Monthly subscriptions lower the barrier to buying but let customers cancel any month. Annual subscriptions bring a year of cash up front, cut churn and reduce admin, but ask for a bigger commitment. Most businesses should offer both, with an annual discount of about 15% to 20% (often framed as two months free). Higher-churn businesses can afford bigger discounts, because annual customers would otherwise leave sooner.
Key takeaways
- Offer both. Monthly wins sign-ups; annual wins cash flow and retention.
- Most 2026 software companies discount annual plans by 15% to 25%; 'two months free' is 16.7%.
- Your break-even discount depends on monthly churn: about 15% at 3% churn, 23% at 5%.
- Annual renewal is a big 'poke the bear' moment. Plan reminders and value reviews before it.
One of the best salespeople I ever worked with had a name for the annual renewal.
He called it "poking the bear."
His point was simple. If a customer (the bear) is happy, why wake them up once a year and ask them to decide all over again? Every renewal is a fresh chance to say no.
He wasn't against annual plans. He just knew that an annual contract swaps twelve small decisions for one big one. Get that big one right and you're set for a year. Get it wrong and you lose the customer in a single conversation.
So, which should you offer: annual or monthly? Let me walk you through it, then give you a formula for the discount.
Is a monthly or annual subscription better for my business?
Each has real pros and cons. Here they are side by side.
| Monthly billing | Annual billing | |
|---|---|---|
| Barrier to sign up | Low: small, familiar amount | Higher: bigger payment, bigger decision |
| Cash flow | Steady trickle | Large lump up front |
| Churn | Customers can leave any month | Locked in for 12 months |
| Admin and payment fees | Twelve charges, twelve chances to fail | One charge a year |
| Time to prove value | One month at a time | A full year |
| Renewal risk | Small and constant | One big "poke the bear" moment |
| Price perception | Looks cheaper | Looks like a bigger number, but a better deal |
| Best for | New, untested or seasonal customers | Committed customers, B2B budgets |
When I wrote the book, about 70% of subscription services used monthly billing. The reason is obvious: a manageable monthly fee is easier to say yes to.
But monthly billing has a cost. Customers can cancel on short notice, and you may struggle to keep them long enough to earn back what you spent to win them.
That's why most businesses end up offering both and nudging committed customers toward annual with a discount.
How much discount do real companies give for annual plans?
Here's what 17 companies charged in October 2026. I've calculated the discount from each company's published monthly and annual prices (US$ unless noted).
| Company and plan | Monthly price | Annual price | Annual discount |
|---|---|---|---|
| Replit Core | $20 | $216 ($18/mo) | 10% |
| Claude Pro | $20 | $200 | 16.7% |
| Perplexity Pro | $20 | $200 | 16.7% |
| Notion Business (per seat) | $24 | $240 ($20/mo) | 16.7% |
| Firecrawl Standard | $99 | $996 ($83/mo) | 16.2% |
| Slack Pro (per user) | $8.75 | $87 ($7.25/mo) | 17.1% |
| Midjourney Basic | $10 | $96 | 20% |
| Runway Standard | $15 | $144 ($12/mo) | 20% |
| Genspark Plus | $24.99 | $239.88 ($19.99/mo) | 20% |
| Zendesk Suite Team (per agent) | $69 | $660 ($55/mo) | 20.3% |
| Amazon Prime (US) | $14.99 | $139 | 22.7% |
| Shopify Basic | $39 | $348 ($29/mo) | 25.6% |
| Fin Essential (per seat) | $39 | $348 ($29/mo) | 25.6% |
| Synthesia Starter | $19 | $168 ($14/mo) | 26.3% |
| Descript Creator | $35 | $288 ($24/mo) | 31.4% |
| Strava (US) | $11.99 | $79.99 | 44.4% |
| Monarch | $14.99 | $99.99 | 44.4% |
Two clusters stand out.
Business software sits at 15% to 25%. "Two months free" (16.7%) is the single most common figure. It's easy to explain and easy to afford.
Consumer apps go much deeper, up to 44%. Strava and Monarch practically halve the price for annual. Why? Consumer apps lose a lot of monthly subscribers, so getting a year of commitment is worth a lot to them.
That's the key insight. Your annual discount should be set by your churn.
How do I work out the right annual discount?
Here's the logic. A monthly customer doesn't pay for twelve months on average. Some leave in month two, some in month nine. So the real comparison is the annual price against what an average monthly customer actually pays in their first year.
Expected months paid in year one = (1 − (1 − monthly churn)^12) ÷ monthly churn Break-even annual discount = 1 − (Expected months paid ÷ 12)
A $50-a-month subscription with 5% monthly churn
Expected months paid in year one: (1 − 0.95^12) ÷ 0.05 = 9.19 months.
So the average monthly customer pays 9.19 × $50 = $460 in year one, not $600.
Break-even discount: 1 − (9.19 ÷ 12) = 23.4%, an annual price of about $460.
Offer 20% off ($480 a year) and every annual sign-up is worth more to you in year one than the average monthly sign-up, and you get the cash on day one.
Here's the break-even at different churn rates:
| Monthly churn | Expected months paid in year one | Break-even annual discount |
|---|---|---|
| 2% | 10.76 | 10.3% |
| 3% | 10.21 | 15.0% |
| 5% | 9.19 | 23.4% |
| 8% | 7.90 | 34.1% |
| 10% | 7.18 | 40.2% |
Look at the 8% and 10% rows. That's why high-churn consumer apps can offer 30% to 44% and still come out ahead.
