The annual plan is two months free. The cash it buys costs 40%.

Prepayment discounts are usually priced by intuition rather than arithmetic, and the arithmetic is rarely as flattering as the cash flow chart suggests.

By Steve 5 min read
Abstract bridge artwork for The annual plan is two months free. The cash it buys costs 40%.

Almost every subscription or retainer business eventually offers the same thing: pay for the year up front, get two months free. It looks like a clean trade. Cash arrives earlier, collections get simpler, the customer feels rewarded. The discount is usually set by looking at what competitors do, not by working out what the business is buying and what it is paying for it. When the arithmetic is done, the price is often startling, and in some businesses, entirely justified. The interesting question is not whether prepayment discounts are good…

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Important: General information only. Rialto Bridge articles describe patterns and considerations that may apply to a business; they are not financial, legal, tax or accounting advice, and they take no account of your particular circumstances. Consider your own situation and seek advice from a qualified professional before acting.

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