Annual vs. Monthly Discounts

Okay. So I do not see anyone in the, I see one in the studio. Welcome.

So the time is four o'clock. I am sort of looking a little bit at the attendance. think that it is, we have one people here and I actually don't know if it's one of my guys. So we have two people here. We're just gonna give everybody a sort of few more minutes to join and then we'll keep off.

Okay, so I think we're a couple minutes past. So today's gonna be a small crowd. So we have sort of monthly versus annual as our topic today. It's a bit of sort of, it's a fringe topic. I like it because I have a very, let's maybe contradictory stance on it than most other people, especially sort of B2B SaaS in that I think that multi-year contracts are not that great, beneficial. I'll get into that in a second. But also, I just want to flag that we don't have a ton of attendance. I think we have less than five people joining us today. So I think that we're going to keep it short and sweet. And also, if you have any particular questions, reasons for being in the webinar, just fire them over in the chat, and we'll start to make it just a little bit more Interactive right so so so I don't want to do sort of a full like 30 minute like spiel and then just to find out that you guys actually were interested in like different part of so I think when we are a little bit less people We're gonna keep it sort of short and sweet. I'm gonna go through my points relatively quickly and and then and Then and then we'll just sort of see what we end up and then any kind of dialogue that we're gonna have in terms of the chat and so forth I think that makes ton of sense. then I think, yeah. will, if we turn up to be sort of just like five people, I actually just might want to post to you guys like a guest link so you can come in and we can see your video and you can ask questions live. I think that might actually be a nicer format. So let's see where this goes. So, all right, let's kick this off regardless. I'm just gonna see if I can share something here. I have a screen, a window.

there. so monthly versus annual. So I have these sort of four topics that I want to go through like sales, risk, cash flow and renewals like how does contract length affect these things, which time period is best for me overall. So how do you make the choice of whether you have monthly, annual or multi-year contracts? Should you offer more than one option? Should you offer both? monthly and annual or monthly annual and multi-year and so forth. And then what kind of discounts can you expect on annual or multi-year contracts? And then just Q &A. And my idea is that I basically just want to go through this in like 10 minutes. It's super, let's say, basically like the kind of opinion I have on this. And then we're just going to have a conversation on it. So that's it. For those of you that don't know me, I am a B2B SaaS Pricing Consultant. I've been doing this for decade. I've done a bunch of projects, 150. I'm the founder of willingness2pay.com. We do a ton of this work and help clients with it. Okay, so, and more importantly, I'm the proud supporter of the community over at pricingsas.com. So this recording, including the Q &A, the slides, everything will be will have its permanent home over there. So if you are looking for this or previous webinars or you want to have future webinars, that's where it's going to be, community.pricingstass.com. And I can also tease, I guess, that we have just, we're sort of on the final touches of planning, I think no less than 15 or maybe even 18 webinars. So we're to have webinars every Thursday. from September through December after summer. So we're just going to have weekly webinars on things that we think are awesome. I'm going to kick off, I think, early September with six webinars on agentic AI pricing because that's what everybody's talking about right now. And then we're also going to have stuff on cost analysis, on hardware, software, hybrids. There's going to be a lot of juicy stuff coming up in the webinar series.

