Boost Your Cashflow With Annual Pricing

“How do you sell a $2,000 watch?"

“Put it next to a $10,000 watch.”

That quote is an old advertising phrase that refers to Anchoring.

It’s based on pricing psychology - a fascinating topic that is also very useful for driving more sales.

Today, we are going to look at Annual pricing and how to use pricing psychology to drive more revenue.

I’m going to show 7 actionable tips to get annual pricing working on your pricing pages + 1 tactic you can apply today to get you more cashflow tomorrow.

A big thank you to this newsletter’s first sponsor 🎉 - Inflection.io.

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According to Profitwell, 1 in 5 SaaS companies offer annual pricing.

That's a big missed opportunity.

Annual pricing helps companies to:

• Increase cash flow

• Reduce churn

• Have Predictable Billing

• Increased Lifetime Value (LTV)

‍Increased Cashflow

With annual billing, you get paid upfront.

Having cash flow is never a bad thing.

With monthly, you are waiting months to recoup what you spent to acquire that customer.

Sometimes never if they churn.

With annual billing, you get paid back instantly.‍

Reduced Churn

On monthly subscriptions, customers can churn at any time.

If they pay yearly, they churn after a long period.

You get longer-term customers.

You get more time to deliver in that timeframe.

Predictable Billing

One bill per year.

No regular credit card failures.

No extra processing charges.

Predictable billing allows you to plan and model out your future.

This is crucial for strategy and getting to that next level of growth.

Increased Lifetime Value

They are around for a minimum of 12 months.

Life-time has gone up.

You have way more opportunities to upsell and cross-sell.

Let me be real for a second:

The market is tough.

Lots of teams right now are struggling to hit revenue targets.

If you’re a Founder, you are probably worried about cash flow.

A simple way to bring some extra long-term revenue in the door is to:

1. Segment some of your most engaged customers who are on monthly plans

2. Send them an email offering them a time-bound discount on an annual plan (See urgency later on)

3. Follow up on the final day of the discount

This approach can help lock in some of your best customers long-term and give you that extra boost we could all do with right now.

Now, here are 7 ways you can effectively use annual pricing.

1) Actually offer annual pricing

Crisp doesn't offer annual pricing.

They miss out on lower churn, upfront cashflow.

Adding annual pricing could make a huge difference to their business.

Unless your pricing is very complex, you should offer annual pricing.

2) Show the biggest discount offered

Figma shows the user it’s $3 cheaper each month.

That feels like a small saving.

Instead, they should show the discount annually.

By doing this, 20% feels big.

Pick the largest number you can when describing the savings.

3) Show the savings in time, not %

Github shows me I get one month free.

This is rather than getting a percentage off.

1 free month is a more tangible discount.

Don't make the user think.

Do the maths for them.

This forces me to work less to see how much I get.

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4) Default to annual pricing

You want your customers to go annual.

Teachable defaults to the annual pricing.

This uses a cognitive bias called Anchoring.

The user is anchored to this price vs the monthly price.

The monthly appears more expensive as a result.

As a result, you will get more annual buys.

5) Show the more expensive price crossed out

Again this uses anchoring.

It makes it clear to me the savings I'm making.

I see the old price and the price I will get.

It reinforces how I'm making my savings.

6) Go big with the discount

In general, offer 15-20% off annual pricing.

But if your unit economics work, go big with the discount.

PandaDoc offers up to 46% off.

That's an appealing offer to go annual.

Don’t be afraid to go big with an annual discount if you can make it work.

7) Use urgency

Urgency is one of the most powerful psychological drivers.

Getting annual deals is still a deal.

Typeform uses urgency to show it is a deal.

And it might not be around forever.

This likely causes an uptick in conversion.

When you’re ready, here’s how I can help you grow:

Get the Startup Growth Roadmap - my playbook of 25+ templates that's helped 300+ founders and marketers to scale their startups.

Hire me to audit your onboarding flow.

Work with me 1-1 to solve your most pressing marketing challenges and help you set up a high-converting onboarding sequence.

Cheers,

Theo