Monthly vs. Annual Contracts: Is It Time To Reconsider Your Annual Plan?

Written by Lindsay Mayhall on April 24, 2022

The annual contracts that software companies offer are pretty great. You'll get an intuitive application at a discounted price and pay for any additional services on an as-needed basis. The best part is you know exactly how much you're going to spend that year. Part of the reason why this is so attractive to business owners is because it's predictable. Predictable costs give you more control over your budget, allowing you the freedom to focus on growing your revenue. But, it's time to reconsider your annual plan.

Monthly contracts win on long-term retention

The verdict on monthly vs. annual contracts is in — and the winner is monthly. According to our recent retention study, annual contracts lose 21% of customers after their first year, while monthly contracts lose only 10%.

That's a big difference.

What's more, this data comes from a large pool of online retailers who use ReCharge to power their subscription businesses. So it's real-world data that applies to you and your business.

Why do annual contracts have such a high attrition rate? One reason may be that people are more likely to subscribe to something they're not 100% confident about for a shorter period of time. However, there also seems to be a growing trend towards shorter-term commitments across the entire economy. For example, gyms are now offering one-month memberships rather than annual ones.

So should I kill my annual contract plan?

The answer depends on your needs and your business situation.

If you have an annual contract, don't automatically cancel it. See if you can negotiate with your provider to get a better rate. If you're happy with the services you receive and find that you're using everything in the plan, it makes sense to keep it.

But if you feel like you're paying for things you don't need — or if your business has changed since you signed up for the plan — it's time to consider switching to monthly contracts (if possible). Here are some things to consider before canceling your annual contract.

If you have a high-usage plan, but don't use all of the minutes, data or text messages included in your package, then an annual plan may be better than a monthly contract. But if you need to upgrade during the year, then an annual contract means paying extra fees. This could cost more than switching to a monthly contract when you need more data or minutes.

If your company is growing quickly and adding new employees every month or quarter, then a monthly contract makes sense because everyone can get the plan they need as soon as they start working with the company.

Don't undervalue your product or service

As a business owner, you're well aware of the data that shows that more than 60 percent of customers leave after the first year.

If you're offering annual instead of monthly contracts, you may be losing business for no good reason.

A focus on customer loyalty is important, but don't undervalue your product or service. If your monthly pricing is higher than the monthly equivalent for an annual contract, that's fine — customers get a break if they commit to longer terms. But if your monthly option is less expensive than an annual contract, it might be time to raise your prices.

It's not just about making more money either; it's about sending the right message to your customers: You offer a great product, and it deserves its full price tag. 

As you can see, it's often valuable—if not essential—to consider an annual contract if you want to take your business or career to the next level. It might not be right for everyone, but many businesses and professionals live in a world of ever-expanding growth and expansion. With the right account manager and all the tools available through annual contracts, you'll be able to make those goals into realities. Give it some thought, especially if you've gotten a bit mired down in the same routine and feel that something is missing from your life or business. As more and more people realize how much value these annual plans offer, there's every reason to think that more and more businesses will want to take advantage of them sooner rather than later.