keep your eyes out for that. And then of course, this presentation is gonna be over there in the community. Right, so and for those of you, like we're up to I think five plus people now, just shoot your questions over in the chat. I'll try and actually sort of go through it as I speak. So, monthly versus annual. First thing that I wanna mention is that when we're talking about monthly or annual or multi-year, We're talking about a specific layer in the stack that is the pricing model. So I have defined earlier that a pricing model consists of six things and six things only. It's a pricing metric. So price per something, user, just the account itself, that's a flat fee or API call, whatever it is. Then a modality. That's where we have usage-based, license-based, credit model, flat fee, and so forth. The granularity. So we... counting one user, five users at a time, whatever. And then the term length. So the term length is, because of SaaS pricing model is a recurring ongoing subscription, we want to know at what cadence we're charging the money. Is it daily, weekly, monthly, quarterly, annually, multi-year? So for the purposes of this presentation today, I'm just going to go with monthly, annual, and multi-year. You could actually do other terms like. I've seen people run it before weeks. That actually means that you get 13 months in a year. You can do something weekly. You can do whatever you want. I think that's fine. But essentially, what matters is how long it generally is. And I'll get to back to that in a second. Then we have discounts and then we have price points. So price points, of course, can be affected by the term length. So something can be more or less expensive depending on whether I'm paying three years upfront or paying per month and so forth. So we'll get into that a little bit as well. So at a high level, effects on sales, risk, cashflow and renewals. I want to start with not term length. I actually want to start like one or two steps above here on the one called pricing modality. So pricing modality determines the cashflow and risk of your pricing model in the following way. So the modality is either a flat fee. So you're just having a price, thousand bucks to be a customer.

So Netflix, for example, has a flat fee. It's $10 a month or whatever the price is. It isn't a price per. It doesn't matter how much you watch Netflix. It's just you get access to the solution. That's it. So flat fee, either a license fee. So that would be a price per user, but a license fee is a right to use something in a time period and it is paid upfront. So your office... 365 subscription, for example, it's a license you pay per user. You pay it upfront. It's good for a year usually. And then that's how that works. Then you have a usage fee. So that would be the third modality. That is something that is usually paid in arrears. Your electricity bill is a good example of this. And then, and a lot of other sort of platform type software solutions is a good example. So you pay, you get access to something, you use it. and then you pay depending on how much usage you had in the time period. And finally, you have a credit system. So credit system is usage-based, paid upfront. So I now get usage credits, I pay for them upfront, and then I can use them in the time period, unused credits roll over to the next period, and then, but at the start of the next period, I have to buy more credits. Okay, so that's what that is. So in this framework, in a license-based model where I pay upfront, then the risk for me as the vendor who has this license-based model is low because I sell my customers 10 user seats and if they only use five, then that's not them. So they take the risk, I have low risk, they have high risk, they pay me upfront, so I have the cash, I'm happy. So I get the cash upfront, I have low risk. A usage based model is opposite. So here I take the risk. So I give them access to the product. Let's say they pay per monthly active user. And if they don't have any usage, they will not pay me, right? So because they didn't use the product. And then also not only will they not pay me, but they will pay me at the end of the period. So at the end of the month or at the end of the year. So the modality, license, usage, whatever it is, flat fees usually pays upfront.

determines when I get the cash and who takes the risk that the product isn't going to adopt, like they're not going to use it really. And then of course, we should acknowledge that term length amplifies this effect. So let me give you a few extreme examples. So let's say that we have a monthly term and let's say that we have a usage based model. So if we have a monthly term with a user space model, I will give my customer access for a month. They will then use or not use the product. That's fine. But then at the end of the month, we see how much they used and they paid me. So from my begin the subscription until I get paid and I know what's going on, it's only a month. So that's fine. Let's say that the reverse of this would be that we have a user space model, but it's for three years. So in this model, I would give access to the customer and they could use a ton of product or none at all, wouldn't matter, either one of those scenarios, I wouldn't have any control over this. I would have given them full rights to use whatever they want. So they could in principle use it a ton for two years and then go bankrupt and I wouldn't get paid, right? Because so I'm taking all the risk either of non-users or sort of non-payment and so forth. And whatever cash I get, I get at the end of the three year period. So what happens with a usage based model is that it amplifies this effect of cash flow and risk. So the cash flow is bad in the user space model and the risk is bad and then it gets more bad with time. Like the sort of the simple version. License is different. Cash flow is good. I get it now. Risk is good. I don't have a lot of it. And then the term length now is amplified, which means that if I can have that for a three year period, then I have a ton of cash, assuming they pay me all three years upfront. And then the risk also is like non-existent because they just paid. So this is why people usually like these long-terms on license-based models in B2B SaaS, because it amplifies this cash flow and risk effect. So if we sort of pull it out a little bit, we can say, OK, so there are extra sort of effects to this. So I would say, generally, monthly is easier to sell.

