Need multi-year signups for your SaaS? Or should you reframe your problem?

a fork in the road

Product pricing is a big decision. Once you set a price you have taken a direction at a fork in the road your business is traveling

Sound familiar? You just spent a few days analyzing revenue. Your sales aren’t reaching forecasted targets. So you think you need multi-year signups for your SaaS. We think you need to reframe the problem.

Consider carefully what happens if you direct your sales team to push for multi-year subscriptions.

  • Instead of a monthly or annual revenue refresh, customers agreeing to the multi-year offer will switch over to either paying you every two, three, or even five years.
  • Multi-year SaaS subscription offers almost always include a price discount. Understand the impact on your pricing model. If the sales team wins you will be discounting your own pricing strategy
  • Because a customer signs up for a multi-year subscription rarely means they will stick around for the duration if they end up dissatisfied. You will face a difficult challenge if you decide to hold them to it. Can you afford reputation damage? Can you afford legal expenses if the issue ends up in court?
  • If you offer them a “pay by subscription year” option, you won’t get the benefit of the larger payment you probably were looking for.

You need to reframe the problem before you solve it with a push for multi-year SaaS subscriptions. If the real reason you want to proceed is a lack of revenue, you need to check your prices. Are your prices too low to pay for your costs and profits? How are you pricing? Are you pricing based on what the competition is charging? Or are you pricing based upon an understanding of the quantifiable value your SaaS delivers? Try to look at your product “as a banana” and each of your competitors as “an apple”, “orange”, “peach” whatever. If you can’t see what makes your offer unique be prepared for the costs of “competition to be the best“.

If you have investors, plan on them scrutinizing your decision. It won’t take much effort on their part to see through a multi-year subscription push to a deeper pricing problem. Better correct the pricing problem. You will end up making more money with your SaaS offer. Your investors will be happier. Your customers will probably be happier with your service since you are giving them the chance to cancel.

But if you still decide to push for multi-year subscriptions you need to increase sales to cover a new “pay me every two or three years” subscription cycle. You will also need to make some big decisions to manage your SaaS reputation.

 

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