Monthly vs Annual SaaS Subscriptions
Visit any SaaS pricing page, and you'll discover two general subscription options: monthly and annual. Most SaaS tools display annual pricing as a default for obvious reasons. If the vendor can get you onto an annual subscription, it's better for them because they receive a lump sum upfront and they lock you in for the long-term.
But which is better for you: monthly vs. annual subscriptions?
We've written in the past about how SaaS vendors like to work with prospects on the vendor’s terms. They make it difficult to find enterprise-level pricing because they want to define and take control of the sales cycle. And they do the same thing with monthly vs. annual subscriptions — they display annual pricing as a default because they want to nudge you toward year-long subscription plans.
The customer holds the power when it comes to choosing monthly vs. annual subscriptions, though. In some cases, it will be best for you and your company to choose an annual subscription. But, in other cases, it’s best to opt for a monthly subscription.
See below for more details on how to choose the best subscription model for your business.
Why Choose an Annual SaaS Subscription?
The benefits of annual subscriptions for SaaS vendors are clear for the reasons mentioned above. But annual subscriptions also provide benefits to SaaS users. What types of benefits? Here’s a look at 5 reasons you should consider an annual subscription vs. a monthly subscription.
1. Annual SaaS Subscriptions Are Discounted
The No. 1 reason to opt for an annual subscription is pricing. Almost all SaaS tools will provide a significant discount if you pay for an annual plan rather than paying month-by-month. If a SaaS tool doesn't offer a discount for annual pricing at first, the discount can almost always be negotiated.
You have to pay a lump sum upfront, which can be difficult when purchasing an enterprise-level SaaS plan that charges a steep price. It can also be hard for startups that are fighting revenue challenges. But, for companies with healthy cash flow, the discount available when choosing an annual subscription makes the initial lump sum worth the investment.
Of course, this is not a good approach if you’re exploring new SaaS tools. You don’t want to make a large upfront investment during the testing stage. During testing, opt for monthly pricing so that your team can become familiar with a SaaS tool before making a longer-term commitment (more on this below).
You can also blend the benefits of an annual contract with the low regular payment of going month-to-month. Many SaaS providers will let you sign an annual contract at a discounted rate while paying monthly or quarterly.
2. Additional Features Come With Annual SaaS Subscription Models
You may also find that an annual subscription makes available additional features. In some cases, offering certain features to monthly subscribers introduces risk for the vendor. For example, Squarespace makes available a free custom domain to all-new annual subscribers. It cannot and does not offer a free custom domain to monthly subscribers, because the cost of buying a domain on the open market is almost as much as the price of a month’s subscription at Squarespace’s lowest service level.
If you click the “Pay Annually” radio button on Squarespace’s pricing page, the “Free Custom Domain” line is checked across all pricing plans. But, if you click the “Pay Monthly” radio button, the checkmarks next to “Free Custom Domain” disappear. Which makes perfect sense.
You are more likely to access additional features through annual subscriptions when using less costly SaaS. As you get into enterprise-level SaaS tools, you are more likely to find that features are hidden behind higher (and more expensive) levels of service. But, if your team is using a basic tool at a lower price point, make sure all the features you want and need are available with a monthly subscription before you make a buying decision.
The good news is that any SaaS tool will let you upgrade to an annual subscription if you discover that a must-have feature is unavailable through your monthly subscription.
3. Annual Subscriptions Are Convenient
There’s nothing worse than filling out lengthy expense reports month after month. When you choose an annual subscription and a one-time payment, there’s less administrative work to be done and more convenience to be enjoyed.
With monthly subscriptions tied to company credit cards, you also run the risk of the card on file expiring. If and when your card expires, you may lose access to the SaaS tool until a valid card is added. In many cases, companies use email addresses tied to departments rather than individuals to create SaaS profiles (like sales@ or contact@ or marketing@), which can make getting alerts about soon-to-expire cards and temporary service disruptions harder to keep up with.
Choosing an annual subscription over a monthly subscription greatly reduces this burden. You make a payment once a year, and administrative tasks take up a fraction of the time they take with monthly subscriptions.
Believe it or not, SaaS vendors need you just as much as you need them. The start of a SaaS contract creates a symbiotic relationship. Vendors provide users with access to a tool that helps improve their work lives and performance. In return, users provide a revenue stream to SaaS vendors, as well as valuable feedback on the performance of the tool and features that should be added to the development roadmap.
