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How do I handle discounts in Zuora?

Zuora

How do I handle discounts in Zuora?

Overview

Discounts are a great way to attract new customers with the possibility of converting them to long-term subscribers. For instance, a customer signs up for a one-year subscription, and you give them a discount by making the first month free. After that, you charge them at the regular rate. With Zuora's application, you can achieve this goal using the product catalog's discount charge models.

Discount charge models are notable for the following reasons:

  • What charges the discount applies to can be configured.
  • Flat amount discount uses an up-to-amount calculation, providing a great way to limit the discount while at the same time preventing unwanted credits.
  • The discount can have a separate accounting code and display on the invoice as a particular line item.

Zuora's product catalog provides two discount charge models Discount-Fixed Amount and Discount-Percentage - which you can use to offer your customers a variety of discount options, such as:

  • Up to $100 off the first month of service.
  • 50% off on all services for the first month of service.
  • Offer $100 off on upgrade from monthly to annual rate plan.

Using the fixed amount model 

A customer signs up for a monthly subscription with a $500 regular charge and gets a $100 discount for the first month. Here are the steps:

1. Create a discount charge 

  • Create another rate plan charge under the same product rate plan as the regular charge 
  • Set the new rate plan charge's Charge Model to Discount-Fixed Amount
  • Enter the discount amount (100) in the Discount Amount field
  • Set End Date to Fixed Period after the Charge is triggered1Months
  • Select All charges in the rate plan from the Apply Discount To list

As a result, your product should have one rate plan with two recurring charges:

Fixed amount discount - set up discount charge.png

2. Add the rate plan with the discount charge to a subscription 

When you add the product to your subscription, it will have one rate plan with two rate plan charges, as shown below.

Fixed amount discount-subscription.png

With this setup, the invoice for the first billing period will include a $100 discount to this rate plan and this rate plan only.

How proration impacts discount

If your tenant has proration enabled, discount charges will be prorated accordingly with all your subscription charges. For example, if the first invoice bills for a prorated period of 15 days, the monthly charge is prorated at $250, the discount amount is prorated at $50. As to the remaining $50 discount amount, how it will be handled depends on the alignment of the bill cycle days.

Scenario 1

November 3rd – 17th November 18th – December 17th

Regular charge – prorated: $250

Discount – prorated: $50

Regular charge - full period: $500

Discount – prorated: $50 (The rating engine finds that November 18th falls in the fixed discount amount's November 18th- December 17th billing cycle, and the discount amount still has $50 can be applied.)

You can refer to the diagram below for an illustration.

fixed discount - scenario 1.png

Scenario 2

November 3rd – December 2nd December 3rd – January 3rd

Regular charge - full period: $500

Discount – prorated: $50 (Because discount charge's BCD is 18th of the month, the discount is prorated between November 3rd – November 17th as a partial period)

Regular charge - full period: $500

Discount: 0 (The rating engine cannot find any discount charge with a billing cycle aligned with the regular charge in this period; thus the remaining $50 discount amount is "wasted".)

You can refer to the diagram below for an illustration.

Fixed discount - scenario 2.png

Using the percentage model

A customer purchases two different products, and you want to give them 50% off for both of these products for their first billing period. Here are the steps:

1. Create a discount charge 

  • Create a new product
  • Add a rate plan
  • Add a recurring charge
  • Set the Charge Model field to Discount-Percentage
  • Enter the percentage (50) in the Discount Percentage field
  • Set End Date to Fixed Period after the Charge is triggered1Months
  • Select All charges in the subscription from the Apply Discount To list

As a result, your product should have one rate plan with one discount charge, as shown below.

Discount percentage - charge.png

2. Add the rate plan with the discount charge to a subscription 

When you add two rate plans to your subscription, it should have two different rate plans, as shown below.

Discount percentage - subscription.png

With this setup, the invoice for the first billing period will add a 50% discount to the Monthly fee charge in this subscription. If the subscription contains more than one non-discount charges, the percentage discount will apply to all those charges.

More considerations 

See Discount Charge Models for information such as:

  • Specify scope for discount charges
  • How Zuora's rating and billing engine processes charges, including multiple discount charges.
  • How discounts work with prorated credits

Negative charges and discounts 

If your subscription has negative charges and discounts which are supposed to apply to these charges, Zuora does not discount negative amounts. By design, discounts will apply to positive charge amounts only. Sometimes, negative charges are used to provide customers credit, and discounts have been designed not to give customers even more credit.