One Big Decision

I’ve been thinking about MRR (monthly recurring revenue) versus ARR (annual) and the psychology of those two things. It’s pretty clear that businesses love the idea of recurring revenue, and given a choice between a subscription or more initial outlay, they’ll take the subscription every time.

Theoretically, paying monthly for a service should be 12 small decisions and paying annually (or once) should be one big decision. Except it isn’t, is it? Paying monthly for something is one small decision followed by nothing…inaction.

That’s why businesses prefer subscriptions - because they turn initial interest into regular money, rather than one-off money. Then they’re banking on the fact that you don’t want to re-evaluate all your subscriptions regularly, and the hassle of doing something (cancelling them) is more than the hassle of doing nothing.

However, you’ll also find most SaaS companies will give you a discount if you pay for the year upfront. That way they get all the money in now and take out the risk of you cancelling early on, but still get to stick you on a subscription and take your money next year unless you remember.

The gap between monthly and annual pricing should be pretty informative in a well run business - letting you know about how much the company values immediate money and how wary they are of immediate churn, versus their ability to have customers stick around.