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Updated November 2026 in Grow

Monthly vs yearly: pricing a small subscription with fees in mind

What a yearly plan does to your cash, your card fees and your cancellations, with the math worked out for a $20 product, the break-even month, refund policies and how to show it on your pricing page.

BThe Builder Handbook team12 min read. Every price checked on the provider's own page.
Twelve small coins becoming one large coin
In this guide
  1. The math for a $20 product
  2. The break-even month
  3. What happens to fees
  4. Cash up front
  5. Fewer moments to cancel
  6. How big a discount?
  7. When to add it
  8. Refund policy for yearly plans
  9. How to show it on your pricing page
  10. Questions

Offering a yearly plan is one of the few pricing changes that can help you, your customers and your bill at the same time. It's also easy to do badly: too big a discount, too early, or with a refund policy nobody thought through. This guide works through the numbers and the decisions.

In brief

  • "Two months free" (pay for 10, get 12) is the most common offer and the easiest to understand.
  • A yearly charge pays the fixed card fee once instead of twelve times: about $4.74 less in fees per customer per year at $20.
  • The bigger wins are cash up front and fewer chances to cancel. The cost is a smaller total per customer, if they'd have stayed all year anyway.

The math for a $20 product

Using a direct card processor at 2.9% + 30¢ per charge, plus 0.7% for subscription billing[1]:

Monthly at $20Yearly at $200
Customer pays per year$240$200
Number of charges121
Card and billing fees$12.24$7.50
You keep$227.76$192.50
Paid whenMonth by monthAll on day one

On paper the monthly customer is worth more. But only if they stay all twelve months.

The break-even month

A monthly customer at $20 has to stay ten months before they've paid you more than a yearly customer paid on day one.

Monthly customer staysThey payCompared with yearly ($200)
3 months$60Yearly is $140 better
6 months$120Yearly is $80 better
10 months$200Even
12 months$240Monthly is $40 better

So the question is: how long do your monthly customers stay? Early on you won't know. That's one reason not to rush the decision, and one reason yearly plans are popular: they turn a guess into a known number.

What happens to fees

The percentage part of a card fee is the same either way. The fixed part isn't: twelve monthly charges pay 30¢ twelve times, one yearly charge pays it once.

Fixed fees, monthly (12 × $0.30)$3.60
Fixed fees, yearly (1 × $0.30)$0.30
Percentage fees (3.6% of $240 vs $200)$8.64 vs $7.20
Saved per yearly customer, per year~$4.74

With a merchant of record charging 5% + 50¢ per transaction[3], the gap is bigger because the fixed part is bigger: about $18 a year in monthly fees versus $10.50 on one yearly charge.

Across 30 yearly customers, a direct processor saves about $140 a year. Not life-changing, but money you keep for doing nothing.

Cash up front

Yearly payments arrive all at once
Yearly payments arrive all at once

For a small product, this is the main reason to offer yearly. Thirty yearly customers at $200 put $6,000 in your account at once instead of $600 a month. That can fund a year of tools, a designer for a week, or simply the confidence to keep going through a slow quarter.

Treat it as owed, not earned: keep yearly payments separate until the months they cover pass. If a customer asks for a refund in month three, you'll need the money, and fees on the original charge aren't returned when you refund[2].

Fewer moments to cancel

Every monthly charge is a decision point. A receipt arrives, the customer remembers you exist, and some of them cancel, even ones who were getting value. A yearly customer meets that moment once a year, and has usually already decided your product is part of how they work.

The flip side: when a yearly renewal comes, it's a bigger charge to notice. Always send a reminder a week or two before, with the date and amount. It prevents surprise disputes, which cost $15 each on top of the lost sale[1].

How big a discount?

OfferDiscountYearly price at $20/monthPer-month equivalent
"One month free"8.3%$220$18.33
"Two months free"16.7%$200$16.67
"Save 20%"20%$192$16.00
"Save 25%"25%$180$15.00

"Two months free" is popular for a reason: it's easy to understand, the saving is meaningful, and the yearly price is a round number. Discounts above 20% start to signal that monthly is overpriced.

When to add it

Wait when

  • You're still changing what the product does every week
  • You have fewer than about 20 paying customers
  • You aren't sure you'll keep running it for a year

The easiest first batch: email existing monthly customers offering two months free for switching. The ones who say yes are telling you the product has become part of their routine.

Refund policy for yearly plans

Decide this before the first yearly sale, and write it next to the price. Common, fair options:

  • Full refund within 14 or 30 days, no questions, then no refunds.
  • Pro-rated refund for unused months, minus the discount they received.
  • No refunds, but cancel any time and keep access until the year ends.

Whichever you choose, say it in one sentence near the button. A clear policy prevents most disputes.

How to show it on your pricing page

  1. Show the monthly price first, with a toggle to yearly.
  2. Show the yearly price as a per-month equivalent ($16.67/month) and the total billed ($200/year).
  3. Name the saving plainly: "two months free".
  4. State what happens at renewal and how refunds work, in one sentence.

Questions

Should yearly be the default on the pricing page?

For business customers, often yes. For individuals trying something new, monthly as default feels lower-risk and may convert better. Test both if you have the traffic.

Can I offer only yearly?

You can, but it raises the barrier to trying your product. Most small products do better with monthly as the entry point and yearly as the reward for commitment.

What about lifetime deals?

They bring cash now and costs forever. Every lifetime customer still uses email, storage and support every year. Be careful unless your costs per customer are close to zero.

Look at your paying customers. If 20 or more have stayed three months, email them a two-months-free offer this week. For the full fee picture, see What card fees really cost.

What builders are saying

Real public threads on this topic, so you can hear it from people who hit these limits themselves. Summaries are ours; follow the link for the full discussion.

B
The Builder Handbook teamWe write guides for people building small software alone or in pairs. Every price is checked against the provider's own page. More about us

Sources

Checked 14 November 2026. Numbers in brackets in the text point to these sources.

  1. Stripe pricing
  2. Stripe: understanding fees for refunded payments
  3. Paddle pricing
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