which is why we sometimes see these usage based models. They actually like are preferred here because, you know, it's easy for people to say, yes, I don't take a lot of risk as a customer. I don't have to pay anything upfront. So I'll do it. And then of course the cash flow risk, it's poor on a monthly. That's what it is. Even though we have a license based model, it isn't very good. Renewal is relatively easy. People renew, even though there is also a churn risk on this. Annual tends to sit in the middle. And then multi-year is usually harder to sell. Cash can be worse or better depending on whether you actually collect for three years upfront. Usually in most multi-year you just collect annually upfront. Risk is low, you know what you get, but renewal usually is super hard because you get into sort of a full new renewal negotiation with customers at the end of three years. So. Usually I just summarize these things like what time period is best for me? Like should I go monthly, annual, multi-year? And basically I would say that if you have a licensed model and your ACV overall annual contract value is below 5K, you can go monthly or annual, both are fine. Can you have both? Yes, we'll get to that in a second. If you have below five or 25K, but between 25K and 5K with a licensed model, can you go monthly, annual? Yes. Above 25k, only annual. You should not have a 100k thing that you pay per month where it's like 8,000 a month. Just go annual. At these kinds of price points, you just want to go annual. Usage, you basically only want to go monthly. I would say that monthly it's below 5k. And then I've even said, yeah, maybe I should just change this. It's just monthly all the way. That is basically the only way that you should do it. And you should Yeah, that's sort of how you want to have it run here. For credits, you actually don't want to have any kind of monthly payment on credits because usually actually what you get here is that it's a little bit more difficult to sell in the first place. And you actually want to have that credit system working for you for a full year. Because you get paid annual upfront just like a license.

That's actually what you want and there's a little bit more hassle with it and you don't want to have this continual sort of work of rolling over credits and superiors and so forth. Is this so audible, for example, they have a monthly thing with credits and they are sub 5K. So you could argue that where I put, you know, not available and not applicable here that force B2C products with credit models, you would actually have both a monthly and annual option for credits here. But generally, I've never done a credit system that was monthly. I've never seen a reason to. I've never had trouble selling them annually. They work better. So just do that. So basically I would say, should you have a monthly or annual, it's actually driven more by the modality. So as you can see here, license is usually annual. You can go monthly for lower ACVs. Usage is monthly through and through and credit base are annual through and through. And then you're just going to live with these effects that you have on sales, cashflow and so forth. So that's basically it. And that's sort of the amplification effect we have here. So a few more things. So when we zoom in on this part here, so I just want to like change this again. So if we zoom in on this part here, I want to say that for license model monthly annual, like what is the choice? Should you have multiple? Should you have both? Should you just have one? I think. It really depends on what kind of sales process you have. I think the lower you go on an ACV, the more reasonable this to offer monthly as well, because usually here what it does is that it's it reduces the burden to sell, which means that it's just easier to sell. And as I showed up here, sales are good or easier on monthly. So basically what happens when you have a very low ACV is that you don't have a lot of resources to invest into your sales process because your COC can't go that high if your customer lifetime value is relatively low, right? So for monthly subscriptions, sales are usually easier because it's lower risk for the customer, it's easier for them to sign up. So basically at low ACVs where you have trouble with your COC, then you can offer them monthly and that's a really good idea.

