Monthly plan only
- Customer decides whether to renew 12 times a year
- Every failed card is a chance to lose them
- Revenue arrives in small monthly pieces
Monthly plus discounted annual
- Customer commits once for the whole year
- Discount framed as "2 months free"
- A year of cash arrives up front
- Clear reminder sent before the renewal charge
Monthly customers decide whether to keep paying twelve times a year. Annual customers decide once. An annual plan with a visible discount improves cash flow, reduces churn opportunities, and is one of the simplest pricing changes a small company can ship.
Why it works
Every monthly renewal is a moment when a customer can drift away, hit a failed card or rethink the budget. An annual plan removes eleven of those moments. The discount gives the customer a concrete reason to commit, and framing it as free months makes the saving easy to picture.
For the business, a year of payment up front funds hiring and marketing before that revenue would otherwise arrive. It also gives the customer a full year to build habits in the product before the next decision comes round.
How to do it
- Pick a discount you can explain in one phrase, such as “2 months free”. Customers understand months better than percentages.
- Show both prices on the pricing page with a monthly/annual toggle. Display the annual price as a per-month equivalent with the total billed amount next to it. Never hide the total.
- Default the toggle deliberately. Defaulting to annual increases annual uptake; defaulting to monthly lowers the barrier to start. Test which suits your funnel.
- Offer an upgrade to existing monthly customers after they have been active for a few months, by email or in-app, with the saving spelled out in their currency.
- Remind before renewal. Send a clear notice before the annual renewal charge. Surprise renewals create refunds, chargebacks and bad reviews.
Example
A tool charging $20/month adds an annual option at $200/year (“2 months free”). Three months after signup, monthly customers who are actively using it get an email: “Switch to annual and save $40 this year.” The company collects a year of revenue up front from those who switch and no longer has to win them back every month.
Metrics to track
- Annual share of new paid signups. Watch how it moves when you change the discount or the toggle default.
- Monthly-to-annual upgrade rate among customers who received the upgrade offer.
- Revenue per customer over 12 months for annual and monthly buyers, to check the discount is not costing more than it saves.
- Renewal rate at the end of the first annual term.
- Refund requests and chargebacks on annual charges, which should stay flat or fall once renewal reminders are in place.
When it backfires
- Discounting too deeply. A huge annual discount can lower total revenue if most customers would have stayed monthly anyway.
- Locking in unhappy customers. Pushing annual on users who haven’t seen value leads to refund requests. Offer it after activation.
- Hiding the renewal. Many jurisdictions require clear renewal notices; it is also simply good practice.
Questions people ask
How big should the annual discount be?
Many SaaS companies frame it as one or two months free, which works out to roughly 15–20% off. Test what moves your customers; the right number depends on your margins and churn.
When should I offer the annual plan?
Show it on the pricing page, and offer it again to happy monthly customers a few months in. After they have seen value, the upgrade is an easy decision.
Should annual customers get a refund if they cancel early?
Decide the policy before launch and state it on the pricing page and at checkout. A prorated refund in the first weeks tends to prevent disputes, and a no-refund policy needs to be shown very clearly. Check local consumer rules, which may set a minimum.