Definition
Annual prepay is when customers pay upfront for a year of service. It improves cash flow but changes billing and deferred revenue dynamics.
Example
A customer prepays $12,000 for a 12-month plan, providing cash today while revenue is recognized monthly.
How to use it
- Annual prepay can extend runway, but discounting too much can harm LTV:CAC.
- Measure retention impact; some segments churn at renewal if value is weak.
- Separate prepaid ARR from monthly billing to keep cohorts comparable.
Common mistakes
- Treating prepaid cash as recurring revenue in performance dashboards.
- Offering deep discounts that attract low-retention customers.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "Annual Prepay" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Cash Runway Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Cash conversion cycle: turn working capital into runway) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Cash Runway Calculator: Estimate runway from cash balance, revenue, gross margin, and operating expenses (optionally with revenue growth).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.