It actually leaves you with more money, due to churn being reduced to 0 for that customer for a year. Assuming a somewhat idealized 5% churn, you'll get numbers

It actually leaves you with more money, due to churn being reduced to 0 for that customer for a year. Assuming a somewhat idealized 5% churn, you'll get numbers floating in this ballpark: No Yearly Discount Offer: Month 1: $2,000 Month 2: $1,900 Month 3: $1,805 Month 4: $1,714 Month 5: $1,629 Month 6: $1,547 Month 7: $1,470 Month 8: $1,396 Month 9: $1,326 Month 10: $1,260 Month 11: $1,197 Month 12: $1,137 Total: $18,385 Yearly Discount Offer Month 1: $1,800 Month 2: $1,710 Month 3: $1,624 Month 4: $1,543 Month 5: $1,466 Month 6: $1,392 Month 7: $1,323 Month 8: $1,257 Month 9: $1,194 Month 10: $1,134 Month 11: $1,077 Month 12: $1,023 Total: $18,747 This works for churn = 2% and churn = 3% as well, but the difference is smaller (still favors the yearly discount, though). If you have a churn of 1%, then the yearly discount costs you money, but you still get the cash immediately, which is so useful I'd do still do it. EDIT: It should be noted that the churn rate you care about here is the churn rate of people who would be willing to make a year-long precommit (more loyal customers in general), but I don't see them as being 1% churn level, as 'patio11 alluded to above.