Thoughts on quarterly pricing plans?
Thoughts on quarterly pricing plans?
I only have annual pricing plans for my product right now and I'm about to try offering quarterly plans as well. I tend to see most SaaS products offering monthly + yearly plans. Quarterly + yearly plans seems very rare. What are the pros and cons? Why is quarterly so rare?
My specific product: https://www.checkbot.io/, a Chrome extension that crawl your websites for SEO, speed and security problems and tells you how to fix them. You can test with Checkbot as often as you want on as many websites as you want. The free plan checks smaller websites and the paid plan can check bigger sites with more features like checking localhost, CSV + PDF export and configuring which pages to skip for faster crawls.
My thoughts are if I offer monthly plans, it encourages buyers to make a decision quickly if they're going to use it longer term instead of trying it for longer. More cancellations and more transactions means more admin and support for me as well.
The pricing of the annual plan right now is $100 and quarterly will be around $30 or $40. I'll probably start with the lower price and adjust up depending on sales.
Does that make sense? Any insights or suggestions are appreciated. Thanks!
The only way you'll know for sure is to test. That said, i have tested yearly, quarterly and monthly plans for one of my products at similar price points (in this case it was for an online course, not SaaS).
I started with $97/year or $149/yr (non-recurring) and then added quarterly plans at $45 and $57. (The pricing page shows these at $15/mo and $19/mo plans, billed in 3 month increments.) Last year I tested offering a pay as you go monthly plan at $25/month alongside the $97 annual option.
For us, the $25/monthly plan performed the worst by far. Conversion rates were similar to the annual option, but the number of people who dropped off after 1 or 2 or 3 months was very high (over 50%). For the monthly plan to make financial sense, the LTV and or the conversion rate needs to be higher than the yearly option. But in our case the conversion rate was basically the same and the LTV was actually lower.
I also received significantly more complaints and more refund requests from this set of users. Some portion of your prospects will always be drawn to the lowest initial price rather the option that provides the most value. These tend to be the least committed and most risk averse users. Users who paid and didnt have to think about it again were also happier and more satisfied than people who got billed every month and were constantly re-evaluating their decision need to stick around.
I think a monthly option can work great if you have a product that people use everyday or at least a few times a week. If your product is something that people use only occasionally, then people will tend to balk at paying for it every month. For example last year i paid something like $79 dollars for a product that helps you create text-based video sales letters and I think i ended up using it only once. If I had signed up for a $15/month plan im sure i would have quit after a month or two of not using it. Even if thought i might need to use it again at some point in the future im sure i would have figured that i could simply sign up again when i needed it.
In comparison, the quarterly plan users often stick around for up to a year or more, so the LTV on the quarterly plans has been the highest of the 3 pricing strategies for us.
Thanks for the insights! Did you try annual + quarterly only? Or consider biannual + annual only?
That's what I'm concerned with. If I tried a monthly plan, it would probably only be a little cheaper than the quarterly plan for this reason. I'd prefer to do a free trial + quarterly instead of monthly.
Stick to quarterly. The quality of customers will be better in general because the more customers have to commit, the more solid they will be and you will have less tirekickers. I have learned this over 5 years.
I agree but any idea why other SaaS products don't do this? Like I said, quarterly plans seem very rare.
Because sometimes it depends on the business and your target market. For products where customers can easily cancel especiallyB2C, monthly is preferred. But for B2B software where customers cannot leave easily as there is a cost to that, quarterly payments can work. Longer commitments is generally required for more complex setup (at least in my experience).
We use monthly/quarterly/yearly payments at nixstats.com -- We only accept credit card on monthly payments, Paypal as well as other payment methods are quarterly and yearly only.
The quarterly payment option is fairly popular but also since it's the first option we allow PayPal payments on.
If you annual payment is $100 I would price the quarterly payment definitely more than $30, else the quarterly payment would be cheaper..
Thanks! Only share as much as you're comfortable with but can you share any stats? Like roughly how many people go with which plan and the churn rate of each?
The payment options are shown after you sign up? I don't see the breakdown in the pricing section.
Four quarterly payments are $120 so annual would be $20 cheaper?
I usually see quarterly pricing in 2 cases:
If you have problem #2, you might make some headway with playing around with pricing periods, but I think you're better off trying to solve the customer value problem.
Are your customers getting value from your product? If not you might need to rework the product a bit.
Talking to your customers (especially churned customers) can help see where the gap between why they signed up and why they didn't get that value. Talking to happy customers can help you see how they are different from churned customers. I prefer to build for the happy customers if there's a conflict between motivations to buy.
If they are getting value but people are churning anyway, there can be several causes:
Thanks for the suggestions.
I only have yearly subscriptions right now and I've only had a handful of people cancel for their next year so I don't have much to go on regarding churn.
One was a non-technical business website owner with a small site that said once the site is fixed they won't touch it for a while. I don't think changing the product right now to keep these kind of customers is worthwhile. The cheaper quarterly plan might help pull in some of these customers that wouldn't pay for yearly.
How do you ask people why they churned? They have to cancel via email right now. I cancel first and then ask but usually they don't reply. Would a cancellation questionnaire help? I feel some people are uncomfortable being honest about the reason.
I have a form on my cancellation page, but you could also ask when they cancel.
I agree with your approach to not hold their account hostage until they give you feedback, you just won't hear back from some.
Customer support is another great indicator of problems, you can track cancellations back to the support you provided and see if there are any patterns.
What options does your form have for feedback? Do people leave detailed feedback? If it was a forced single option drop down I'm not sure how honest the results would be.
It's a free-form text box. Some give quite a bit of detail, some are brief.
I have seen forms with options, but you'd need to have a good idea of what the reasons might be before that's very effective.
What do your existing customers say? Have you asked them?
I personally think $100 per year is nothing compared the value of better SEO. You should only need to ask your prospects "What's X More Visitors/Conversions Per Month Worth?" Surely in most cases, it's more than $100. Making your product a no brainer purchase. There are many benefits to getting the cash up front.
To be honest, it's been difficult to get feedback even close to as valuable as this from existing customers. I've had several queries about why there isn't a free trial and a few messages saying it's too expensive but it's hard to quantify if that's a vocal minority. What's a good way to ask this kind of question and get a useful response?
I agree. I don't think there's a point pursuing customers that aren't willing to pay much for the value they should be getting.
My guess is that with a monthly plan, there is more of a secure feeling for a user, since if they don't like the product they can just end the subscription at any time and only have to eat a month of charge, whereas a quarterly plan offers neither the short term security of a monthly plan (since you're on the hook for 3 months) nor the deep discount of an annual plan, it just seems non-commital in a not-so-great way for the user.
As with anything I'm sure you can test this out to see what the most popular plans could be for your product
I'd rather the user wasn't having to keep evaluating if they're going to cancel so often though and worrying about if they would have been better switching to the yearly plan.