Annual vs Monthly SaaS Billing: The Real Math

The annual discount looks attractive. But is it always the right choice?

The Typical Discount

Most SaaS offers 15-20% off for annual billing. Sometimes up to 40% for startups or special programs. This is real money—on a $500/month tool, annual billing saves $900-1,200/year.

When Annual Makes Sense

You've used the product for 3+ months and it's critical. Your cash flow can handle the upfront payment. The company is stable (won't disappear mid-contract).

When Monthly Is Better

New tools you haven't validated. Rapidly changing needs. Cash-constrained early stage. Vendors with unclear longevity.

The Hidden Calculation

Annual billing ties up capital. If you have productive uses for that cash (generating >20% return), monthly might be financially smarter even with the discount.