Should we offer monthly subscriptions, annual subscriptions, or both, and how do we decide between giving customers flexibility versus locking in commitment?

Based on our saas pricing book, Price to Scale, you should consider offering both monthly and annual subscriptions—but the optimal mix depends on your customer segments and product maturity. Here’s how you can approach the decision:

• Directly weigh flexibility versus commitment

Monthly subscriptions provide low barriers for new users and those who may be testing the product.
Annual subscriptions often come with a slight premium and can help lock in longer-term revenue, giving you greater predictability. As discussed on page 231 of Price to Scale, customers are typically willing to commit longer if the benefits (like a discount or added features) are made clear.

• Segment your customer base

Our book emphasizes segmenting based on how customers use your product and their pricing sensitivity. For instance, some customers might value flexibility more when adoption is new, while others—especially power users or enterprise clients—might prefer the benefits of a longer commitment.
Proactively offer alternatives and consider creating a tiered lineup that differentiates between the two, ensuring that each option is clearly matched to a customer profile (see pages 245 and 239).

• Consider the product lifecycle and market conditions

If your product is in an early phase, customers might lean towards monthly subscriptions as they gauge value before committing.
For a more mature product or when you want to emphasize long-term relationships, encouraging annual subscriptions (perhaps with bundles or enhanced benefits) may be more appropriate.

• Communicate the benefits clearly

Whether it’s a cash flow advantage, a premium for extended subscriptions, or additional perks tied to the longer commitment, make sure you’re transparent about what customers gain by choosing one option over the other.

In summary, our pricing strategy should be flexible enough to adapt as you learn more about your customers’ usage patterns while also encouraging longer-term commitments when appropriate. Testing both options, segmenting your customer base and determining the right incentives for each group will ensure you balance flexibility with the predictability of revenue, as detailed in Price to Scale.