Annual Discount Calculator
Should you offer 2 months free? Calculate the cash flow advantage of upfront payments vs the revenue loss of the discount.
Plan Comparison
Cumulative Cash Flow (Per User)
Cash Flow Verdict
Annual Wins on Cash
Upfront Cash
You collect $480 immediately. On monthly, it takes 10 months to collect that amount (assuming no churn).
Churn Impact
With 5% monthly churn, the expected lifetime value of a monthly user is limited. Annual plans lock this revenue in.
Cumulative Gap
By Month 24, the Annual strategy has generated $179.989 more cash per user due to retention differences.
Execution Steps
Enter your 'Monthly Price'.
Set the 'Annual Discount %' (e.g., 20% or 2 months free).
Input your 'Monthly Churn Rate' for standard plans.
The chart compares Cumulative Cash Flow. See how long it takes for the Monthly plan to catch up (if ever).
Pro Strategy
- The standard discount is ~16-20% (2 months free). Less than 10% isn't compelling. More than 25% gives away too much margin.
- Use annual prepayments to fund your CAC. If CAC is $300 and Annual Price is $500, you are cash-flow positive on Day 1.
- Default to Annual Pricing on your pricing page toggles to anchor high.
Core Concepts
Cash Flow Acceleration
Getting paid upfront ($480) vs over time ($50/mo) allows you to reinvest that cash immediately into marketing (CAC), fueling faster growth.
Churn Reduction
Annual plans have 0% churn for the first 12 months. Users make one decision per year instead of 12 decisions, significantly increasing LTV.
The Breakeven
Typically, an annual plan is profitable for the vendor if the user would have churned before month 10 on the monthly plan.
What is Annual Discount Calculator?
This model compares two cash flow streams. 1) Monthly payments subject to compound churn probability. 2) Annual lump sums subject to discrete renewal churn. It visualizes the 'Cash Wedge'—the surplus capital available from upfront payments.
Best For
- • Designing pricing page toggles.
- • Planning cash flow for the next 12 months.
- • Deciding on discount levels.
Limitations
- • Assumes linear churn.
- • Does not calculate tax implications.
Alternative Methods
LTV/CAC Calculator
Focuses on long term profitability ratios.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
SaaS CRM
High churn (7%) on monthly plans.
Offered 25% discount for annual.