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 up front 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 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 Subscription?
The benefits of annual subscriptions for SaaS vendors is 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.
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
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 check marks 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.
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 true partnership with your SaaS vendors, you’re more likely to maximize the benefit and value you receive from using their tools.