Research · Retention and loyalty
Do annual contracts keep software customers? What the retention data shows
In short
Annual and multi-year contracts do retain software customers a little better than month to month plans, but the gap in the largest private survey is small: 90% median gross revenue retention for annual contracts against 89% for monthly, in the survey by US based SaaS Capital. Contract length moves the moment customers leave more than whether they leave. Churn clusters straight after the first payment and at the first renewal, which makes onboarding the real retention lever.
Who this is for: Customer success leads, renewal managers, finance and revenue leaders, and founders at Australian software and subscription companies weighing monthly against annual plans.
The question teams keep asking
When churn rises, one of the first fixes put on the table is to push customers onto annual plans. The logic is simple: a customer who has paid for twelve months cannot leave for twelve months. Finance likes the cash up front, and customer success likes the breathing room.
The question is whether a longer contract actually keeps customers, or just delays the moment they leave. We looked at what published data can and cannot tell us.
What the largest private survey shows
SaaS Capital runs an annual survey of private B2B software companies. Its 2025 retention brief, its 14th survey, drew more than 1,000 private B2B software companies. Across the whole sample, median net revenue retention was 101% and median gross revenue retention was 91%.
By contract length, the brief reports that longer contracts have "slightly better retention than the overall medians":
- Multi-year contracts: 103% median net revenue retention, 94% median gross revenue retention.
- Annual contracts: 101% median net, 90% median gross.
- Month to month contracts: 100% median net, 89% median gross.
Price point matters more than contract length
The same brief says annual contract value is "the best starting point" for retention benchmarking, ahead of company age, revenue or industry. Companies with annual contract values above US$250,000 showed 95% median gross retention, while those below that sat around 91%. Higher priced products tend to come with longer sales cycles, proper implementation and dedicated account management, which the authors say make a product stickier.
That points to something worth noticing. The retention gain often credited to long contracts may be partly a gain from the way those customers are onboarded and supported. Larger customers sign longer contracts, and they also get more help getting started.
An earlier SaaS Capital brief on contract length, drawing on its survey of over 400 companies, went further. It found month to month contracting "more compelling as a potential driver of revenue growth" than any downside it has on churn. A lower barrier to signing can bring in more customers than it loses.
When customers actually leave
Buffer, the social media scheduling company, published an analysis of about 161,000 of its own subscriptions created since 2015, using its Stripe billing records. It is one company and the analysis dates from 2018, but it is unusually open about timing.
For monthly plans, the most common point of cancellation was right after the first billing period, around 30 to 40 days in. About 39% of churned monthly subscriptions cancelled within 90 days.
For annual plans, the pattern moved rather than disappeared. Only about 5% of annual subscriptions churned within the first 60 days, but about 60% of churned annual subscriptions cancelled between days 360 and 390, at the first renewal. The analysis concludes that the most common time to churn is after the first successful charge, and that the likelihood of churn drops with each billing period a customer stays.
In other words, an annual plan does not remove the early decision. It postpones it to the renewal date, when the customer looks back over a year of use and asks whether it was worth it.
What the data does not show
Be careful with the large gaps often quoted online. One widely shared comparison from Baremetrics, a subscription analytics company, states that annual plans retain about 92% of customers after 12 months against 68% for monthly plans. The article does not name the data source, sample or period behind those figures, so we would not build a plan on them.
There is also a selection problem. Customers who choose an annual plan are often already more committed than those who choose monthly. None of the published data we found separates the effect of the contract from the effect of who chooses it. Customer revenue retention is also not the same as customer count retention, and most surveys report the former.
Finally, none of these sources is Australian. They come from US based companies, and Australian teams should treat them as a guide, not a benchmark.
What this means for customer success teams
Annual plans are a sensible commercial choice, but they are not a retention strategy on their own. If the first months do not deliver value, a monthly customer leaves at day 35 and an annual customer leaves at day 365. Either way the cause sits in onboarding.
These are the questions we would put to a team weighing a shift to annual plans:
- Where in the first 90 days do customers reach their first real result, and how many never do?
- For annual customers, what happens between month 2 and month 10? Is anyone checking usage?
- Who owns the first renewal conversation, and how early does it start?
- Do you compare retention by contract length and by onboarding experience, or only by plan?
- Is the annual discount buying commitment, or just delaying the same churn?
Where to start
The first 90 days and the first renewal are the two moments this data keeps pointing to. They are the journeys we are focused on this month for software and subscription teams. More at breme.com.au/customer-success/.
Sources
- 2025 B2B SaaS Retention Benchmarks (Research Brief 32), SaaS Capital
- Contract length and its impact on growth and retention, SaaS Capital
- When users churn, Buffer
- Annual vs monthly pricing: which gets better retention?, Baremetrics