If you don't have trouble with your car at all and it's easy to sell, just go only annual. And then what usually happens is that once you have both monthly and annual, then you want to have some sort of an upsell motion between the two. So while you offer both monthly and annual, actually what you want to do is you almost want to treat your monthly as sort of a free trial, not a free trial, but like a paid trial. But you want to say, hey, you've now been on monthly for a while. How about you actually upgrade to annual? And I think it was George B that actually came out with a study across all of their customers very recently that they said that the best time to try to upgrade from monthly to annual was two to three months into a monthly subscription. So this is actually one of the things that I have changed my opinion on. I would usually say that it's around month eight or 10. Like it's later in the monthly when they're beginning to sort of consider sort of What it like they have been customers for almost a year. But but Sharpe came out with some very compelling evidence. I think it was them that said, hey, it's actually two to three months out. Like this is at the point where customers like know they like the product. They've just begun using it. And you basically sort of say, hey, why don't you want it for less? And you give them a discount and then you move them to annual and then you move on. So I think that is a tremendous. think that's a tremendously good tactic. Also, the lower the ACV, the more churn you generally have and as you go longer periods annual multi-year generally that counteracts churn. So usually any kind of churn that you'd have reduces if you have people on a monthly contract. That can mean especially for ACVs below 5k that can double the customer life. You can literally cut churn in half. So for that reason as well you want to do a lot of work. to get your customers away from monthly onto annual as soon as you can. Usage is a little bit different here because usage, even at higher ACVs, have this problem that you don't want them to pay you only once a year. There's this sort of risk profile with amplification. So usually what people actually do if they want to have longer committed models of usage, and this is done for Azure and for cloud consumption in general, and for think, chat, as well is that

you start to have monthly commits. So you start to have these models where you actually combine a license model with a usage model. And then you turn this original usage model more into like a license model at higher ACVs. So here you'd actually say usage at a certain like monetary value above like 25 K plus actually gets to, it gets transformed into an annual license in a way. So this is usually sort of the best tactics to handle the usage monthly problem where you actually have this sort of cash flow risk issue, but you want more predictability in your model. And you can't really get that with the modality of usage, but you can do it with the license model. So you basically do it with committed minimums, which actually ended functions like a license floor under usage. So credit models are harder to sell but have basically none of these problems. All of them should be in. So, all right, let's run discounts. And this is where I have sort of some of my, oh, Joakim, you have a question over here. So sorry for missing it. Oh, maybe it's only a minute ago. Okay, so you asked here, what about license model with a credit-based add-on? Should I follow the license billing schedule since it's the highest cost? So. Basically, so this is a good question. So let's say that you have a product that have multiple different pricing models in it, right? So let's say you have a core platform. Let's say that's that. And then you have like a, let's say you have a payment module that runs on a usage based thing. And then you have like an AI review product that runs on a credit model. So you just basically have all of the modalities inside of your overall framework. I don't think that there's a problem with billing these in different cadences, right? So I would say something like, hey, the core platform that you have is sort of the anchor. That is when they can cancel their subscription. That's where that runs. That runs on a license. It's paid upfront. And then you can have some usage-based stuff that is based on a monthly basis that just runs throughout that period. And then the credit system maybe runs on an annual basis as well. So you can actually combine these.

annual, monthly, and inside of the product depending on what kind of model you have for different parts of your packaging, right? I think that's perfectly fine. If there were other parts to your question, just write them out in the chat and we'll take it there. All right, so discounts on annual and multi-year contracts. So the first thing I want to say is that the difference between monthly and annual seems to be that annual is just about 10 months. So if the monthly is like 10 bucks, then the annual is 100 bucks. So you pay like 10, comes out to around 15, 16 % discount overall, and that seems to be the norm. I have tested different versions of this, and I can't really see sort of a hard difference in conversion rate between like, 5 and 10 % versus the 15 and even 20%. I might be wrong. I might have, let's say, two small data sets to really run this. But I see a very clear conversion to annual at around a 40 % discount, so a very heavy discount. So if you have a very clear and more aggressive discount annual, you can significantly shift towards that. But Other than that, I would actually usually reduce the discount on the annual to like 5 or 10%. And this is actually especially true the higher the ACV goes. So if you have super small ACV, you're selling B2C, you're selling for like 10 bucks a month versus 100 bucks a year, then they're actually more price sensitive and smaller discounts can matter more. But if you're selling for something like 200 bucks a month versus 2000 a year, then I don't see the big conversion difference between $2,200. So a smaller discount and let's say $1,800. But I do see the discount when you go like $200 a year versus $1,200 or $1,400 a year for the annual. So you have a much more substantive discount. These sort of, let's say, four, five figure ACVs, this kind of annual discount works. So I would actually mostly go.

