When it comes to legal software subscription plans, many software companies offer both annual and monthly billing options, with a steep discount for the annual option. While annual billing may seem like a convenient way to save money, there are several reasons why it can be a bad idea for a small business. In this blog post, we will explore the drawbacks of annual billing for software subscriptions and explain why monthly billing is a much better option.
Higher upfront costs
Legal software is expensive, at least if you want something that does more than generate invoices from an Excel spreadsheet. After rent and employees, software is right at the top of expenses for a law firm.
One of the biggest drawbacks of annual billing is that you have to pay the full cost of the software for the entire year upfront. If you are paying $500/month for software licenses, an annual price totals $6,000! That is not an expense most small and solo law firms can stomach. Monthly billing, on the other hand, lets you spread the cost of the software out over time, making it more affordable.
Here is a perfect example that happened to me just this week. I was looking for a social media publishing tool, and I came across Hootsuite. Their advertised price for their professional version is $99/month. But that's annual pricing. They won't even show you monthly pricing until you actually begin the sign-up process. How much is it if you pay monthly? $149/month! A whopping 50% markup, just for the convenience of paying monthly. They even offer 20% off (of the annual plan) if you sign up without a free trial. Let's say we take them up on the offer. That's $950 up front, and if I don't like it after 30 days, I'm stuck. No thanks, Hootsuite!
Limited flexibility
Another issue with annual billing is that it doesn't offer much flexibility. Once a user has committed to an annual subscription, they are locked in for the entire year. If they decide they no longer need the software or want to switch to a different product, they are stuck with the subscription until it expires. Monthly billing, on the other hand, allows users to cancel their subscription at any time without penalty.
No refunds
Now if you could get a prorated refund after 30 days, perhaps that would be worth the risk. Yet most annual subscription plans do not offer refunds, even if the user decides they no longer need or want the software. This means that users are stuck with the subscription for the entire year, even if they are not using it or have found a better alternative. Monthly billing allows users to cancel their subscription and stop paying for the software whenever they want.
Lack of motivation to improve
Annual billing can also be detrimental to the software provider, too! Since users are locked into a subscription for an entire year, there is less motivation for the provider to improve the software or offer new features. Monthly billing, on the other hand, keeps the provider on their toes. They must continually improve the software to retain users and attract new ones, which ultimately benefits everyone.
Ask yourself this question: how often does your favorite software offer new (useful) features? I'm not talking about integrating with some other (expensive) software solution that you don't even use, but actually putting something ground-breaking right into the product?
When companies become too large, and their recurring revenue is guaranteed, the result is stagnant software. Growth is through acquisition, rather than innovation. But if that company could potentially lose 50% of their revenue in a heart-beat, that's motivation! Never let a company take your money for granted.
Better budgeting
I'll say it again: cash flow is king for a small business! Monthly billing allows users to budget more effectively. With monthly billing, users can easily see how much they are spending on software each month and adjust their budget accordingly. This can be especially helpful for small businesses or individuals who need to carefully manage their expenses. It also helps when you have turnover and you don't need those expensive licenses for a month or two while you fill the position.
So when does annual billing make sense?
With all of these drawbacks, when does it make sense to pay annually?
Here is a 3-prong test to see if annual billing is for you:
You have been using the product for years, and you absolutely love it.
You have a high level of comfort that there will be no changes in your business for the next year.
You have a pile of cash sitting in your operating account that you are sure you will not need for the next year.
I don't know too many lawyers who can honestly make those claims about anything, much less a software service. One or two prongs may be true at any time, but the third prong is the killer.
At Outlaw Practice, we offer monthly pricing that is in line with the best annual pricing of our competitors. We don't want our customers to put themselves in a position of risk just to save a few dollars. After all, Outlaw Practice is about managing risk, and how can we do that if we tempt our users into falling into the annual trap?!
Take a look at Outlaw Practice, and see for yourself why being trapped in a long contract is a bad idea!