Improved Cash Flow
Offering annual discounts can encourage customers to pay upfront for a yearly subscription, providing your SaaS business with an immediate boost in cash flow. This additional revenue can be used to offset customer acquisition costs, fund product development, invest in marketing initiatives, or improve customer support.

Lower Churn Rate
Customers who commit to annual subscriptions are more likely to remain engaged with your SaaS product for a longer period, resulting in a lower churn rate. With a lower churn rate, you can focus on retaining existing customers and maximizing their lifetime value, ultimately improving the overall profitability of your SaaS business.

Attracting Long-Term Customers
Offering annual discounts can help position your SaaS product as a long-term solution for customers, encouraging them to invest in a yearly subscription. Long-term customers are often more loyal, engaged, and are likely to become advocates for your product, recommending it to their network and helping to drive organic growth.

Improve your ACV/CAC Ratios
Securing annual commitments can also help improve your Annual Contract Value and or Average Customer Value (ACV) -- (how much money you're making from this deal), especially as it relates to your Customer Acquisition Cost (CAC). Ideally, you can get a larger contract value without increasing the amount of money it took to convert that customer,  so offering a slight discount in order to improve that ratio can be highly desirable.

Reduced Perceived Value
Offering significant annual discounts may inadvertently affect the perceived value of your SaaS product. Potential customers may question why the discount is so large and wonder if there are issues with the product's quality, reliability, or expected longevity.

Lower Monthly Recurring Revenue (MRR)
Offering annual discounts may limit your ability to adjust pricing in response to changing market dynamics or increased product value. With customers locked into annual contracts, it may take longer to transition your entire user base to a new pricing structure, potentially delaying the realization of increased revenue. Of course, you won't have all your customers on an annual subscription - plenty of your customers will likely still be on a monthly subscription plan, so this should be balanced out.

Limited Flexibility for Price Increases
Offering annual discounts may limit your ability to adjust pricing in response to changing market dynamics or increased product value. With customers locked into annual contracts, it may take longer to transition your entire user base to a new pricing structure, potentially delaying the realization of increased revenue. Of course, you won't have all your customers on an annual subscription - plenty of your customers will likely still be on a monthly subscription plan, so this should be balanced out.

Given these considerations, most SaaS businesses understandably choose to still opt for some type of discount for customers who can commit to multi-year contracts. They simply work to ensure they're also counteracting some of those potential pitfalls.

The optimal discount amount or percentage for a yearly subscription will probably vary depending on your SaaS company, its specific pricing model, target audience, and overall business strategy. In some cases, offering a larger annual discount (e.g., 20%) may improve conversion rates for your SaaS business by enticing customers to commit to a longer-term subscription (yearly contracts). However, offering a significant discount may also inadvertently signal that the SaaS product holds less value.

On the other hand, offering a smaller discount (e.g., 5% or 10%) may still encourage customers to opt for a yearly subscription without affecting the perceived value of your SaaS software. Ultimately, determining the right discount amount for your SaaS startup will require experimentation, customer feedback, and data analysis to assess the impact on conversion rates and customer perceptions.

A/B Testing
As a starting point, you can benchmark a 10-15% discount and see how customers respond. A/B testing may also be a good avenue to zero in on the right price point that encourages customers to commit to the annual plan vs the monthly subscription.

If your SaaS company supports both sales motions -- that is, it has a sales team in addition to a self-signup flow -- you may choose to only present annual contracts and their respective discounts to customers once they get in touch with your sales team where you'll have more control and negotiation ability.

Instead of displaying annual discounts directly on your pricing page, using a "Contact Sales" approach is especially recommended if you have customers who often are interested in contracts longer than 1 year. This alternative method provides a personalized touch and can help secure annual commitments by tailoring the offering to each customer's needs. In some cases, you may even be able to secure even larger commitments -- for example, 2 or 3 years instead of 1 -- simply by creating a relationship with the customer and negotiating a deal that both sides feel good about.

Here, we'll give you the high level pros and cons to using the "Contact Sales" approach for annual discounts - but we also wrote all about this in depth in a recent post:

Go deeper: Why to put a "Contact" enterprise button on your pricing page

Personalized Pricing
By engaging with customers directly, your sales team can offer customized pricing plans that accommodate specific needs and requirements. This can result in higher conversion rates, as customers feel they are receiving a tailored solution rather than a one-size-fits-all offering.

Provide Additional Value
By engaging with customers directly, your sales team can offer customized pricing plans that accommodate specific neeWhen customers reach out to your sales team, it creates an opportunity for your business to further demonstrate the value of your SaaS product. Your sales team can highlight unique features, discuss integrations, or showcase case studies that resonate with the customer, increasing the likelihood of securing an annual commitment.

Gain Customer Insights
Engaging with customers directly allows your sales team to gather valuable insights about their needs, preferences, and pain points. This information can be used to inform product development, marketing initiatives, and overall business strategy, ultimately leading to an improved offering and increased customer satisfaction.

Better Control over Discounts
The "Contact Sales" approach enables your sales team to have greater control over the discounts offered, allowing them to adjust pricing based on factors such as customer segment, deal size, or market conditions. This can help your SaaS business maintain a balance between attracting customers with discounts and preserving the perceived value of your product.

Higher Friction
By requiring customers to contact your sales team for annual discounts, you may introduce additional friction into the sales process. Some customers may prefer a straightforward pricing structure and may not be willing to engage in sales conversations.

Potential Inconsistency
When your sales team individually negotiates pricing with customers, there is a risk of inconsistent discounts being offered, which could impact your SaaS business's perceived fairness and pricing structure.

Need dynamic pricing pages with yearly discounts? Wingback can help.

Pricing Pages / Self Serve Signup Flows
One common way to present yearly subscription discounts for SaaS products is by using a slider on the pricing page. This allows users to easily switch between monthly and yearly pricing options, providing them with a clear comparison of potential savings.

Alternatively, some SaaS companies choose to display yearly pricing as the default option, requiring users to "switch" to monthly plans to view alternative pricing. This approach aims to improve conversion rates by emphasizing the value of yearly subscriptions.

Read more: How to improve your self-serve signup flow

Offering yearly subscription discounts can be an extremely lucrative approach for B2B SaaS companies to help garner more upfront commitment and be able to better project their revenue farther into the future. It can also improve things like customer retention and give a nice boost to your other financial and performance metrics, too. It's understandable why it's a core part of many SaaS pricing strategies.

But before slapping discounts all over your pricing page, it's worth considering what the right amount is to offer to your customers, and if this might differ depending on whether they're self-signup customers or high-touch. You should also be mindful of the impact on conversions and customer perceptions of offering SaaS discounts, and the presentation on the pricing page. By experimenting with different discount levels, monitoring the results, and listening to customer feedback, you can identify the most effective approach for your SaaS business. The goal should be a pricing model that resonates with your target audience while maintaining the perceived value of your SaaS software in the long run.