with the smaller discount like five or 10 % or offer some sort of bonus where the product actually shift will say, hey, if you go annual, you get better support, whatever it So it's actually like slightly different functionality that you have here. Okay, so Ray asks, how about simply preloading for usage and then pay as soon as they run out? So this is basically a prepaid uses model. You can do that. The problem is that What happens if they don't use it? Do they get it back? So are you sitting with the liability? If not, then basically you have a credit system without maybe having a subscription. then the question becomes, are they committed to also preloading that usage in the next time period? Or is it just that the time period now extends until whenever they have used up their usage and then you have sort of a more flexible time period depending on that usage? I think that you... you mitigate some of the cash flow risk with a model like that, it's super difficult to manage, right? Because you never know when a customer is up for renewal, they might run out at an inconvenient time and then actually have spent time to top them off. And essentially, most enterprise value models, like if you're trying to IPO or you're trying to sell to someone, would consider this transactional revenue. So there are some drawbacks to it where I would usually just say, hey, like the difference between this model from an operational perspective and just running a monthly usage-based model or having an annual but with a commit is usually the better options, right? Because this other option where they prepay for whatever, a thousand actions and then they spend seven and a half weeks and then they have to buy another thousand and so forth. just becomes, it's just a high operational load of handling that account as opposed to just running monthly or just running annual with minimum commits like a licensed hybrid model into the usage. So that's why I never see this sort of prepaid users model in sort of its clean form as any better than any of the alternatives, which is why I've actually never deployed it. I've met it and then I've, you know.

I'm taking it out of commission. Okay, so with regards to monthly and annual and multi-year, you also have this other effect where you say, so what are actually the monetary values of these contracts? And I have some just like simplified illustrative examples here. So let's say that we have a base price of 100 per year. So that's what we have here with annual. And then in a normal world, let's say that we would increase the price 10 % a year. So we get this track. So year one is 100, year two is 110, year three is 121, 133, and so forth. So the price builds up as we improve the product rates prices and so forth. Now, this is what I would call for B2B with most models like the most preferable scenario. However, if you want to run monthly billing, then presumably this 10 % price increase can actually be executed in a more granular fashion. So you can actually raise, let's say prices 1 % per month or let's say 1.8 % per month, something like that. So actually that in the first year, instead of collecting just 100, you actually collect, let's say half of the price increase that you would that year because you actually raise prices incrementally throughout the year. So actually the cash flow from the same amount of usage or the same account would now be 105. So that is much better, right? And then similarly at a year later, you're still at 110, but then you keep increasing. So you actually capture some of this price increase much earlier than you would in a annual increase fashion. So this could be great. So as you see here, the Delta between the two here is 11, 18, and then you have 25, right? So you actually get to something like that is 5-6 % more on a total customer lifetime value just from being able to make more incremental or faster price increases on a monthly basis. And we see this also whenever people work with pricing. think ProfitWell were the ones that did sort of a correlation between how often you change prices and what the CoqLTV factor is. And I think customers that they had a data set of around 30 companies, but it was above 30 million or so.

