The choice between annual and monthly pricing affects both customer satisfaction and your cash flow health. Here's how these models compare and when each makes sense:
Annual pricing advantages
For your business, annual pricing provides immediate cash flow, reduces collection overhead, improves customer lifetime value predictability, and typically commands higher total contract values through reduced churn risk.
For customers, annual contracts often include significant discounts (10-20%), provide pricing predictability, reduce administrative overhead, and can include enhanced support or features.
Monthly pricing advantages
For your business, monthly pricing reduces sales friction, makes your solution accessible to cash-constrained prospects, and allows for easier upselling throughout the customer lifecycle.
For customers, monthly payments improve cash flow management, reduce initial commitment risk, allow easier budget allocation, and provide flexibility to adjust usage or cancel if circumstances change.
The traditional trade-off
Historically, companies had to choose between sales velocity (monthly) and cash flow health (annual). This forced difficult decisions about prioritizing growth versus financial stability, especially for early-stage companies with limited working capital.
Small businesses often prefer monthly payments due to cash flow constraints and uncertainty about long-term needs. Mid-market companies may prefer quarterly or annual terms for budget predictability. Enterprise customers often have the capital for annual payments but may prefer monthly for procurement reasons.
Monthly billing creates negative working capital as you deliver services before receiving full payment. This can limit growth velocity since you need external capital to fund the time lag between service delivery and payment collection.
Solving the trade-off
Lemon's Customer Financing solves this trade-off.
It lets you offer your customers a simple way to finance the annual contract. You get paid the full amount up front, while your customer pays back in manageable monthly instalments. A bit like Buy Now, Pay Later, but for SaaS.
There’s no need to offer discounts or chase invoices. Lemon handles the financing, the repayments, and the risk, so you can offer flexible terms that benefit everyone.
