Monthly vs Annual Billing for SaaS: What to Offer

Short answer: Offer both monthly and annual billing. Monthly gets people to pay you for the first time; annual gives you cash up front and, in ChartMogul's billing data, keeps more customers. Price annual at about two months free, pitch it once users have activated, and book the cash as deferred revenue.

Every number below comes from the linked vendor or report pages, checked on 8 Nov 2026. Worked examples are labelled as illustrative and the advice in between is ours.

TL;DR#

• Most SaaS companies offer both. ChartMogul, drawing on 2,500+ SaaS companies, says "Only 78% of early-stage SaaS offer a combination of billing options" and 19% offer monthly only (ChartMogul).
• Annual plans retain better. "Annual plans consistently drive stronger retention across all ARR and ARPA levels," per the same report.
• Two months free is a sane default discount. Lemon Squeezy's own tutorial uses $10 a month or $100 a year (Lemon Squeezy).
• Annual is cheaper to process. One charge a year means one fixed fee instead of twelve.
• Do not go annual-only too early. ChartMogul found that relying heavily on annual plans slowed growth for companies under $1M ARR.

Disclosure: ZeroRaised is a launch site for bootstrapped products. We have no commercial relationship with ChartMogul, Stripe, Paddle or Lemon Squeezy and earn nothing if you use them.

What the data says about monthly vs annual#

The most useful public dataset we found is ChartMogul's SaaS billing report (published 18 May 2025, based on full-year 2024 benchmarks). The findings that matter for a small, self-funded product:

Source: ChartMogul SaaS Billing Report.

Stripe's own guide puts the trade-off in plainer terms: "Monthly billing can lead to higher churn rates, as customers have no long-term commitment," and "Many SaaS companies, especially those targeting individual professionals or small businesses, prefer monthly billing" (Stripe).

Our read: the retention numbers are partly selection. People who pay for a year up front already trust the product. Annual billing does not make a weak product sticky, but it does stop good customers from drifting away in a quiet month, and it buys you twelve months to earn the renewal.

Worked example: the cash flow difference#

Illustrative example, not real data. A solo founder sells a plan at $20 a month or $200 a year (two months free). In one month, 100 new customers sign up. We compare two extremes: everyone picks monthly, or everyone picks annual. For the monthly case we assume 5% of remaining customers cancel each month, a made-up figure for the sake of the arithmetic.

How the numbers work: with 5% monthly churn, a monthly customer makes about 9.19 payments in their first year on average, so they are worth about $183.86, less than the $200 annual price. Card fees use Stripe's standard US rate, "2.9% + 0.30 USD" (Stripe support).

Two caveats. First, real customers split between the two plans, so your result sits somewhere in between. Second, the annual column hides a cliff: all 100 renewals land in the same month a year later, and that month decides whether the bet paid off.

Ulrik Lehrskov-Schmidt, quoted in ChartMogul's report, puts the main benefit simply: "The real value of annual plans is in upfront collected cash, which dramatically improves CAC payback." For a bootstrapper, that upfront cash is what pays for the next contractor, ad test or six months of runway.

How big should the annual discount be?#

There is no single benchmark figure. ChartMogul's report does not publish a median discount, and only uses "Save 20% when you pay annually" as an example. What it does say:

• "Below $250 ARPA, annual plans receive more discounts to drive long-term commitments."
• "But after $500 ARPA, the gap between discounted annual and monthly subscriptions narrows."

The most common framing is "two months free": charge 10 months of the monthly price for a year, a 16.7% discount. Lemon Squeezy's SaaS tutorial does exactly this, with a $10 monthly variant and a yearly variant at "$100.00 per year" (Lemon Squeezy).