And what their study showed was that customers that raised prices on a monthly basis, they worked with it on a continuous basis. They had a CLTV CAG of 11X, right? So 11 times lifetime value versus the CAG. Whereas companies that work with it just on an annual basis had something like a 4X CAG to LTV. So there was a massive increase in actually starting to work with it. So I think the benefit of working from a monthly basis is that You're just forced to think about it more. And then this sort of little extra like five, six percent on a year is sort of thrown on top for good measure. And then I think depending on what your cadence is and what your customers expect, I think that's what generally should govern it. So that usually is governed by this ACV fashion that we have here, where I would say that most of what you want to do is annual for larger ACVs. For users, want to have this sort of hybrid with committed volume. And then for credit models, you want to have this annual wealth. So usually annual for any kind of ACV above 25K is the right way to go. So this now brings me to a discussion about multi-year. So what usually happens with multi-year is that you go to your client and say, hey, I want to sell you the solution and the price is 100. And then the customer says, OK, that's great, but I want to sign a multi-year deal. So I want to sign a three year deal, but because I signed a three year deal, I want a lower price. So what can you give me? And then you argue a little bit and then you agree that 10 % discount is like the right price for a three year deal. So what happens here is that instead of having this cash flow, so 100, 210, 331, like, so you actually get sort of 331 on total cash flow from this account. You actually get to do 90 plus 90 plus 90, so 270. So you're actually a full like 60 or an accumulated more or less 20 % a little bit more below what you would have if you had had a monthly increase. Now, there's also the renewal effect and the renewal effect is what you see here because if you have this sort of continual increase, 100, 110, 121, 133, then getting from 100 to 133, like three or four steps over a number of years,

It's relatively easy. feels like incremental change. You're educating the customer that prices will just change every year and that's fine. They're okay. As long as they overall like the product, you have a good relationship, that's okay. But with a multi-year contract that's been locked in on 90, what usually happens is that procurement now prepares for the fight of renewing for another three years, which means that this jump from the end of a three-year contract at 90, it becomes much harder and it's way harder to take it to 133. So usually what happens is that you are now negotiating a contract that's usually worth 100, right? So you're negotiating this 10 % price increase after three years on a lower basis, 90 rather than 100, instead of just doing it year over year over year. So over time, this effect can just lead to massive under monetization of a product. So fast forward 15, 20 years. and actually work with a lot of software companies where this is the exact case that they run multi-year contracts, they negotiate the heck out of them every three years, they get sort of a 10 % lift, but over time that actually compounds to something like a two, 3 % annual sort of compounding lift versus customers that do an annual lift, they do six, seven, 8 % and then over a decade or two decades, that can be a three to four X. in the ACV and it is a massively different business that you run if you extend the time horizon on these kinds of tracks. So this is also the reason why I am against multi-year in almost any instance. The exceptions are either running what I call multi-year 2.0. This is where you say, I'm happy to sign you for a three-year contract, but it is not. cheaper, it is more expensive. You pay a premium for me to lock you in at this price. So the price is not 100, it is 110. And by the end of the three-year contract, I will put you on whatever list price I'm currently charging the market. you refuse to have this renewal negotiation at the end of year three, you say, I want a natural auto-renew extension into price list.

which at this time now becomes 133, which is the default when you then move forward. Not that you know that at the start of the period, but rather that that is where the contract ends up going. It's like we look at the prices, I give you the price and that's it, which now becomes an ultimatum type negotiation with this account. I think that from a multi-year perspective can work, can also be better, even if you don't collect all three years upfront, right? But I think that is sort of how you should approach it. The other scenarios in which multi-year can actually work out is if you have either made a price increase, a redesign of pricing on an account that is so massive that you know that they're going to look for the exit. So you know they're going to try to churn if you let them. In this case, you should definitely sign a 10-year contract with them. So I had a customer that I worked with. They had an account and they raised it from around a million a year to 12 million a year. And they had leverage in this negotiation. They knew that they could not say no. Their business was entirely dependent on them. So they basically had them buy the, no, buy the balls. Sorry, my French. And then they got this negotiation through and then they signed it for a 10 year contract because they knew that if they didn't, they would spend. all the resources they had in the next two years to try to find an alternative and then they would churn. But with a 10-year contract, it just becomes somebody else's problem. Like whoever is the CEO at this point in time is going to be gone and then it's whoever comes next. And for that person, we just have this contract for 12 million a year and that's apparently how it goes, right? So when you have these sort of massive repricing scenarios, then that's what you want to do. Okay. Second scenario when you want to run a multi-year contract is if you're the market leader and you have an inferior product and you have new entrance competitors that are taking your market share and even if they're offering to buy out your contract. So whatever contract you have, your competitors who are well-funded venture companies or whatever are buying your contract. they're basically paying your customers to turn away from you and go on to their contract.

