What annual prepayment actually does
Annual payment brings cash forward and moves the renewal decision to the end of the contract. Planning should account for the number of contracts due to renew in each period.
What we think about it
Annual prepayment concentrates renewal decisions
Annual prepayment can suit a subscription product. It also affects when customers decide to renew.
Annual prepayment can suit a subscription product. It also affects when customers decide to renew.
Renewals after the first year
Contracts sold in one quarter may renew in the same quarter the following year. As an illustration, a 30 per cent non-renewal rate would remove 30 per cent of that cohort's revenue at renewal. This is a scenario, not a benchmark for every subscription business.
The effect on sales capacity
A concentration of renewals can require the sales team to replace lost revenue while meeting its new-sales target. The risk depends on contract timing, renewal rates and available capacity.
What to do
Consider spreading renewal dates, offering a six-month cycle to some customers, or shifting selected contracts by a month or two. Compare the effect on first-year cash flow with the expected renewal workload.
This article draws on a specific engagement. Client names and figures are omitted; the discussion focuses on lessons that may apply elsewhere.
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