> For the complete documentation index, see [llms.txt](https://developer.paddle.com/llms.txt).

# Term Optimization

Increase lifetime value and reduce churn by intelligently identifying customers on a monthly plan who are likely to upgrade to longer term. Retain automatically reaches out by email, in-app, and during payment recovery.

---

Customers on an annual plan have a lifetime value (LTV) that's two to four times higher than customers paying monthly, and they're less likely to churn. Term Optimization, part of [Paddle Retain](https://developer.paddle.com/concepts/retain/overview.md), analyzes customer engagement and other subscription metrics to proactively upgrade customers to annual plans.

Term Optimization automatically suggests plan upgrades to the right customers at the right time — no intervention required on your behalf. You can [integrate with Paddle Billing](https://developer.paddle.com/build/retain/set-up-retain-profitwell.md) in a couple of clicks, with no additional scripts required.

{% card-group cols=3 %}

{% card title="higher lifetime value on annual" stat="2-4x" statColor="blue" %}

Customers upgraded to annual plans are two to four times more valuable than monthly.

<!-- https://www.paddle.com/retain/term-optimization -->
{% /card %}

{% card title="strategies to choose from" stat="3" statColor="green" %}

You control the upgrade strategy based on your appetite for churn.

<!-- https://www.paddle.com/retain/term-optimization -->
{% /card %}

{% card title="factors used for identification" stat="14" statColor="purple" %}

Use machine learning to identify customers ready to upgrade using 14 datapoints

{% /card %}

{% card title="Increase lifetime value" %}

Offer 1-click upgrade experiences to customers who are likely to accept.

{% /card %}
{% card title="Identify the right customers" %}

Strategically identify customers based on what you want to achieve.

{% /card %}
{% card title="Multichannel notifications" %}

Send whitelabeled upgrade offers by email and to users logged into your app.

{% /card %}

{% /card-group %}

## How it works

Customers on annual plans have a higher lifetime value and are much less likely to churn, but most customers aren't ready for a long term commitment when they first sign up.

Term Optimization, part of Paddle Retain, uses machine learning to analyze customer engagement and thirteen other data points to identify which customers are primed to upgrade to a longer-term plan. Once customers are identified, Retain automatically prompts customers to upgrade.

### Term Optimization strategy

You're in control of how Retain identifies customers who are likely to upgrade. You can choose from three strategies:

{% feature-comparison cols=3 level=4 %}

{% feature-column title="Less churn" %}

{% feature-item title="Designed to:" %}
Target less engaged customers who are more likely to churn—lock them in on a longer plan.
{% /feature-item %}

{% feature-item title="Works well for:" %}
Turning potential churn risks into long term paying customers.
{% /feature-item %}

{% feature-item title="Keep in mind:" %}
Your churn rate might increase if dormant customers subsequently cancel their subscription.
{% /feature-item %}

{% /feature-column %}

{% feature-column title="Sweet spot" %}

{% feature-item title="Designed for:" %}
Identify a balance—reach both likely churners and highly engaged customers.
{% /feature-item %}

{% feature-item title="Works well for:" %}
Identifying a good balance of customers who are at risk of churn and also engaged.
{% /feature-item %}

{% feature-item title="Keep in mind:" %}
You may be leaving cash on the table or missing a chance to lock in customers at risk of churning.
{% /feature-item %}

{% /feature-column %}

{% feature-column title="More cash" %}

{% feature-item title="Designed to:" %}
Focus on highly engaged power users who are most willing to upgrade and pay in advance.
{% /feature-item %}

{% feature-item title="Works well for:" %}
Getting an upfront boost in revenue from annual payments.
{% /feature-item %}

{% feature-item title="Keep in mind:" %}
Your monthly recurring revenue (MRR) may dip as customers move to longer-term plans that cost less.
{% /feature-item %}

{% /feature-column %}

{% /feature-comparison %}

### Automated actions

If you use Paddle Billing, Term Optimization automatically takes actions on the related subscription in Paddle Billing for you. There's no need to build logic to handle this yourself.

{% collapsible title="What actions does Retain take in Paddle Billing?" %}

| **User action**            | **Action in Paddle Billing**                                                                                                                                                                                          |
|----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Upgrade subscription       | Monthly plan price replaced with corresponding annual plan price on customer subscription. Change applied using `prorated_immediately`, meaning that proration is calculated and the customer is billed right away.     |

{% /collapsible %}

## Customer experience

You can choose how Retain reaches out to customers who are identified as likely to upgrade to a plan with a longer term length:

{% journey %}

{% journey-step title="Retain emails eligible customers" %}

Term Optimization uses machine learning to identify customers who are primed to upgrade, then sends them a short, personal plaintext email to suggest switching to a plan with a longer term length. It includes a prominent link to a one-click upgrade form.

If the customer doesn't take any action, Term Optimization sends a follow-up email a few days later.

{% /journey-step %}

{% journey-step title="Customers get in-app notifications" %}

Term Optimization notifies customers that they're eligible to upgrade when they're using your web app.

In-app notifications reach customers when they're using your product, maximizing the likelihood of uptake.

{% /journey-step %}

{% journey-step title="Retain offers upgrades during payment recovery" %}

Retain can prompt customers to upgrade in [payment recovery emails and on the payment recovery form](https://developer.paddle.com/build/retain/configure-payment-recovery-dunning.md).

As customers are already engaged with billing during payment recovery, this approach feels natural and non-intrusive. Customers are more receptive to cost-saving opportunities at this point.

{% /journey-step %}

{% /journey %}