If you have this kind of competitive scenario, sign your customers for multi-year. Lock them in three-year contracts, five-year contracts, the longer the better. Because now what you're doing is you're just considering your market like a bond, like a continuous cash flow, and you're actually not going to grow your market. You're just going to squeeze it for as much cash as you can, for as long as you can. And what you're trying to do is you're trying to force inactivity. So multi-year contracts can work in this scenario as well. But that's about it. I don't have any really good examples of the same principled ways in which multi-year contracts can and should be used outside of this, which is like very, very few edge case scenarios. Multi-year contracts are used by and large everywhere, but shouldn't be. And they are used because CFOs like to be able to do the math long-term, but overall they actually tend to under monetize pretty significantly. So... Showing case again here. I'm gonna make these Colors yellow because that's usually the difference that we see in cash flow on annual versus multi-year All right, so with that Q &A so guys You decide how long the Q &A is gonna be I'm just gonna so we had a few questions if you have more just fire them over in the chat here Ray has has a follow up here. So Ray asks, for several reasons, we don't want to offer monthly subscriptions, but can you speak to offering monthly billing on an annual contract? Do the discount matrices that you presented also apply? So for example, a 5 % discount to do annual billing. So I would say that normally I actually don't offer any for these kinds of, let's say, have term links here. Whenever you offer annual, I don't offer any kind of discount for annual billing. Like your customers at these kinds of ACVs, they prefer annual billing. So why would I offer cheaper than monthly? I would just say, hey, we have annual. That's how it is. Even at this, like 5 to 25K, I say it's an option to pay monthly. It's not cheaper. So you can do these things. So can the contract cycle, that's what you're mentioning, and the billing cycle be different? So can you have a usage-based annual contract, but billed monthly?

Absolutely. That's also when I said when you're combining different models inside your commercial framework and you have like a platform that's a license and then you can have an add-on that's usage, that's fine. So if you want to say a license that is built monthly inside but can only be churned annually, that also I've done that. I generally don't like it. Why not just take the money upfront? Generally customers are okay with it. So I think But the mileage may vary. Sometimes you have scenarios where customers really prefer something like that for whatever reason. And then you can definitely sort of separate the two. So I would say most cases don't do it. Most cases, the arguments for doing it, for separating the contract cycle with the billing cycle are exaggerated and you don't have to do it. But I have found some scenarios where it was the right thing to do. So that's it. Yeah, and so you want to, so the five to 10 % discount to do annual billing, just a little bit like on a comment here. So the way I usually like to present it is I like to present that the monthly is actually more expensive. So I want to say, hey, the annual is a default. So the annual is whatever, a hundred bucks a year. And then the monthly is going to be more expensive. So that's a 15 or 20 % extra expense to pay month. So these usually anchors customers at a lower price, conversion to annual upfront, that's what you want. So that's the direction of the psychology that you want. That's annual is the baseline, and then monthly is the other thing, and then that other thing is more expensive. I think that is a much better way, and you can also see it in conversion rates across all sorts of studies, that's a much better way to sell it. Okay, Joe, you asked here, now that users in credit modalities are becoming more prevalent, Do accounts seem more willing to accept cost variability than in the past? So I think the general answer is yes. And you can actually see this across a lot of different sort of stages of software. So if you go all the way back to perpetual license where I just, bought a piece of software, then I owned it, right? Then you're, and actually a lot of industries have this still. Then you say, Hey, are we actually willing to go to like a license subscription where we pay every year? And then we're moving into sort of

and different types of usage base that fluctuate depending on how we utilize the solution. Yes, I would say that it also depends really on how to say well structured the models and how certain it is to drive value. But overall, there's this effect that the tide lifts all boats. So because everyone is doing it, it also becomes easier for you. So my clear answer to your question is yes. because it's more prevalent, customers are willing to accept them. But of course, different customers and different verticals and industries have different perspectives on this. But in general, yes. And then Ryan asks here, or would you apply a premium for the convenience of paying annual?

