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3 reasons annual subscriptions reduce customer churn

Photo by Austin Distel on Unsplash

If your company offers subscription services, odds are you charge your customers once a month. This makes sense. Monthly subscriptions are flexible and have a low barrier to entry. Annual subscriptions, on the other hand, have higher upfront costs. They’re a harder sell, but they also churn customers at one-fifth the rate as monthly ones, which makes them far more profitable. Why? Three reasons.

  1. Your customers have fewer chances to opt-out. Monthly plans renew twelve times a year. That’s twelve chances for a customer to decline a purchase. Annual plans renew once a year, which means your revenue is more stable and easier to predict. 
  2. You have more opportunities to demonstrate your value. The basis for any subscription is the value your products provide. A longer plan gives you more opportunities to show customers the benefits of your products and services, strengthening your relationship with them. By the time the plan ends, there’s a good chance your product will be baked into how they do business, making them more likely to renew as a result.
  3. Your customers weigh their decision more carefully before signing on. Higher upfront costs also mean customers generally consider their purchase in greater detail before agreeing to it, which means they’re more committed overall. Even a small number of these customers can have a huge impact on your bottom line.

How to Take Advantage of Annual Subscriptions

Customers are understandably hesitant to pay the higher up-front cost of an annual subscription. To get around this most companies offer special pricing incentives only available to annual plans. Many times, they’ll offer additional benefits or cost-savings if the customer agrees to purchase a multi-year plan.

If you’re unsure what type of incentives to offer, take a look at your competitors and similar products in your marketplace. You may also want to compare your customer churn rate to others in your industry. If it’s considerably higher, you may need to review your pricing and discount strategy. If it’s lower, you may not need to offer much of a discount at all to convince customers to sign up for an annual plan. 

Annual subscriptions are a win for you and your customers.  They’re not only saving money; they’re also saving time. They don’t have to go through the hassle of processing invoices and handling expense reports every month, which encourages loyalty.

And when you’re able to build steady, predictable income, you’re able to invest more in your business, giving your customers the products and services they need. That makes customers more reliant on you, so at the end of their contract, they’ll gladly sign another.

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