About the Annual vs Monthly Plan Discount Calculator
This annual vs monthly plan discount calculator helps SaaS and subscription businesses price their annual plan. Enter the monthly price, the discount you offer for paying a year up front and your monthly churn rate on monthly plans. It shows the annual price, the equivalent “months free”, the revenue you would expect from a monthly subscriber over the same 12 months, and whether the annual plan comes out ahead once churn is taken into account.
It is useful for founders setting pricing-page discounts, finance teams estimating the cash effect of pushing annual plans, and anyone deciding between “2 months free” and “save 20%”. Add the number of new customers per month and the share you expect to choose annual billing to see the first-year revenue and the up-front cash the mix generates.
The comparison assumes monthly subscribers churn at a constant rate each month and that annual subscribers pay once and stay for the full year (refunds are ignored). It looks only at the first 12 months; annual customers often renew at higher rates too, which this simple model does not credit.
With the default inputs, the annual plan advantage per customer (first year) is $20.36. Change any value above to recalculate instantly.
How to use the annual vs monthly plan discount calculator
- 1Enter your monthly plan price and the discount offered on the annual plan.
- 2Enter the monthly churn rate you see on monthly subscriptions.
- 3Optionally add new customers per month and the share choosing annual billing.
- 4Compare the annual plan advantage, months free and break-even churn.
- 5Adjust the discount until the trade-off between cash, revenue and conversion looks right.
Formula and method
The annual price is twelve months at the monthly price minus the discount, and the discount expressed in months is simply 12 × d (20% off is 2.4 months free; “2 months free” is a 16.7% discount). A monthly subscriber pays the first month for certain and each later month only if they have not churned, so with a constant churn rate c the expected payments over a year form a geometric series.
The annual plan earns more in the first year whenever the expected number of paid months from a monthly subscriber falls below 12 × (1 − d). The break-even churn rate is the monthly churn at which the two are equal, found numerically. Cohort revenue and up-front cash weight the annual and monthly outcomes by the share of new customers choosing each plan.
- P
- Monthly plan price
- d
- Annual discount as a decimal
- c
- Monthly churn rate of monthly subscribers
Worked examples
$50/month, 20% annual discount, 5% monthly churn
The annual plan costs $480 (2.4 months free). With 5% monthly churn a monthly subscriber pays for 9.19 months on average in year one, about $459.64, so the annual plan earns $20.36 more per customer. Below about 4.16% monthly churn the monthly plan would earn more in the first year.
“2 months free” with low churn
Two months free on a $100 plan sets the annual price at $1,000. With only 2% monthly churn a monthly subscriber is expected to pay about $1,076.42 in year one, and the break-even churn is about 3.38%, so the annual plan gives up about $77 of first-year revenue in exchange for cash up front and a locked-in year.
No churn means the discount is pure cost
If no one ever cancelled, monthly customers would pay the full $600 a year, so a 10% annual discount simply costs $60 per customer in revenue.
Frequently asked questions
What is a typical annual plan discount for SaaS?+
Discounts of around 15–20%, often marketed as “2 months free”, are common on SaaS pricing pages. Larger discounts make sense when monthly churn is high or when the up-front cash is especially valuable.
How do I convert a discount into months free?+
Multiply the discount by 12. A 20% discount equals 2.4 months free, and “2 months free” is 2 ÷ 12 = 16.67% off. Going the other way, divide months free by 12 to get the discount percentage.
Why does churn make annual plans more attractive?+
Monthly subscribers can cancel at any time, so the revenue you expect from them over a year is less than 12 monthly payments. Annual customers pay for the full year up front, so the higher your monthly churn, the more the annual plan earns despite its discount.
How is annual plan revenue recognized?+
Even though cash arrives up front, an annual subscription is normally recognized as revenue evenly over the 12 months of service, with the unearned portion held as deferred revenue on the balance sheet.
Should MRR include annual plans?+
Yes, normalised to a monthly amount: a $480 annual plan counts as $40 of MRR each month, not $480 in the month it is paid. That keeps MRR comparable between annual and monthly customers.