What kind of discount should we offer for annual prepayment versus monthly? Is the typical approach to give “2 months free” (about ~16–17% off), or do some companies do a different discount for yearly plans?

Based on the insights shared in our pricing strategy book, Price to Scale, there isn’t a single “correct” answer—it largely depends on your customer segments, contract terms, and overall pricing strategy. Here are a few key takeaways:

• Both approaches can work: Many companies do offer an annual prepayment discount equivalent to “2 months free” (roughly a 16–17% discount) because it creates an immediate incentive for customers to shift from monthly billing, improves cash flow, and reduces churn risk. However, this isn’t a one-size-fits-all solution.

• Consider Credit, Volume, and Contract Variables: As discussed in our book (see our sections on Discounting Levers and Contract Terms), discounting should be tailored based on customer usage patterns and deal size. Smaller deals might justify a standard annual discount, whereas enterprise or larger accounts may need more customized pricing structures that sometimes reach much higher discount levels given their usage volume and negotiation dynamics.

• Segment and Vary Your Approach: Our book emphasizes segmenting the customer base and being creative with deal structuring. For instance, instead of solely offering “2 months free,” you might combine early payment discounts with bundled offers or strategic contract upgrades. Such flexibility can align better with your business’s cash flow goals and long-term customer value strategy.

In summary, while the “2 months free” strategy (around 16–17% off) is common and effective for many SaaS companies, Price to Scale encourages you to analyze your customer segments thoroughly and consider a mix of early payment incentives, volume-based adjustments, and tailored contract terms to find the optimal solution for your business.