Annual subscriptions reinforce the partnership, signaling a user’s commitment to the platform in exchange for the vendor’s commitment to providing outstanding service. In some cases, you may find that you receive better support and service when opting for an annual subscription. You may even be able to schedule regular calls and check-ins with a customer success representative. When you create a true partnership with your SaaS vendors, you’re more likely to maximize the benefit and value you receive from using their tools.
5. Annual SaaS Subscriptions Have More Certainty Than Monthly SaaS
SaaS vendors want users on annual subscriptions because it creates revenue certainty. But there’s a certainty to be had for users, too. When you choose an annual plan, you can rest assured that your price will remain the same for 12 months — vendors can’t retroactively raise your price after you’ve paid upfront for a year.
That’s not the case with monthly subscriptions. Consumers are accustomed to receiving price-increase notifications from streaming platforms, gaming communities, and other vendors. These notifications typically put a positive spin on the price increase, noting additional features available through the service and the need to ensure the long-term viability of the provider. But the bottom line remains the same — the consumer is going to pay more.
The same is true of B2B SaaS tools. In many cases, SaaS vendors are venture-backed, and they start by acquiring users at monthly rates that do not drive profitability. As the venture money disappears, though, vendors pivot to pricing that will support the long-term viability of the company. If you are paying month-by-month, there’s nothing you can do to avoid these price increases. But, if you’re paying annually, you lock in the lower rate for a 12-month term.
Finally, when you choose the certainty of an annual plan, you eliminate risk. If you pay monthly and your credit card expires or otherwise declines, you run the risk of an essential, around-the-clock tool going down for your company. That's a risk that is too high for many SaaS companies.
Why Choose a Monthly SaaS Subscription?
You enjoy all of the benefits listed above when you choose an annual SaaS subscription. But there are certain cases when a monthly subscription will be the best option for your company. Here’s a look at some of the benefits of opting for a monthly subscription, plus scenarios when you’re better off choosing a monthly subscription vs. an annual subscription.
1. Monthly Subscription Plans Have More Flexibility
Flexibility is the most prominent benefit of choosing a monthly subscription plan. There’s no long-term contract to worry about, and your company can choose to switch providers at any time. Yes, you will likely pay more than you would on an annual subscription plan, but some circumstances make this trade-off more than worth it.
Before you choose a monthly subscription plan, make sure you own your data and have the ability to download it should you choose to cancel. In our SaaS Buyers’ Guide white paper, we emphasize the importance of data ownership. If you choose a monthly subscription plan for flexibility, you may find that the flexibility wasn’t helpful if you can’t take your data with you.
2. Lower Barriers to Entry With Monthly SaaS Subscription Plans
Anytime you make a buying decision that will affect a year or more of company operations, you want to invest a lot of time and research into making the decision. The time and research required to make a 12-month decision create a much higher barrier to entry than when choosing a monthly subscription plan.
As noted above, monthly subscription plans require more administrative work as you file expenses month after month and as you update credit cards and other profile information to remain current. But sometimes companies just need to get moving with a SaaS tool and the capabilities and value it delivers. In these cases, opting for a monthly subscription is just fine.
3. Monthly SaaS Subscriptions vs Annual Let You Test Software
Perhaps the best time to choose monthly subscriptions is when you’re testing multiple tools. For example, imagine that your marketing department is looking for a search engine marketing tool. It is considering three options: SEMRush, AHREFS, and Moz. Each tool offers a discount if you choose an annual plan — up to 17% for SEMRush, 2 months free for AHREFS, and 20% for Moz.
But your marketing department doesn’t yet know which tool best meets its needs. There’s nothing wrong with paying month-by-month for a quarter to determine which of the three options is the best fit. After that, your marketing department can choose the best tool and switch to an annual plan — unlocking the additional savings.
Monthly vs Annual Subscription Examples
The Bottom Line: When to Choose Monthly vs Annual Subscriptions
Here’s a simple way to choose between monthly vs. annual subscriptions for SaaS tools.
If your company has identified the right tool for its needs, an annual subscription is best. Annual subscriptions will give your company cost certainty and overall savings in exchange for access to a tool that delivers the capabilities and values your company needs.
If your company is testing various tools or is otherwise uncertain what tool is ideal for the long-term, a monthly subscription is best. Monthly subscriptions will give your company flexibility and a low barrier to entry in exchange for time to spend testing out one or more options.
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