Now, a warning. Don't spend the whole break-even. The customers who choose annual plans are usually your most committed ones, the people least likely to churn anyway. If you hand them the full break-even discount, you're partly paying loyal customers to do what they'd have done. Aim for roughly half to three-quarters of the break-even figure. At 5% churn, that's a discount of around 12% to 18%.
Run your own numbers with the Annual Discount Calculator. If you don't know your churn rate, the Churn Rate Calculator will get you there.
Find your safe annual discount
Enter your monthly price and churn, and the free Annual Discount Calculator shows the discount that still beats monthly billing.
What about cash flow?
This is the part owners feel in their stomach.
Sell 100 annual plans at $480 and you have $48,000 in the bank this month. Sell 100 monthly plans at $50 and you have $5,000 this month, with the rest arriving (minus churn) over the year.
Annual cash can fund growth. It can pay for the marketing that won those customers, which shortens your CAC payback to zero for annual buyers.
But it isn't free money. You owe that customer twelve months of service. Spend it all in month one and you can find yourself in month eight with customers to serve and nothing in the account. (This is exactly the feast-or-famine cycle my first business lived in, and it's not one I want you to repeat.)
The Australian angle (as at October 2026)
If you're registered for GST, when you report GST on an annual payment depends on whether you account on a cash or non-cash (accruals) basis. See the ATO's guide to choosing an accounting method for GST. For financial reporting, an annual payment is generally recognized as revenue over the year rather than all at once; see our revenue recognition basics. Australia's new subscription-trap rules are due to start on 1 July 2027 and include requirements around disclosure and cancellation, with renewal notices to be set by regulations; read automatic renewals in Australia before you design your annual renewal flow. This is general information only, so talk to your accountant about your situation.
Free Subscription Profit Review
Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:
- whether a subscription model could work for your business
- how recurring revenue could cover your fixed costs each month
- how it could lift what your business is worth
No cost, no obligation. General information only until we understand your situation.
How do I stop annual customers leaving at renewal?
Remember the bear. Here's how to wake it gently.
- Send a value review before the renewal reminder. Show what they used and what it saved them. A renewal email that leads with results gets a different reaction from one that leads with a charge.
- Remind them early and clearly. Surprise renewals create refund demands and complaints. A reminder well ahead of the charge, with the exact amount and date, builds trust. (Renewal notices are expected under Australia's 2027 rules. As at October 2026 the regulations setting their timing hadn't been made, so build the habit now and check the final rules.)
- Offer a monthly fallback. Some customers who won't commit to another year will happily stay monthly. Better a monthly customer than a lost one.
- Fix problems in month nine, not month twelve. Look at usage three months before renewal. Low usage is your warning light.
- Make the end of the term a reward. Raylo, the device subscription company, offers a free upgrade at the end of a term. Give annual customers a reason to look forward to renewal.
What to do next
Look up three numbers: your monthly price, your monthly churn and the share of customers already paying annually.
If you don't offer annual yet, start with "two months free" (16.7%) and test it. If your churn is above 5%, you can probably afford more. If it's below 3%, you might be giving away too much.
Then calculate your figure with the Annual Discount Calculator, see what each customer is worth with the LTV Calculator, and fold the result into your full price list using the how to price a subscription guide.
Frequently asked questions
Is a monthly or yearly subscription better for the customer?
Yearly is cheaper if the customer is sure they'll use the service all year. Monthly is safer if they're testing it, expect their needs to change, or need to protect cash flow. For a business selling the subscription, the honest move is to show both prices clearly and let customers choose, rather than pushing everyone into a year they may regret.
Should the annual price be shown as a monthly figure?
Most software companies do, for example Claude Pro at '$17 per month billed annually' against $20 monthly. It makes comparison easy. But always show the total charged up front as well ($200 a year), and make it clear when the payment is taken. Hiding the upfront amount invites complaints and refund requests.
Can I offer a quarterly plan instead?
Yes. Quarterly billing is a useful middle ground for service businesses and memberships where a year feels like too much. A small discount (around 5%) for three months up front cuts payment admin and failed-payment churn without asking for a full-year commitment. Keep the number of choices low, though: two or three billing options is plenty.
Do annual plans hurt my MRR?
No. An annual plan counts toward MRR at one-twelfth of its value each month, so a $1,200 annual plan adds $100 of MRR. What it changes is cash: you collect $1,200 today. Your bookkeeping should record most of that as income received in advance and recognize it over the year.
What happens if an annual customer wants to cancel early?
That depends on your terms and the law where you sell. Many businesses offer a pro-rata refund in the first 30 days and none after; others refund the unused months. Whatever you choose, state it clearly before purchase. In Australia, consumer guarantees and unfair contract terms rules still apply, so check your terms with an adviser.
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Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- Claude pricing (checked 27 Oct 2026)
- Slack pricing (checked 27 Oct 2026)
- Shopify pricing (checked 27 Oct 2026)
- Midjourney plan comparison (checked 27 Oct 2026)
- Amazon Prime (checked 27 Oct 2026)
- Strava pricing (accessed Oct 2026)
- ATO: Choosing an accounting method for GST
- Treasury: Government targets hidden fees and subscription traps (9 Feb 2026)
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.