system.
banana_giraffe
Interesting. I should have been clear:

I suspect debit-only cards are rare in the US. Outside the US: No clue at all.

gwillen
I have heard debit-only cards in the US referred to as "ATM cards" occasionally, but that was a few years ago. I think if an account belongs to a minor child, it may not be possible to get a regular debit card (that also works with the credit card network), but an ATM card may be possible? That's the only reason I'm aware of to get one.
alanpearce
Yes, there's a different kind of debit card. I usually use a different term that's country-specific (like the cards themselves).

For Germany, a German debit card (the "other sort", as you put it) isn’t the same as any other. It doesn’t have Visa or MasterCard co-branding like other countries’ debit cards, nor a 16 digit number, so it can’t be used online. I might also use the term "bank card" for this, because there are actual debit cards with Visa/MC co-branding which are available in Germany, but less common than other types.

It's also common for Germans to use "Kreditkarte" to mean anything with Visa/MC co-branding, which probably spills over into English. This also leads to the hilarious term "echte Kreditkarten" (real credit cards) for cards that actually have a rolling line of credit attached (these are rarely offered).

However, in the UK I recall that people are usually specific about whether they mean a credit card or a debit card.

VonGallifrey
There is another debit card here in Germany.

I have such a card and it is neither a MasterCard or Visa card. It looks like a Credit card with a Chip and magnetic stripe, but it has my IBAN on the front instead of a Credit Card number. These cards are the standard here in germany. If you have a german bank account you get one of these.

You can use it pretty much like a Credit Card and you can even pay contactless with it, but I think you can only do so here in Germany. Though it does not work if you only support credit cards.

Since these cards are standard and free some people do not bother with a credit card.

NikolaNovak
>>When a form on a web-site says CC (Credit Card) I can always pay with my debit card.

Here in Canada, many debit/bank cards now have affiliation with Visa or Mastercard (obvious with a logo in corner), and CAN be used as Credit Cards.

But that hasn't been the case historically - debit/bank card would work on bank's ATM and related Interact/Plus systems. But until semi-recently would NOT work if you accidentally hit "Credit" instead of "Debit" on ATM or retailer's POS system, and would NOT work on websites requiring Credit card - completely different paths. And to my knowledge many bank/debit cards in Canada still cannot serve as credit cards - they just don't have that capability/afiliation baked in.

Note - I speak as a semi-observant customer, I have no systems-based knowledge of these things :-)

ComodoHacker
>which is what most of the locals use

That's the point GP is making. It's not that people can't use credit cards, just don't have one available at the moment they are ready to pay for your product.

AdrianB1
Availability and usage is not the same. In Europe credit cards are widely available, but in some countries they are not used for various reasons, it can be cultural (ex: Germany) or bad conditions from the banks (ex: Romania).
watwut
I am in EU and around me people use credit cards only if America requires it for some reason. I don't even own it.
nikisweeting
Credit cards are still pretty difficult to get in Colombia and some other countries in South America. You can get them, but you need a long relationship with your bank, and the process is expensive and time consuming for not very much cash back, so most people don't get them.
gpas
EU here. Credit cards are just a way to pay online. There are countless debit cards and every bank account comes with a card issued in partnership with a international service like VISA or Mastercard to enable online payments and money withdrawal at foreign ATMs.
brundolf
Not sure from a business perspective, but from a user perspective, I sign up for the annual plan when I feel confident I'm not going to stop using the service any time in the foreseeable future. So I'd take that as a good thing!
tylermenezes
If it's b2b and low pricing, could be that it's not worth the effort to deal with monthly payments.
tln
Are your customers individuals, small businesses, large businesses?

Is there a usage component you might add? Gb stored, social posts per month, etc

Have you reduced the risk for your users to choose annual, eg by emphasizing "cancel anytime"?

Seems like your users expect to use your product for a long time, that's great.

alphabettsy
I generally purchase annual for thing where I feel like the product is going to have the same utility for me the entire subscription period.

Fastmail, which I’ve used for years, I’m willing to pay two or three years up front.

The new thing I found last week I pay monthly was a disposable card.

Maybe your customers believe your product is useful and they’re not concerned about it failing to work in 6 months and maybe it’s mostly used by businesses which typically think in terms of yearly rather than monthly when it comes to ongoing expenses.

ajaimk
2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term. I personally have a few items I pay for annually because I don't see myself stopping from using it AND there is no obvious replacement.

I would NOT recommend changing the 2 months off; you'll annoy your most loyal customers.

DamnYuppie
He can keep that pricing tier/billing plan for existing customers and create a less generous one for new customers. I would keep reducing the discount until sales fall way off.
skrebbel
you can grandfather existing customers into old plans and still experiment with pricing.
throwaway_23124
I absolutely don't plan to change any existing subscription; everybody always gets grandfathered in forever. The early adopters' invaluable feedback + potential bad rep from raising prices is reason enough. I'm mostly looking for advice on how to price things for my future customers :)

>2 months off for paying annual pricing is a very good deal for someone who plans to use you product on the long term.