So, okay, so you're actually inverting it. So the way I read your question is, hey, so if you wanna pay annually, it actually becomes more expensive. I think you're sort of misaligning some interest here. So of course, like I'm a huge like opportunist. So if you have customers that are just willing to pay more for giving you more money upfront as it pays to less on a monthly basis, and you can swing that in whatever scenario you're in, go for it, right? Generally, I would say annual is the cheaper one or it's the same price. It's just a preference of how you want to pay. That's how I usually spend it. And then you say, hey, or search for monthly. Exactly. That's what I want to do. Monthly is more expensive than annual. Annual is the default. That's how you won run. Okay. Steve has a question. There's another version of multi-year, which is give them the multi-year discount in year one, then include an annual price escalator, for example, 5 % per year into the contract. It builds in some predictable expansion ARR and it mitigates against the issue of the account being priced way below list when they come up with renewal after year three. Okay. I get this and maybe I should sort of have included this because a lot of different multi-year contracts have escalators. The problem is that their escalators are not aggressive enough, right? So you will find that I have a US contract right now with say, hey, we have escalators and 45 % actually a lot of our customers negotiated down to two or three. So you still have this problem where you're 90 then becomes 92 and then maybe 95. and then you still have this problem of lifting it. And now you've convinced customers that, it only goes up two or 4 % per year. So they're now expecting this. So generally, the math is on price increases runs something like the following. OK, what is inflation? Let's say 3%, whatever. That's your baseline. And then you say, OK, so how much did we improve the product? So that gets added. Well, how do you quantify that? I don't know.

but you have a gut feeling of whether it got a lot better or not, right? So let's say, oh, that's 10%. And then you say, well, and how much did competitors improve their products? So what is our competitive position? So maybe competitors improved it, whatever, 7%. So you go from like plus three, plus 10, minus seven. Okay, 6 % increase. That's basically how you run the math. And then that's what you then do with your pricing. And of course this can be different for different types of customers. Maybe you did a massive thing for your large enterprise customers from product perspective, and then you didn't do a lot for your smaller account. So you want to actually balance this out. So the point is that usually you have larger price increases than just two, three, four, five percent, which is the usual escalator in most of these contracts. So escalators can mitigate this effect on a three year flat line, but usually it doesn't do a very good job. So most of the times I I look at these scenarios where we have had these escalators, we still have this like gap problem between where we're at with the contract and where we want to be and we can actually sell it to new accounts. So you're right, it does help, but I think it's a little bit like, you know, it's too little too late. That's basically what I mean here. All right. So guys. I want to leave you with this. I don't see any more questions. Thank you for tuning in. I just want to sort of mention again, so I know that a few people arrived while we were all was talking is that the webinar slides recording all of this will be available at community.pricingSAS.com. They actually just revamped the entire site. There is a ton of other content on pricingSAS.com. can review. So historical pricing pages of hundreds of different companies. The Rob, who's one of the founders, is a content machine. He is awesome. He's one of the best people I know to follow about the pricing SaaS, SaaS pricing content, pricing SaaS content. So go there. If you have questions regarding this, shoot them in the community. I'll try to answer. And then also, this is where you can find the

upcoming list of webinars that we're going to do from September on. So from September, October, November, December, maybe not like the Christmas weeks of December, but way into December, we're going to do, I think, 15 or 16 webinars on a ton of topics that we find to be awesome and interesting. So if you like this format and like the Q &A, keep a lookout on that. And then, yeah. There's a ton of more webinars to come. So thank you for showing up. As always, I appreciate it. I appreciate the questions. If you have more, community.pricingstass.com. OK, take care, guys.