<story><title>Annual pre-pay and marketing budgets</title><url>https://longform.asmartbear.com/annual-prepay/</url></story><parent_chain></parent_chain><comment><author>ttul</author><text>This works until it doesn’t. I have seen many startups raise a ton of cash from pre-payments, burn it on marketing and R&amp;amp;D, and then find that the cashflow isn’t forthcoming as expected. I force my companies to clearly show prepaid revenue on their balance sheet and treat it as debt. Any discounts provided to win the pre-payment also have to be recorded as a financing cost - not a “sales discount” or buried in lower ARR. It might be borrowed from your customers, but it’s still debt and you have to “service” it by providing products and services that do have a marginal cost. Showing the financing cost achieves two things:&lt;p&gt;1. It allows you to run a higher EBITDA metrics because financing costs are backed out of EBITDA.&lt;p&gt;2. You record the non-discounted revenue for the customer, which is a truer representation of where the business could be one day when it’s no longer playing the pre-payment game to generate cashflow.&lt;p&gt;Generally speaking, it’s a good idea to generate cash from pre-payments, but don’t treat it as free no-risk money. You can get over your skis quickly, run out of cash, and then be in a world of hurt when you’re unable to service those customers.</text></comment>
<story><title>Annual pre-pay and marketing budgets</title><url>https://longform.asmartbear.com/annual-prepay/</url></story><parent_chain></parent_chain><comment><author>ChrisMarshallNY</author><text>I generally prefer to prepay a year. It tends to knock a bit off the price, and is less annoying, as I&amp;#x27;m not constantly getting notices of withdrawal. Many companies will actually refund the unused portion, if you cancel early.&lt;p&gt;However, &lt;i&gt;lifetime&lt;/i&gt; subscriptions seem to be almost worthless, as I have yet to encounter a company that doesn&amp;#x27;t redefine &amp;quot;lifetime,&amp;quot; to mean the lifetime of the subscription, which ends, whenever they want.</text></comment>