How to self-fund your business with annual plans

The theme of my week has been annual plans.

If you’re not familiar with the concept, you take your monthly subscription and multiply it by 10, 11 or 12x and then ask your customer to pay it.

Up front 🤑

My anec-data tells me a range of having 10-15% of your customers on annual plans is achievable. Research by my pals over at ProfitWell supports this point of view.

This week I spoke to a few founders who run monthly subscription products and they did not have annual plans in place.

Each founder sees relatively low churn and delivers their service on a monthly basis.

I wondered… hmm, what gives?

The benefits of implementing annual plans are obvious:

• You bring cashflow forward to invest in marketing and sales
• You lower your operational risk by not running extremely lean (and maybe missing your salary when you have a down month)
• You reduce your stress - this is often my favorite reason for making business decisions

Of course there are some concerns…

What if I scare my customer off with a high price point?

• Having an annual plan can actually help you sell more monthly plans. Comparatively speaking, $99 p/mo looks very cheap stacked up next to $999 p/yr. It’s price-anchoring magic.
• Employees of bigger companies often prefer annual payment terms. As a Director at GoDaddy, I would religiously procrastinate on submitting my corporate card expense reports. Sell me once a year and you’ve probably saved me an hour of finding receipts. And I would love that.

What if we spend all the brought-forward revenue and then the customer wants a refund?

• Just because you capture 10 months of cash up front doesn’t mean you need to spend it all immediately. You can use it as a buffer and apportion a percentage of the revenue towards sales and marketing. This forces you to dig deeper into your payback period for acquisition related expenses.
• Annual plans force you to think through your cancelation and refund policy. Look at what’s in market and be inspired by that. When WP Curve was acquired by GoDaddy and we shut the product down, it was easy to refund every single customer right down to the cent in Stripe. Paypal required a little more hoop-jumping.

When should I sell the customer an annual plan?

Repeatedly. First, put an option to go annual on your pricing page. If you have a high touch sales model, you can frame the sale as month-to-month for the first 90 days, then you will revisit to go into what their annual term would look like. If you have low touch sales, consider a sequence to nudge people into an annual plan based on milestones and/or a time series. Let’s say you’re watching your customer NPS like a hawk (which you are… aren’t you?). When you get say five NPS 10 scores, maybe that’s a good time to ask for an upgrade? Or when a customer hits a milestone or exceeds your typical subscription length, you could ask for it. Or at the end of the year when businesses want to minimize tax and are looking at where to deploy their free capital, hit them with an annual offer.

What Jason Cohen says

To top it off, I listened to Jason Cohen’s podcast on Indiehackers while I was doing my ironing today.

If you’re not familiar with Jason, he’s bootstrapped 4 businesses past $1MM in ARR.

His current business, WP Engine is tracking at ~$133MM ARR.

Search for his episode of the Indie Hackers podcast to hear what Jason has to say about annual plans.

Over to you

Do you have an annual plan for your subscription service?

If yes, what percentage of your revenue stack does it make up? What else can you do to help more people go to annual terms?

If no, why not? What’s holding you back?

I wrote this in 2019. Today I work as a founder coach.