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annual plan

Also called: yearly plan, annual subscription, yearly subscription

A subscription paid a year in advance, usually at a discount to twelve monthly payments. It brings cash early, cuts the number of moments when a customer can cancel, and signals strong commitment.

An annual plan is a subscription paid a year in advance, usually for less than twelve monthly payments. The common discount is "two months free" (paying for 10 months instead of 12, about 16.7% off) or somewhere between 10% and 20%.

For a young business the main benefit is cash: a customer who pays a year up front funds months of work immediately, which can matter more than the discount costs. Annual customers also have only one moment a year to leave instead of twelve, so they churn less, and choosing to pay for a year is a strong signal that the customer takes the product seriously. For the customer the deal is simple: a lower price in exchange for commitment.

Offering an annual plan from day one is a cheap experiment, and it's the cleanest way to give a discount: the customer earns it by committing, rather than by haggling. Two accounting rules keep the numbers honest. In MRR an annual customer counts as the yearly price ÷ 12, not as one big month. And the cash received in advance is not yet earned: if you promise refunds, keep enough aside to pay them.

Example

GarageDesk costs 600 UAH a month or 6,000 UAH a year. Twelve monthly payments would be 7,200 UAH, so the annual plan saves 1,200 UAH, about 16.7%, or two months free. In MRR an annual shop counts as 6,000 / 12 = 500 UAH.

In the January pre-sale two of the five shops take the year: 2 × 6,000 = 12,000 UAH arrives at once, more than two thirds of the 17,400 UAH collected. From year 2 new shops pay 750 UAH a month or 7,500 UAH a year: 12 × 750 = 9,000 UAH, and the discount stays at 1,500 / 9,000 ≈ 16.7%.

Common mistakes

  • Counting the whole payment as one month's MRR. Divide by 12.
  • Spending prepaid money that may have to be refunded. Treat it as not yet yours until the promised date passes.
  • Too deep a discount. Beyond about 20% you give away more than the cash and lower churn are worth.
  • Hiding the monthly option. Show both; the monthly price is the anchor that makes the yearly one look good.