Annual plan pricing, how big the discount should be and which way the toggle points

Why the annual plan is often the cheapest win

For a subscription business, the annual plan is one of the few changes that can lift cash, cut churn and improve plan mix at once. It also costs almost nothing to set up: a second price on the same product. Yet many products either have no annual option, bury it, or set a discount picked because a competitor used the same number.

Monetisation flags annual plan optimisation when it sees a low share of annual subscriptions, a discount that is far from break-even, or a toggle that hides the annual price.

The arithmetic of the annual discount

The question to answer is simple: what is a monthly customer worth over twelve months, once churn is taken into account? If an annual customer pays you more than that up front, the discount is paying for itself in year one.

Take a hypothetical plan at 50 USD per month with 4 percent monthly churn. The expected revenue from a new monthly customer over twelve months is the sum of 50 USD times the chance they are still subscribed each month.

Twelve full payments would be 600 USD. The monthly customer is expected to bring 484 USD. So an annual price of 484 USD, or about 19 percent off, earns the same in year one. Any smaller discount earns more, and you also hold the cash on day one.

That break-even depends on churn:

A product with high monthly churn can afford a generous annual discount. A product with very low churn gains less from it and should be careful with large discounts.

What else changes beyond year one

The break-even view is conservative because it stops at month twelve. Two effects usually push in favour of annual:

• Renewal behaviour. Annual customers face one renewal decision a year instead of twelve. If 75 percent renew, year two revenue from the cohort is far more predictable than a monthly cohort that keeps shrinking.
• Cash. Revenue collected up front funds acquisition and development without waiting. For a growing company this has real value even when the accounting revenue is the same.

There is one effect against it: a large annual discount offered to customers who would have stayed monthly for years anyway simply gives money away. That is why Monetisation estimates the annual opportunity with your actual churn by cohort, not an average from the internet.

The default toggle

Most pricing pages have a monthly and yearly switch. Which way it points on load matters, because many buyers accept the default.

Consider a hypothetical product with 100 new paying customers a month at 50 USD:

In this example the annual default lowers total conversion slightly (from 100 to 96) and still collects far more cash in the first month. The shares are assumptions to be tested, not facts about your audience. A pricing page is exactly the kind of change to run as an experiment with a holdout group.

How Monetisation estimates the opportunity

With Stripe connected through a restricted read-only key, Monetisation reads every subscription, its interval, its price and any coupon. It calculates:

• Your current share of annual subscriptions, overall and by plan
• Monthly churn by plan and cohort over the last six to twelve months
• The break-even annual discount for each plan
• The gap between your current annual discount and break-even
• Renewal rate of past annual subscriptions, where history allows

The opportunity card then shows an estimated monthly impact range, with a method line such as "annual plan at 17 percent off for Team, 25 to 40 percent of new customers choose annual, monthly churn 4.1 percent from your last 9 months". Every figure is an estimate, not a guarantee of results, and the page on how estimates work explains the method.

If many of your annual subscribers also carry coupons, the true discount is larger than the list discount. That case is covered on discount leakage.

Running the test

There are two ways to measure an annual plan change:

1. Pricing page variant with a holdout. On Growth and Scale, a small snippet shows the annual default to part of your visitors and keeps a holdout on the current page. The result compares conversion, annual share and revenue per visitor.
2. A billing change you make. You add the annual price in Stripe yourself and Monetisation records it as a dated intervention, comparing the period after against the baseline trend.

The verdict is win, flat, loss or not enough data. Monetisation never creates prices in your account; it reads, estimates and measures.

Common mistakes

• Copying a competitor's discount. Their churn is not yours.
• Hiding the annual option. If the yearly price only appears in checkout, few buyers see it.
• Showing the annual price per year only. Most buyers compare per month. Show the monthly equivalent and the yearly total.
• Stacking coupons on annual. A 20 percent annual discount plus a 20 percent coupon is 36 percent off.
• Ignoring usage. If heavy users pay a flat annual price, they lock in value you might capture with usage based pricing.

Where to start

Run a sample audit from the homepage to see the first opportunities for your site in about a minute. Connect Stripe on any plan to get the annual plan analysis from your own churn data. See pricing for what each plan includes, or read more on pricing optimization software.