annual pricing isn't a discount strategy. it's a churn strategy.
most founders treat annual pricing as a way to give customers a discount in exchange for upfront cash. that's the wrong frame.
annual pricing exists because monthly churn compounds. a customer who churns in month 2 of a monthly plan churns. a customer who churns in month 2 of an annual plan keeps paying. that's not a discount you're giving them. that's lock-in you're buying.
the right way to price annual: figure out your monthly churn rate. multiply by 12. that's your effective ARR retention loss on a monthly plan. price the annual discount so the math still works at half that loss (because annual customers don't churn mid-cycle, only at renewal).
most SaaS companies set annual at "monthly minus 17%" because that's what everyone does. that number has no relationship to the actual cost of monthly churn.
if your monthly churn is under 2%, annual probably needs less discount than you're offering. if your monthly churn is above 5%, the annual discount you "give" is cheaper than the churn you avoid by even 3-4x.
run the math. most teams don't.