How to fight back against AI tourists
14 tactical ideas for selling annual plans via top growth leaders at Canva, Grammarly, Pleo and more
There’s a growing tourism threat — and, no, I’m not just talking about Barcelona in the summer. I’m talking about the rise of AI tourists.
A flashy AI demo can go viral, and even translate into real revenue, then quickly turn into a churn nightmare. New AI products often coincide with greater volatility in both usage and spend. More project-based, non-recurring use cases. Experimental revenue that’s not in production. And even three month opt-out clauses where 70-80% opt-out.
I’ve published before about the surprising UX patterns that help power repeat usage and sustainable growth. Today, I’m tackling another way to motivate customers to stick around: selling more annual plans.
The impact of annual plans on retention is real. When the team at ChartMogul investigated billing practices at 2,500+ SaaS companies, they found median net revenue retention (NRR) is 10 to 20 percentage points higher for annual plans compared to monthly ones.
Since folks have already invested their money, they’re more likely to invest sweat equity into learning and using the product. And having a full year before the renewal affords a grace period in the event there are any hiccups, hallucinations, support issues or product gaps. (Annual plans also bring in cash upfront, helping to quickly recoup customer acquisition costs.)
I’m sharing 14 of the best ideas for increasing annual plan adoption within your customer base. The advice comes from my personal experience along with polling some of the smartest product and growth leaders from Canva, Duolingo, Grammarly, Pleo, Unbounce, WaveHQ and more.
Special thank you to the following growth leaders for sharing your ideas: Albert Cheng (chief growth officer at Chess.com), Amaan Nathoo (fractional VP of growth), Haresh Bajaj (SVP of product growth at Pleo), Hila Qu (growth advisor), Naman Gupta (head of monetisation and self-serve revenue at Canva), Partho Ghosh (VP of product at Uberall), Rajan Sheth (GP at HyperGrowth Partners), Tom Orbach (Marketing Ideas) and Vivek Balasubramanian (VP of product growth at Roofr).
Lever 1: Positioning
1. Don’t force it
Before I jump into tactics, let’s start with a cautionary tale.
One growth leader I interviewed described a scenario where they managed to 5x the share of new customers on annual plans. This was a huge win, but it had a cost. Dramatically shifting the annual plan mix led to a massive spike in refunds, which required much more customer support resourcing and ate into the revenue uplift.
For added context, this was a business that required users to provide a credit card before starting a free trial; this model typically coincides with above-average refund rates. The refund rate for monthly plans was around 2-3% while it was 10-14% for annual plans. When customers forgot to cancel an annual plan, they noticed it on their credit card bill.
The learning: don’t force annual plans onto customers. Focus on nudges and opt-ins instead.
2. Make annual the default
Annual plans weren’t always the default on SaaS pricing pages. Now they are.
I recently investigated the pricing pages of every company in the Forbes Cloud 100. A quarter (25) of these software companies had a public pricing page that included both monthly and annual plans. Of these, an overwhelming 88% defaulted to their annual plan while quoting the price as monthly. This is the classic “$9.99 per user per month (billed annually)”.
Shifting the default can have a big impact on adoption. And, if you only offer a monthly plan today (looking at you ChatGPT Plus 👀), slotting in a new annual plan could allow you to continue communicating the same price (now billed annually) while rolling out a price increase (when billed monthly).
3. Promote the annual plan on your sidebar
I’m a serial adopter of software products. And I’m consistently surprised how little real estate is devoted to promoting annual plans to monthly users.
One growth leader I interviewed recalled an experience where their change plan option was hard to navigate within the Settings page. This led to a surprising number of customers cancelling their monthly plan and then quickly re-subscribing to annual. The odd pattern happened most frequently during the first two to three months post-purchase.
The learning: make the switch to an annual plan easy to find! The homepage sidebar, for example, is a prominent placement without being as intrusive as an unexpected pop-up or in-your-face ad. You might look to Canva (above) for inspiration.
Lever 2: Price
4. Consider offering a bigger discount
Looking again at the Cloud 100 companies, the median annual discount was 20% off compared to the monthly price. That’s equivalent to getting 2.5 months for free over the course of a year.
If you look more closely, there’s a fairly wide range of discounting behavior. Companies with presumably stickier products offer only a modest discount (see: Intercom); others are far more generous. Grammarly is a notable outlier – they offer 60% off.
I’d encourage you to tackle your annual discount in two ways:
Compare the paid tenure between plans. As a starting point, calculate the expected paid tenure for an annual plan customer compared to a monthly one. Use that as a guideline for how much you could discount annual while still coming out ahead. You might find that you could discount the per-month price significantly and still come out ahead from an LTV perspective.
Verify the impact of an incremental discount. From there, test whether a more generous discount actually results in a behavior change from your customer base. Your most serious users will likely buy an annual plan even without much of a discount.
