Don't offer yearly SaaS plans if you have a 💩 product
This is part 1 on a series of a mystery product that has taught me quite a few lessons the last weeks.
The subject line is pretty obvious if you're a founder of a SaaS startup. Even if you're thinking about building one. But let me entertain you a bit by diving into the psyche around this a bit deeper.
Here's how the software funnel usually works. User signs up (hooray 🎉). If it provides some intrinsic value or solves a problem they sign up, use your product, and pay for your product. If it doesn't they churn immediately. Now for those users that decide to pay in the SaaS world they are normally provided two options. The first, is to pay month to month. The price is a bit higher but there's less risk. If they don't end up liking it, they've only lost a few bucks. No harm no foul.
You have a product that's solving a problem, so why would a user churn and how would they feel? In this scenario, the user doesn't actually receive the amount of value they expected. So they don't feel like paying any further. They're probably a bit disappointed, but they aren't mad at you. If you improve the product and feature set in the future to increases that value proposition, they may come back.
Now if they run into bugs or friction points, those can get annoying. Because they are month to month, if not fixed quickly enough or if there's a bigger value proposition elsewhere, they'll drop you. In this case, they may be a bit annoyed at the bugs that caused them some unwanted issues. Alternatively, you simply weren't adding some core functionality they really wanted and could get elsewhere. If another app offers a better (or cheaper) experience, they'll move with the potential to come back if your app gets better than the other.
On the other hand, SaaS companies offer a yearly plan. The yearly plan comes with a longer commitment but offers a nice discount (normally 10-20%). These are harder to convert because of the longer commitment period, and payment up front. The company loves it, because it's guaranteed revenue up front. Users love it because they are saving money. The important key here is, ONLY people who are passionate or get an outstanding amount of value out of the product go this route. I highlighted passionate above for a reason.
I co-host a podcast on remote leadership. We record once a week, normally on Mondays. About 4-6 months ago I came across an app that blew me away. I come across endless apps and maybe once a year am I blown away. This app allowed me to do all of my post-production of the podcast in one place. Editing audio & video, transcripts, audiograms/videograms, etc. Before I was using 3 or 4 different tools for these jobs. I'm a huge believer in platforms that allow you to do multiple one things in one place. These always win out.
So it normally takes me 4-5 hours of post-production to release a podcast episode. This app saved me 1-2 hours. Big win! So I was enamored with this app. I tweeted, posted on Linkedin, posted in their community, and everywhere I could find. I was in love ❤️. Then one day came new major production and beta version releases (I used both). 💥 things blew up. Every subsequent build broke something else major each and every time. It added back that 1-2 hours of extra post-production time I had saved. At times, the app was completely unusable for a few days. Meaning I had to do all the work on a Thursday night or Sunday. I was plenty pissed. Now repeat that over & over.
What happens with the user is they get burned and that burn turns into a passionate fire and disgust at your product. What adds fuel to the fire is they remember, they paid all that $ up-front. So they are stuck using your broken product for the next X months because they are likely unwilling to pay for another tool (when they've already paid for one). So this company completely turns off the user to the extent they are counting the days to move to another tool. And in this case, they will never come back. It's also possible these frustrated users start complaining on social media, and that's never good. It's a user scorned.
To quickly recap. If you have a SaaS app with yearly plans, it can be a double edged sword. Those users signed up because they passionately love your product. Your product is the bees knees! 🐝 However, if you start releasing more major bugs vs features, those users will passionately hate you. Be sure you're doing quality control, and prioritizing feedback from those yearly paid users. It's them who you need to make happy first.