We’re in the website services business. Customers pay us monthly for our websites which creates a nice recurring revenue stream, but doesn’t give us much cash upfront. We do a charge a one time setup fee but that offsets our hard costs. We’re considering changing our model to one large flat rate upfront with a very small monthly fee for hosting. Any advice?
That is always a tuff call, to take the profit at the start of the project or to make a great profit at the end. Not only is this tuff for you, your customer has the same analysis. I would offer plans that do both, that would give you a mix of the upfront revenue that you need and back end profit that is so nice.
I have two recommendations:
Experiment with your new payment model as a "Special Offer" and see how many new clients choose it. You could A/B test it if you get enough search volumes or just swap it out for a month and see if your conversion rates change significantly.
Secondly, Offer the new lower monthly fee to existing clients if they successfully introduce a new client. Give them a pre-written message to share out on their social media accounts.
So a strong offer, metrics to track outcomes and a great bit of copywriting [which we can do] backed with proactive direct marketing will get you the information to make your decision.
Try running a "blind survey" (no brand) white paper, which simply identifies your target market, addresses the problem, and describes your solution. Then allow the recipients to tell you what they would pay... run A/B testing with a price per month & a lump sum yearly.
Take the numbers and arbitrate out what will generate the most profit for your firm + tweak your pricing according to the data.
Then simply take the information and make it actionable by converting new paying customers as well.
If you're in a position where immediate cash is needed to grow the business, then simply offer up a discounted yearly price to all customers -- as long as the discount is cheaper than what it would cost you to get money from other avenues, and make sure you manage costs appropriately throughout the year.