1. Your plan economics
Enter your numbers, then click Compare plans.
Result
| Per customer signed up | Monthly plan | Annual plan |
|---|
Annual minus monthly present value, by discount and monthly churn
Positive means the annual plan is worth more. Renewal rate is held at your input; only monthly churn changes across columns.
The model, and what it leaves out
- Monthly plan. Paid at the start of each month. Churn is geometric: still paying in month t with probability (1 - churn)^t.
- Annual plan. Paid up front at 12 x price x (1 - discount). No mid-year churn or refunds; the customer renews into year y with probability (renewal rate)^y.
- Cost to serve is price x (1 - gross margin) per month for every active month on either plan, so the annual plan gets the cash early but not the cost.
- Present value discounts cash at your annual cost of capital, compounded monthly. Cash after the horizon is ignored.
- Break-even discount is the largest discount at which the annual plan's value still equals the monthly plan's, found by bisection. At a 12-month horizon the renewal rate has no effect, because only one annual payment falls inside it.
- The share who switch scales the dollar effect per customer; it does not move the break-even.
- Not modelled: expansion revenue, taxes, failed-payment recovery, refunds, and the selection effect (customers who pick annual are often the ones least likely to churn anyway). Payment fees are included only if you enter one.
Common questions
What annual discount should a SaaS offer?
There is no universal number. The right ceiling is the discount at which a customer on the annual plan is worth the same, in present value, as one on the monthly plan. It rises with monthly churn and with your cost of capital, and falls with the annual renewal rate you expect. This calculator finds that ceiling by bisection on your own inputs, and shows the same number as months free.
Is 2 months free the same as a 16.7% discount?
Yes. Two months free on a 12-month prepay is 2/12, or 16.7% off the annual price; 12 x discount gives the months-free equivalent. Whether that is affordable depends on your churn and margin, which is what the break-even figure tests.
How does the model treat churn?
Monthly churn is geometric: a monthly customer is still paying in month t with probability (1 - churn)^t. An annual customer pays 12 months up front, cannot leave before renewal, and renews into each later year with the renewal rate you enter. Cost to serve is incurred monthly for every active customer on either plan.
Why does the horizon matter?
Over 12 months an annual customer is paid exactly once, so the renewal rate does not change the answer. From 24 months on, the renewal rate decides how much of the annual plan's advantage is real. Cash after the horizon is ignored for both plans.
Is this financial advice?
No. It applies simple arithmetic to the numbers you enter and does not replace your own cohort data or a qualified financial adviser.
Related tool: the SaaS feature packaging optimizer (which features go in which plan, and the plan prices, from a per-feature willingness-to-pay survey).
Related tool: the SaaS tier price optimizer (the Good-Better-Best price ladder that earns the most from a willingness-to-pay survey).