Article · Short read, about 6 to 8 minutes

Dear SaaStr: What's a Reasonable Discount for an Annual Contract? How About a 3-Year Contract?

Jason Lemkin · SaaStr Free Intermediate

This is the most concrete, no-fluff answer we found to the actual mechanics question: how much do I give up to get a customer to pay a year (or three) upfront. Lemkin's key move is worth stealing, price the monthly/non-annual plan higher and frame annual as the discount, so you collect cash today without truly eroding your price. It is a starting point on the numbers, not a rule; your churn and stage change the math.

  • A 15 to 20 percent annual discount is the well-understood norm for smaller customers, but you can mark up monthly pricing about 25 percent so the annual price is your real target and the discount is mostly on paper.
  • Go deep on multi-year prepay only if churn is high; if you would have renewed that customer anyway, a big 3-year discount trades a lot of future revenue for cash today.
  • For strong brands, guaranteed no-price-increase for 3 years can beat a headline percentage discount, especially with enterprise buyers.
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The question it answers

  1. How do I get customers to pay upfront or annually so I can bootstrap on their cash instead of my savings?

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