Our read on sizing, using the worked example above:

1. Estimate what a monthly customer pays in year one. With 5% monthly churn it is about 9.2 months of fees. With 10% churn it falls to roughly 7.2 months.
2. Price annual near that number or above it. If customers on monthly would pay you around 9 months on average, an annual plan at 10 months' price is a good deal for you.
3. Go deeper only if churn is high. A 25% or 30% discount can make sense for a cheap consumer-ish tool where most monthly users leave in a few months. For a B2B tool with low churn it mostly gives money away.
4. Round to something people can say. "Two months free" is easier to grasp than "save 16.7%".

For more on choosing the base price itself, see our guide on how to price a SaaS product.

Payment fees: why annual costs less to process#

Fixed per-charge fees punish small monthly charges. On the standard US rates:

Rates from Stripe support, Paddle pricing and Lemon Squeezy pricing. Stripe Billing, the subscription layer, charges a percentage of billing volume on top of card fees; check Stripe Billing pricing for your country. Lemon Squeezy notes that "Some payments may be subject to additional fees".

Our read: on a $20 plan, annual billing saves you about $4.46 a year per customer on Stripe and $7.50 on Paddle or Lemon Squeezy. That is not a reason to offer annual on its own, but it does pay for part of the discount.

When to push annual#

ChartMogul notes that "78% of $15M-30M ARR companies saw upgrades from monthly to annual plans compared to just 9% of <$300k ARR companies." Small companies mostly are not asking. Some ideas for when and how:

• At checkout, show both. Default the toggle to whichever plan you want more of, but let people pick.
• After activation, not before. A user who has hit your key "aha" action and come back is the right person to offer a year. A day-one trial user is not.
• Around month two. ChartMogul found that "Billing upgrades peak in month two". An in-app prompt or a short email around the second renewal fits that window.
• At renewal of a monthly plan that has stuck. Someone who has paid for six months has already shown they will stay; tell them how much the annual plan would have saved.

Avoid annual-only until you have strong retention. ChartMogul's data for under-$1M ARR companies showed growth dipping when annual plans made up most of revenue.

Refunds and switching between plans#

Annual plans raise questions monthly plans never do: what happens if someone pays $200 and leaves in month three, or switches mid-cycle?

What the tools do:

• Stripe: "Negative prorations aren't automatically refunded and positive prorations aren't immediately billed, although you can do both manually" (Stripe prorations). Switching intervals resets the cycle: "switching a customer from a monthly subscription to a yearly subscription moves the billing date to the date of the switch" (Stripe change price).
• Paddle: when changing billing frequency, "Only prorated_immediately, full_immediately, and do_not_bill are allowed" (Paddle upgrades and downgrades).
• Lemon Squeezy: the dashboard offers "Apply changes with proration", "Apply changes with proration and invoice immediately" and "Apply changes without proration" (Lemon Squeezy subscriptions).

The tools handle the maths; the policy is yours. Our read: a 14 or 30 day full refund window on annual plans, then no refunds (or pro-rata at your discretion), is simple and fair. Write it down before your first annual customer asks. Our guide on how to write a SaaS refund policy covers the wording.

How to set up monthly and annual plans#

Stripe#

Create one product with two recurring prices, one monthly and one yearly. Stripe's customer portal docs note: "You can't define multiple Prices with the same product and recurring.interval values", so one monthly and one yearly price per product is the normal pattern (Stripe customer portal). Turn on "Update subscriptions" in the portal so customers can switch themselves.

Paddle#

"You can create as many prices for a product as you want to describe all the ways it's billed." Set each price's billing_cycle interval to month or year (Paddle products and prices). Note that "all items on a subscription must have the same billing period."

Lemon Squeezy#

Create one product with a "Monthly" and a "Yearly" variant. For monthly, the tutorial says to "select “1” and “month” for the “Repeat payment every” field" (Lemon Squeezy tutorial). The maximum billing period is "one year, 12 months, 52 weeks or 365 days", and changing a variant's price "will not change the price of existing subscriptions" (Lemon Squeezy subscriptions).