I too pay for some things on an annual basis (e.g. email). I guess never expected my product to be sticky enough for people to want to go annual straightaway. To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?

prox
A company I bought a plugin from, had a one fixed price for all time. They kept all the old customers in that bracked, but new customers have to buy a yearly fee.

So I would create a new subscriber role and simply let your new customers pay a bit more.

It is wise to be upfront with existing customers : say you have need for more funds or more investments, relay that to your existing customers, say you are keeping their price (indefinitely if possible) and that new customers going to go into the new tier.

ipaddr
If your product is priced well putting a year down makes sense. I only want to worry about you once a year.
jimkleiber
I've often thought about giving a one month option and a three month option (quarterly) and yet I haven't really seen this in SaaS... do you think there might be some people who would prefer to only worry about it once every three months?
user5994461
It's the worst thing you could possibly offer.

Customers will notice a "large" bill every three months. It's just infrequent enough that they don't remember what it was from 3 months ago. It's just large enough that they really want to check where the hell is all that money going to. Customers will investigate and that can only result in cancellation.

A monthly subscription is designed to be easily approved by a middle manager (and fly under the radar). A yearly subscription is designed for customers who plan ahead or cannot do recurring payments (recurring invoices/approvals is a huge pain to deal with).

jimkleiber
I found this really helpful, thank you!
nextaccountic
> how do I monetize this stickiness to extract maximum value from future customers?

Don't. Focus on acquiring more customers instead.

tough
Or do it but without screwing current customers, use them as your free marketing force giving them even more discounts to honestly give you good reviews / recommend to their friends with a referral program. Instead of putting that money into adsense of fb ads, put into your current loyal customer base to help you grow it organically.

Worked for PayPal, Uber, AirBnB, etc..

noodle
> To be very blunt because I'm anonymous, how do I monetize this stickiness to extract maximum value from future customers?

Addons/extras/upsells. Find some features that might make the most sense as something that exists outside of your current pricing structure, maybe due to specific fixed costs of some sort that don't make sense to roll into the plan pricing, and offer them a la carte at like $20/mo or something. This would allow you to bump your ARPU a bit.

Another option is services. Not knowing your product, its hard to make any concrete suggestion here, but data migrations and initial account setups are common ones.

dumbfoundded
If it's not broken don't fix it. I would focus on the top of your funnel to increase sales.

Also, you want to have more annual subscribers than monthly. It's almost certainly more profitable. You're essentially giving up 1/6 of revenue in exchange for guaranteed 0% monthly churn. A simple estimate of what your breakeven monthly retention is: 98.5% = (5/6)^(1/12). So if you're losing less than 1.5% of your customers monthly then this would be unprofitable.

orasis
I sooo disagree. Mispricing could be leaving massive value on the table plus increased margin can allow you to pay more for user acquisition.
astrocat
Your approach sounds like the mindset of chasing growth instead of sustainability. Short term gains over long term value.
orasis
Quite the opposite. As a niche becomes saturated with competition, user acquisition costs rise to approach the level of the highest margin player. If you want to have a sustainable business it behooves you to have better optimized margins than the competition.
dumbfoundded
I don't really see any evidence that there is mispricing. Pricing is complicated and sure if you raise prices, maybe you make more money or maybe you kill your LTV while exposing yourself to potential undercutting from competitors.

In a growth business, raising prices is usually the last thing you want to do to make more money. If pricing is broken, the costs only accumulate until you fix it while if you build value for users (and increase retention), you get returns on that in perpetuity.

Obviously any advice is meaningless without full context but focusing on pricing is usually a sign of a business that can't find any other way to grow. Or that the unit economics were wrong. Unit economics are usually not a problem with SAAS businesses with a $0 marginal cost.

EveYoung
But it could be an opportunity to improve, as well. I would start by investigating how customer segments are converting. One hypothesis could be that you have more annual subscribers because more uncertain users are not signing up at all. Maybe the monthly plan is too expensive for testing or the messaging is unclear.
weaksauce
personally I think it causes the least amount of bad will if you leave the existing plans at $10*X/year for the people that are grandfathered into those contracts. If you increase the price only on new signups you will keep your happy customers... this goes well with an email that says something like "we are raising the yearly fee on the SAAS however the good news is that you're grandfathered into your current pricing for as long as you maintain your subscription"
digi59404
Here's my two cents.. I would first off send your customers a survey about where they find value and why they picked yearly over monthly.

Next - I would not increase prices. I would add value, and increase pricing on that. Add more features, and add another pricing tier that people can find valuable with these new features.

Continue to do that until you have multiple pricing tiers; (if you don't already). Then add value into those tiers and increase cost to reflect that extra value add as needed.

