This article is part of The Survival Stage section of 📕 Zero to Sold: How to Start, Run, and Sell a Bootstrapped Business.
Most bootstrapped businesses offer monthly subscription plans. The revenue that is generated from your customers that way is incredibly reliable. If you know how many customers you have, you know exactly how much money will come in this month, next month, and the future, provided you keep your customers or replace the ones that quit with new ones.
That’s where risk comes into play. If you only offer monthly plans, a wave of cancellations can cut into your revenue substantially, and you will feel the effects within the next thirty days. Yearly subscriptions allow you to lock in a portion of your revenue in a much more reliable way while providing something valuable beyond dollars: validation.
Yearly Subscriptions and Validation
There is something incredibly satisfying that happens when a customer chooses a yearly plan for your product. Not only do they pay up to twelve times as much as a monthly subscriber, but they also communicate something powerful to you. They trust your business to be around in a year, they trust your product to provide value for at least another year, and they’re sure that they won’t find anything better until then. That is why having a yearly subscription option is not optional. It should be a choice from the beginning.
It also gives you access to a very interesting subset of your early customers: your future evangelists. Look at it like this: early adopters are already betting on your product working out for the foreseeable future. If some of them actually commit to paying you a year’s worth of money, then you can be sure that they will go above and beyond to make sure your business succeeds. They will be the people who talk about your service on social media, introduce it to their peers and the members of the communities they frequent. Leverage that, particularly in the beginning.
Yearly Subscriptions and Cash Flow
Besides the validation component, a yearly plan will allow you to borrow from future profits to invest in your business. Being able to invest the 11 months of advance payments into the growth of your business will liberate you from the month-to-month thinking you would have if you only offered monthly plans.
This will protect you from running out of money too fast. Any meaningful churn will still do financial damage to your business, so unless half of your subscribers are on a yearly plan, you will need to still iterate on your business when people start canceling in troves. Having a few yearly subscribers will allow you to spend a few more days or weeks to deal with the things you need to improve.
Yearly Subscriptions and Discounts
You should also discount your yearly subscriptions, for two reasons. First, a cheaper subscription will incentivize customers who like to save on purchases they would make anyway. Second, and that is a much more critical reason, a discounted plan can come with a (clearly visible and communicated) non-refundable clause. This allows you to use the full amount for investing in your business, alleviating the need to keep funds back for possible refunds, should the business run into trouble.
Most customers will understand that discounted plans are not refundable. Make absolutely sure that your refund policy is clearly visible to your customers before they purchase, and have it easily looked up both in your account setting as well as in your knowledge base and Terms & Conditions.
At FeedbackPanda, we sometimes refunded yearly subscriptions even though we had a no-refund policy. For a handful of hard cases like people who had suddenly lost their jobs or had medical emergencies, we quickly refunded the money. This saved us from chargeback fees that would have occurred had our customers went through their bank, and it created a lot of goodwill with the people we helped. Many of them became outspoken evangelists, loudly talking about our surprisingly helpful customer service and how respected they felt by us making an exception. To our knowledge, no-one ever abused this system, and the loss in revenue was worth all the feedback and gratitude we got from our customers.