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.
Measured as
Measure Annual Prepay on the same customer segment, time window, and revenue basis each time you review it.
Misused when
- Treating prepaid cash as recurring revenue in performance dashboards.
- Offering deep discounts that attract low-retention customers.
Operator takeaway
- 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.
- Keep Annual Prepay consistent by cohort, segment, and period before you use it as a decision signal in planning or reporting.
- Interpret the metric alongside retention, margin, or payback so one ratio does not hide the real operating trade-off.
Next decision
- Quantify the impact with Cash Runway Calculator if you need to turn the definition into an operating assumption.
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
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.