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Annual vs. Monthly Subscriptions: Which Billing Is Better for You?
Explore the benefits and drawbacks of monthly and annual subscriptions and discover the key factors to consider when choosing between the two options.
Businesses all over the world have the ultimate goal of catering to as many customers as possible. To do so, apart from designing unique products and services, they look to offer the most convenient payment methods for their customers. Because, more often than not, which payment plan is better depends on the type of your buyer persona rather than the products or services you offer. The two most popular recurring billing methods are monthly and annually.
Annual and monthly billing plans: what do they have in common?
Subscription-based businesses tend to offer different payment plan options for their customers, with monthly and annual payments being the most common. Some companies also decide to offer quarterly payment plans.
Regardless of which billing plan your customers opt for, annual and monthly billing plans have one thing in common: they automatically renew at the end of their respective billing cycles unless the customer cancels the automatic renewal before the subscription renewal date. The payments are automatically withdrawn from the customer’s account as the payment information is stored in the company’s systems.
The choice between monthly and annual subscriptions depends on individual preferences, budget, level of commitment to the service, and the specific terms offered by the company. Some users may prefer the flexibility and lower upfront cost of monthly subscriptions, while others may opt for the cost savings and convenience of annual subscriptions. Nonetheless, let’s now take a look at the benefits and drawbacks of monthly and annual billing plans.
Pros and cons of monthly subscriptions
- Flexibility: Monthly billing plans offer greater flexibility since users can easily cancel or modify their subscriptions every month without being tied to a long-term commitment.
- Lower initial cost: Monthly subscriptions require a lower upfront cost compared to annual billing plans, making them more accessible to users with less budget, which means they have more potential to attract new customers.
- Try before committing: Customers can test the product or service without having to commit to a long-term contract.
- Opportunity for frequent upgrades and downgrades: Customers, members, and users can switch to higher or lower subscription tiers more frequently, adapting to their changing needs.
- Automatically renewed: Customers who want to continue with their subscription don’t have to take any action in order to renew it as the renewal is automatic and requires no action from the customer.
- Higher customer retention: The cost spread over 12 months has a lower impact on the customer’s budget, making them more likely to stick with the subscription even if they’re considering cancelling.
- Higher overall cost for customers: Although the cost is spread over 12 months, monthly subscriptions are more expensive in the long run compared to annual subscriptions since the monthly fee accumulates over time.
Pros and cons of annual subscriptions
- Cost savings: Annual billing plans typically offer the products or services at a discounted rate, compared to monthly subscriptions, resulting in cost savings over the course of the year.
- Fixed pricing: Annual subscribers are shielded from any price increases that may occur during the subscription period.
- Lack of flexibility: Annual subscriptions lock users into a long-term commitment, making it difficult to cancel or modify the subscription without potential additional charges or penalties.
- Upfront cost: Not all customers may feel comfortable with the higher upfront cost of an annual subscription.
- Risk of dissatisfaction: Customers who find the service or product unsatisfactory after committing to a year-long subscription may feel stuck with something they no longer want or need.
- Limited upgrades or downgrades: Users might be locked into a specific subscription tier for the entire year, potentially missing out on better features or with no possibility to downgrade.
From a business perspective, it’s important to offer your customers various payment options and billing methods so that you can cater to as many potential customers as possible. Remember that it’s crucial to offer monthly subscriptions as they tend to be more attractive to a large segment of the public since they require a lower financial commitment.
How to manage monthly subscriptions?
Monthly subscription management must be smooth and shouldn’t require any input from your customers. To do so, opt for recurring payment providers that specialise in providing payment solutions for subscription-based businesses. At Waytobill, we support Nordic merchants with local direct debit solutions, for example, Digital Autogiro in Sweden or AvtaleGiro in Norway. Besides, our payment solutions are available for various sales channels, including online and telesales.
Would you like to find out more about our payment solutions or monthly subscription management? Contact us today!