Annual plans don't change how much a customer is worth over a year so much as when you get the money. For a growing company, that timing can matter more than the discount.
Cash arrives up front, revenue doesn't
A customer paying $192 for a year gives you $192 in cash on day one. In your accounts, that is usually recognized as $16 of revenue per month, with the rest held as deferred revenue. MRR counts it as $16 too.
The effect on runway
Cash collected up front extends runway without adding revenue. A company that moves a quarter of new customers onto annual plans can collect months of their revenue early, which funds hiring or marketing without borrowing.
How much discount you can afford
The cost of the annual plan is the discount, offset by customers who would have churned on monthly billing anyway.
Annual price
$20.00 × 12 × (1 − 20%)equals$192.00
Monthly plan, year 1
$20.00 × (1 − (1 − 1%)¹²) ÷ 1%equals$227.23
Break-even discount
1 − $227.23 ÷ $240.00equals5.3%
With 1% churn, monthly customers mostly stay, so the break-even discount is only 5.3%. A 20% discount costs about $35 per customer in the first year, paid for by cash up front and lower renewal churn. Businesses with higher churn can afford larger discounts.