5. Credit past spend toward the annual plan
While you might opt for a modest annual discount at signup, especially if a more aggressive discount doesn’t materially shift your annual mix, you could sweeten the pot when upgrading monthly users onto annual plans. Several growth leaders mentioned examples of letting users roll prior payments when they convert monthly seats to annual.
I’d recommend only making this option available during a user’s first six months and/or before the retention curve starts hitting its “smile”. Otherwise, you’re providing a big discount for folks who are already likely to stick around.
Lever 3: Lifecycle triggers
6. Ask for the upgrade early
I used to think you'd want to give customers some time to experience the product, then push for an annual upgrade in months six to 12.
Turns out the opposite is true. Customers are three to four times more likely to upgrade in month two than they are in month nine. This data again comes from the team at ChartMogul. Strike while the iron is hot in your lifecycle campaigns and in-product promotion.
7. Look for behavioral triggers
A major reason why many customers buy monthly plans is because they’re still in trial or pilot mode. They haven’t made the decision to truly integrate your product into their work.
Similar to the realm of product-led sales (PLS) or product-qualified leads, look for usage patterns or actions that demonstrate a user has formed a habit. That could mean setting up an automation, adopting certain workflows, adding an integration or something else. When you see those behavior triggers, shift the communications toward upgrading to annual.
8. Account for seasonality
Many customers like the flexibility of monthly plans because they experience seasonality in their business and/or use case. This might be happening to you if you notice lots of boomerangs who serially cancel then rejoin a few months later. In these cases, you might want to schedule an annual campaign as customers are entering their busy season. This is when their engagement is highest (and when their business is flush with cash).
Lever 4: Psychological cues
9. Quantify the exact savings for customers
When a monthly plan customer has been around for a while (say, six or more months), you might consider reaching out showing exactly how much they’ve paid versus how much they would have saved if they had been on an annual plan. Why it works: it feels personal, it’s highly specific and it taps into the savings as a financial loss – which can be more impactful than the promise of a potential gain in the future.
10. Lock in the price
If you have a price increase on the horizon, consider whether you can turn it into an upgrade tactic. Knowing that the customer can ‘lock in current pricing’ is a powerful motivator. And the hard deadline creates a sense of urgency to act.
11. Make the discount feel exclusive
If anyone is great at convincing customers to go annual, it’s the sales team. Many SaaS companies pay sales reps a small bonus based on the number of annual deals closed, which aligns incentives and offsets any ‘lost’ commission from annual plans being at a discounted rate.
The classic play is for sales to position the annual discount as exclusive, i.e. “you’re getting this special discount because you are speaking to me.” This might also be promoted as a reason to speak to sales in the first place (“speak to a sales rep to get this special offer”).
Lever 5: Perceived value
12. Provide bonus perks
A great annual tactic that's hiding in plain sight: exclusive perks rather than discounts. Squarespace, for example, includes one year of free domain registration for website plans on an annual term.
I haven’t come across many software companies that do this today, although it is fairly common in the newsletter space. Lenny Rachitsky is an outlier in the most epic way possible, offering a free year of the hottest AI tools in the world for customers who buy an annual subscription. (Others will simply offer a 1:1 session with the author when folks subscribe annually.)
You don't need to go as far as Lenny to apply this tactic. You might consider:
A free onboarding session with a product expert
Exclusive themes or templates
Enhanced support
Swag
A special community
13. Provide early or exclusive access
On the theme of perks, you might offer annual subscribers priority access to new features. This tactic recognizes your most loyal users for the investment they made, making them feel like valued design partners and community members.
With so much buzz lately around AI capabilities, this tactic might be particularly effective today and allows you to translate AI enthusiasm into stickier customers.
14. Offer more AI credits
As I’ve written about before, new AI credit models have been popping up more and more. Clay smartly uses their AI credits as a way to nudge customers to pay annually. Annual plans not only get a discount, they include “all credits upfront” – allowing customers much more flexibility to consume credits on their own schedule. There’s no fear of ‘use it or lose it’ (at least over the course of the year). And there’s no immediate concern about getting hit with an overage fee within the first month since customers have 12 months of credits upfront.
A twist on this approach is to provide a rollover benefit as well. You might consider letting unused credits be carried over to the next year (up to a cap), but only for customers buying annual plans.
I hope this provides you with a roadmap of tactics to test as you look to improve retention and shift customers from monthly to annual. If you try any ideas, I’d love to hear how it went! Drop a comment or reach out on LinkedIn.
Product marketing covers most of the tactics which is wild that more founders and teams don't think about really optimizing their PMM efforts 🤔
These are helpful. But ultimately, pricing needs to be deeply customized to your product and your audience value. Smart pricing is a great lever to propel your growth.