The pros and cons of monthly, quarterly and annual subscription terms

Many publishers understandably struggle to select price points for their subscription products. Price too low and they’re leaving money on the table, price too high and they risk derailing conversions and alienating audiences entirely. (We’ll be digging deeper into pricing strategies in an upcoming guide.)

But in addition to pricing, another key factor that can significantly impact the performance of publishers’ subscription businesses is the term lengths they organize their products around and the discounts they offer subscribers for longer commitments. Monthly, quarterly, annual and multi-year subscription terms all come with advantages and drawbacks that must be weighed in order to maximize subscriber value and engagement and strike an optimal balance between driving new conversions, retaining subscribers, and maximizing customer lifetime value.

Approaches will inevitably vary from one publisher to the next based on the nature of specific products, audiences and business models, but some key considerations should be kept in mind when evaluating what subscription terms to adopt and promote, and how to position and price them in relation to each other.

The following points are informed by real-world data and experience, gleaned from Toolkits’ advisory work with a variety of subscription publishers across a range of coverage areas and verticals:

Monthly subscriptions convert better

Short subscription plans often convert new subscribers more effectively than longer ones, simply because they’re typically offered at lower price points and present lower barriers to entry. When short terms are coupled with introductory offers and/or discounts, the gulf between conversion rates typically widens further. The exact nature of this dynamic is dependent on how publishers price different terms in relation to each other, however. (See below for more on relative pricing.)

Monthly subscribers are harder to retain

While audiences are more likely to convert on shorter terms, subscribers on longer terms typically renew at a much higher rate. This dynamic typically becomes more pronounced as subscription periods extend in length. For example: Quarterly subscribers are more likely to renew than monthly ones, annual subscribers are more likely to renew than quarterly ones, etc. (This is again dependent on how publishers price different terms relative to each other, and also on publishers taking steps to reduce passive subscriber churn.)

Longer terms generate greater subscriber lifetime value

Although annual and quarterly subscriptions are usually offered to audiences with significant discounts compared with annualized monthly prices, more revenue is typically extracted from subscribers on longer terms – on a lifetime value basis – than those on shorter ones. Fewer renewal events mean fewer opportunities for a subscriber to cancel or a payment to fail, but longer terms also grant publishers more time with which to build subscriber habit and engagement, demonstrate clear and ongoing value, and maximize the chances of subscribers renewing.

Quarterly subscriptions can offer a sweet spot 

For many of the reasons outlined above, offering a quarterly subscription instead of a monthly one can prove a highly effective approach for some publishers — particularly those catering to professional or B2B audiences which may be less sensitive to higher price points. Quarterly subscriptions can strike a nice middle ground between driving conversions and minimizing churn, and they also offer an ample window for publishers to build subscriber engagement and demonstrate the ongoing value of their products.

Effective relative pricing between terms is essential for revenue maximization

For the majority of publishers, offering multiple subscription terms results in greater revenue yield, provided they’re priced effectively in relation to each other. Careful pricing can be used to strike a balance between the conversion lift offered by short terms and the retention benefits of longer ones, maximizing revenue for publishers while offering subscribers a range of price points to suit different budgets and needs.

Exactly how tiers should be priced in relation to each other varies from one publisher to the next dependent on their products, retention rates and the nature of their audiences, but many publishers see success using the following approximate relative weighting for their terms:

• Monthly and Annual: Annual term priced at 9x – 10x monthly. (25% – 35% discount for annual subscriptions relative to the annualized monthly rate.)
• Quarterly and Annual: Annual term priced at around 2.5x quarterly. (35% – 40% discount for annual subscriptions relative to the annualized quarterly rate.)
• Monthly, Quarterly and Annual: Quarterly term priced at 2 – 2.5x monthly, Annual term priced around 2.5x quarterly.

Longer terms are beneficial for cash flow and revenue predictability

Longer terms come with the advantage of enabling publishers to collect up-front revenue which — when reinvested in content, features and product improvements — can help drive subscriber retention down the line. They also allow for greater revenue predictability and are less exposed to the impact of sudden economic events, market changes or other external factors. Longer terms are particularly useful for smaller publishers, those just starting out in subscriptions, or those that are otherwise reluctant or unable to invest in their products ahead of revenue.

Longer terms mean fewer moving parts and less operational overhead 

Short terms inherently result in more operational overhead than longer ones: More renewal events mean more failed payments, receipts, renewal notifications, customer service interactions and more. Offering monthly subscriptions is a necessity for many publishers, but it’s worth factoring in operational costs when deciding relative pricing between tiers.

Audiences often have preexisting expectations

Depending on the nature of a publisher’s product and content, audiences often approach subscription terms with expectations and ideas about how they’ll be charged. For news publications, audiences typically expect to be offered monthly and annual options, for example, as the market has already established those as relatively standard terms. Meanwhile, quarterly, annual, or even multi-year options might seem typical to a niche professional audience that’s used to paying for software and other services on longer billing cycles. Expectations and assumptions vary significantly from one audience to the next, and those dynamics are drastically different for professional audiences than most general consumer ones.

Weekly subscriptions should be avoided

For the vast majority of publishers and products, weekly subscriptions should be avoided entirely. While some publishers might see success in converting new subscribers with week-long trials or introductory offers, it’s advisable to ensure those offers renew into monthly terms at a minimum. Attempting to charge subscribers on a weekly basis is expensive, unwieldy, and often costly in terms of operational overhead.

4-week terms allow for 13 billing cycles per year

While it’s not something we advise, some publishers attempt to push subscribers towards 4-week terms rather than monthly or annual ones to maximize revenue by allowing for 13 billing cycles per year. While many consumers may not notice the difference between 4-week and monthly terms at the checkout, this approach risks alienating subscribers in the long run and can result in confusing renewal dates that move around each calendar month.