Accounting note: annual cash is deferred revenue#

Collecting $20,000 in one month does not mean you earned $20,000 that month. Paddle explains that prepayments are recorded "on balance sheet accounts as liabilities (or assets for expenses) until you earn or use them" (Paddle deferred revenue). Its help centre says revenue "should only be recognized on a monthly basis as the service is delivered", using a $100 annual plan spread at "$0.27 [$100 / 366 days]" per day (Paddle revenue recognition).

In the worked example, the $20,000 annual cohort becomes about $1,667 of revenue per month. Your MRR should show the same: divide annual plans by 12. Not tax advice; ask an accountant how this applies where you file.

Showing annual on your pricing page#

• Use a monthly/annual toggle and show the annual plan as a monthly equivalent ("$16.67/mo, billed $200 yearly") so the two are easy to compare.
• Label the saving in the form people grasp: "2 months free".
• Keep the billed total visible. Hiding it until checkout erodes trust and causes refund requests.

More layout patterns are in how to write a SaaS pricing page.

Frequently asked questions#

Should a bootstrapped SaaS offer annual billing?#

Yes, alongside monthly. ChartMogul's billing report found annual plans retain customers better at every price point it measured, and annual prepayment gives a small company cash it can spend now. Keep monthly as the low-commitment entry point, because most early customers want to try before they commit for a year.

How big should an annual discount be?#

Two months free (about 16.7%) is a common, easy-to-explain choice, and it is what Lemon Squeezy uses in its own SaaS tutorial ($10 a month or $100 a year). ChartMogul found that products below $250 ARPA discount annual plans more heavily, while above $500 ARPA the gap narrows. Our read: start at two months free and only go deeper if your monthly churn is high.

Do annual plans reduce churn?#

In ChartMogul's data, yes. For products under $25 ARPA the median customer retention rate was 62% for annual plans and 41% for monthly plans, and for companies above $100 ARPA the gap was around 10 percentage points. Part of that is selection: customers who already like the product are the ones who pick annual.

How do refunds work when an annual customer cancels?#

That is your policy decision, not your billing tool's. Stripe notes that negative prorations are not automatically refunded, and Lemon Squeezy lets you choose whether plan changes are prorated. Decide whether annual customers get a full refund window, a pro-rata refund or no refund after a set period, and publish it in your refund policy.

Is annual prepayment revenue for accounting purposes?#

Not all at once. Paddle explains that deferred revenue sits on the balance sheet as a liability until you earn it, and its revenue recognition help page says annual fees should be recognised monthly as the service is delivered. A $1,200 annual plan is roughly $100 of revenue per month, even though the cash arrived on day one.

Launch with both plans live#

ZeroRaised is a launch directory for products built without institutional VC. Once your monthly and annual plans are live, submit your product for free. For more guides on pricing and growing without investors, join the ZeroRaised newsletter.

Sources#

• ChartMogul: SaaS Billing Report, last checked 8 Nov 2026
• Stripe: Annual vs monthly billing, last checked 8 Nov 2026
• Stripe support: Manually entered card payments (standard US card rate), last checked 8 Nov 2026
• Stripe Billing pricing, last checked 8 Nov 2026
• Stripe docs: Prorations, last checked 8 Nov 2026
• Stripe docs: Change the price of a subscription, last checked 8 Nov 2026
• Stripe docs: Customer portal, last checked 8 Nov 2026
• Paddle pricing, last checked 8 Nov 2026
• Paddle developer docs: Create products and prices, last checked 8 Nov 2026
• Paddle developer docs: Upgrade or downgrade subscriptions, last checked 8 Nov 2026
• Paddle: Deferred revenue, last checked 8 Nov 2026
• Paddle help: Revenue recognition with Paddle, last checked 8 Nov 2026
• Lemon Squeezy pricing, last checked 8 Nov 2026
• Lemon Squeezy docs: Subscriptions, last checked 8 Nov 2026
• Lemon Squeezy guide: Setting up SaaS subscription plans, last checked 8 Nov 2026