JohnBooty
Is there a community aspect to your site?

    the typical two-months-free-if-you-pay-annual thing 
    you see everywhere
Anecdotal, but --

When I ran a dating/social site back in the ancient mists of time, it was $4/month or $20/year.

So, more like seven-months-free-if-you-pay-annual. I felt it was successful at driving people towards the annual subscription. Since the annual subscription was such an obviously "better" deal.

In my case I was actively trying to encourage the network effect. I wanted long term community members, not monthly ones. After all, when paying for a site like that, you're really paying for access to the community.

Is there a value to having your customers around longer-term? Community aspects? Promotional aspects? ("40,000 active subscribers for $PRODUCT_NAME!") For many businesses perhaps the answer is "no" but it's worth considering perhaps.

c1c2c3
Personally I hate monthly payments for things. If it is something I'm going to use I may as well get a bit of a discount and not have yet another payment coming out of my account each month.

Additionally I'm in the UK, so this won't apply everywhere. Some (Many?) bank accounts charge a flat fee on top of the currency conversion rate - again a reason to make just one payment a year.

frombody
I am another person that also avoids all monthly payments. Even yearly payments I always disable any recurring fees immediately after sign-up.

I will decide when money comes out of my bank account, how much I am willing to pay, and whether your product is worth the money.. not you. And I'd rather not spend time and energy doing this monthly.

908B64B197
Sounds like you are creating value, and customers are confident in doing business with you for a longer period of time.

So good job!

bthomas
Are the numbers current subscribers or new subscriptions?

Hard to speculate without comparing churn.

IncRnd
17% off is a very good deal for the consumer when prepaying a year. Always remember the axiom that a sale happens when you sell something the other party wants at a price you both believe is fair.

Whatever you do, be careful not to add or modify plans in a way that would lose existing paying customers. As the other saying goes, a bird in the hand is worth two in the bush. An existing customer is worth a lot more than a prospective customer.

There are lots of changes you could make, but you may want to ask your existing customers first as to why they made the choice they made. Ask them how you can improve their existing service. That will go a long way to inform your future decisions.

littlevache
My 2 cents: I was once in your customer shoes, and I choose the annual plan because it meant encouraging the product, helping it not to go bankrupt. If your product/company is quite new, and provide something that people love and want to make sure stays available, they will help making sure it does. In your case, pay for the annual plan means pay more money to you in the short term, helping your balance sheet
NikolaNovak
Depends on your product.

If service is something that seems superfluous, temporary, a lark - such as Reface or the myriad AI-repainters etc - most people will do the shortest period of time.

If it's a business / utility tool that people find reliable/useful, most don't want the hassle of constant billing. Two months off is a great incentive for something you KNOW you'll use. And believe it or not, some people want to support scrappy startups with useful tools - I've personally gone through so many useful things that have disappeared, that I'll actively support new ones so I can use them for a long time :)

As to what you should do, again, depends. Are you happy with your income, are your customers satisfied, is your growth what you expect? Don't feel like you have to change anything :).

Also, asking your customers may be a useful way to proceed to0 ;-)

bombcar
Do you offer annual billed monthly? Some business prefer that - offer annual billed monthly at a $11*X/year, see what happens.
throw14082020
Maybe you're defaulting to the annual billing on your website, like most companies do
marto1
1. This is really good. Your niche/customers/market is oriented towards the long-term. Might be time to go to some of these customers and try to find out if they are. Long-termness indicates more enterprise clients which means it's time to offer some sort of a "Business plan". These tend to sell for much much more at the price of some special support, exclusive access, etc.

2. You're too cheap and people don't want to do monthly penny pinching. You can do some A/B and experiment with rising prices. Depending on how you execute on this you might end up in a situation where you raise 2-3x for the exact same product without losing customers.

Both can be true at the same time...or none. Knowing your customers is half the battle.

jimnotgym
> Does this mean I should simply increase prices?

Does anyone else hear patio11's voice in their head shouting "YES"

devops000
It might be your pricing is too low. Try to better evaluate how much value / saving they have using your product.
polote
Nothing. Your price has probably nothing to do with the split.

It just means people are with you for the long term and they like your product.

Your price should be linked to the value you are offering. If you think your value is more than the price people pay today, then increase your price to a value you are comfortable with.

What is your objective ? is it growth ? is it profitability ? is i number of customers ? do you have competitors ? are you selling to b2c or b2b ? I'm not sure we can give you any relevant advice without a lot more information

dheera
I think your discount is pretty fair for a 1 year commitment. Wouldn't change anything. If you do decide to increase prices at any point, consider grandfathering your current customers into the old pricing to not piss them off, as long as they are still netting profit for you. They're probably your best customers for adopting and committing so early and will probably be some of the best word-of-mouth spreaders and sources of free advertising for you.