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Knowledge Center > Subscription Management > Product Catalog > Charge Models > Discount Charge Models

Discount Charge Models

Zuora's Product Catalog contains two discount charge models that provide you the ability to handle discounts and promotions, as well as automatically control the duration of time the discount should be applied.

Using the Discount Charge Models

For example, you can discount a customer who signs up for a one year subscription by giving them one month free. After the first month, the discount will no longer be applied. Discount charges behave just like one-time or recurring charges: they can be set to trigger on a specific date (for example, contract effective or service activation), and the discount charge can be set to apply across one or more billing periods. In addition, if your company uses proration, discount charges will be prorated accordingly with all your subscription charges.

There is a limitation of 100 years maximum between the EffectiveStartDate and TermEndDate of termed subscriptions when using DiscountMetrics.

Discount Charge Model Types

You can use the following charge models to apply discounts to your charges:

  • Discount-Fixed Amount: Allows you to provide a discount that is a fixed amount. For example, you have a promotion that gives the customer a $100 discount if they sign up in the month of January. The $100 discount is a one time and fixed amount discount.
  • Discount-Percentage: Allows you to apply a discount that is a percentage of the charge amount. For example, you can provide a VIP customer with a 15% discount off all subscription charges for the initial 6 months of service.

For further control, your discounts can be applied at the rate plan level, subscription level, or account level:

  • Rate Plan Level Discount: Apply a discount to a specific rate plan, and choose the type of charges within in that rate plan that should be discounted (for example, one time, recurring, and/or usage charge if all three types of charges are present in the rate plan). At the rate plan level, the discount charge is bundled with other charges within the rate plan and the discount is applied to the charges for the rate plan only.
  • Subscription Level Discount: Apply a discount to a specific subscription, and all charges contained within the same subscription, for a duration of time. For example, you have one promotion that provides the first 5 months discounted in a 12-month subscription, or you have another promotion where you provide a free 1-month trial with an annual subscription.
  • Account Level Discount: Apply a discount to all the regular charges contained within the account (across all subscriptions). For example, you can provide a VIP customer with a 15% discount off all purchases.

Zuora also tracks the fixed amount discount balance for every recurring billing period. This allows you to take advantage of available discounts, even in past periods even when the billing operation has advanced to the current billing period.

How Zuora Applies Discounts

The methods that Zuora uses to apply discounts to invoices depends on the type of discount.

Percentage Discounts

If you are using a percentage discount, for every charge, Zuora applies a specified percent as a discount.

For example, suppose a customer has a charge for $100 with a 10% discount, the customer is charged for $90 ($100 minus a $10 discount). If charge is later updated and lowered by half, the customer is charged for $45 based on the following calculation:

$50 for half of the original total charge minus $5 for half of the original 10% discount

Percentage Discounts on Termed Subscriptions

When you apply a discount to a termed subscription, the discount applies only to the current term unless the subscription is renewed prior to generating the invoice. If a discount is on a subscription with a partial term, the discount will also be prorated.

For example, you have a subscription with a recurring charge of $100 per month. It's a termed subscription that expires on 15 September, and billing is monthly. You apply a $50 discount to the subscription in September. Because you have configured Zuora to bill recurring charges on subscriptions past the end of the term in anticipation of subscription renewal, the September invoice includes a prorated discount for the 16th through the 30th in anticipation of renewal. The amount of the discount is now $25. The discount is prorated because the discount is not applied to the portion of the subscription that has not yet been renewed. The "lost" $25 of the discount will not be applied to any future charges. The recurring charge is not prorated, and is applied to the full month of September in anticipation of the renewal.

You can choose to change the default behavior of percentage discounts in Zuora. The following choices are available in the Default Subscription Settings:

  • No Change
  • Percentage Increase
  • Use latest Product Catalog Pricing

Processing Discount Charges

Zuora's rating and billing engine (RBE) will process subscription charges in the following order: Charges > Discount > Prepayment > Tax > Invoice.

If more than one discount can be applied to a subscription charge, RBE follows the order below to decide which discount is used:

  1. Order by discount charge model types:

    Discount-Percentage > Discount-Fixed Amount

  2. If the discounts have the same model type, for example, all the discounts have the Discount-Percentage or Discount-Fixed Amount type, order them by discount levels:

    Rate Plan Level > Subscription Level > Account Level

  3. If the discounts have the same model type and discount level, for example, all the discounts have the Discount-Percentage type and can be applied to the Rate Plan Level, order them by discount charge number:

    The smallest charge number is applied to the subscription charge.

RBE processes the rating of regular charges first, then it applies discounts and any prepayments, before calculating tax, and generating the invoice. Zuora does not discount negative amounts. By design, discounts only apply to positive charge amounts. A canceled invoice will reverse the discount applied and return the amount to the discount balance.

If a customer has multiple percentage discounts that can be applied, the discount will be compounded. 

You cannot create multiple discounts in a single rate plan. 

 

Discount Charge Example

The following example demonstrates how multiple percentage discounts are applied.

Customer B has a $1000 recurring subscription charge with three discounts that can be applied. The three discounts are:

  • A rate plan discount at 10% off
  • A subscription-level discount at 20% off
  • An account-level discount at 30% off

The following example describes how the discount will be applied:
 

Discount Order Level Discount % Base Amount Total Discount Amount Amount Due (SubTotal)
1 Rate Plan 10% $1000 $100 $900
2 Subscription 20% $900 $180 $720
3 Account 30% $720 $216 $504
Total Discounts $496.00
Total Amount Due After Discounts $504.00

How Discounts Work with Prorated Credits 

As with discounts, the methods that Zuora uses to apply prorated credits also depends on the type of discount used.

Percentage Discounts

If a prorated credit occurs on a charge that received a percentage discount, Zuora will apply that credit pro rata between the original charge and the discount. 

For example, for a charge of $100 with a 10% discount, the customer would be charged $90 ($100 minus a $10 discount). If the customer is later given a credit for half of the charge, the customer will receive a net credit of $50 for half of the total charge. Zuora does not consider the discount when returning credit to customers; Zuora will return a prorated amount up to the amount that the customer paid. In this example, Zuora would not return more than $90 to the customer, regardless of when they were given the credit.  

Fixed-Amount Discounts

If a prorated credit is triggered on a charge that received a fixed discount, Zuora will apply as much of the credit as possible towards original net payable amount (the original charge amount minus the fixed discount). Once the entire original net payable amount has been fully credited, any remaining credit will get applied to a "discount pool" for future use, should there be any further charges eligible for a discount in the same billing period.

For example: 

Original Charge Discount Net Payable Amount 50% Proration Credit
on Original Charge
Amount of Credit Due Back to Customer
$100 $100 $0 $50 $0 (all $50 goes back to discount pool for potential reuse)
$100 $60 $40 $50 $40 (with $10 back to discount pool for potential reuse)
$100 $20 $80 $50 $50
  • Charge: The charge for the invoice item. 
  • Discount: The discount that was applied to the charge. 
  • Net Payable Amount: The charge minus the discount. 
  • Prorated Credit: The credit given to the customer. This is the net payable amount, prorated at 50%. This is not the prorated Charge amount, because Zuora uses the net payable amount, not the charge amount, to determine the amount of credit to return. 

Because the original discount was applied based on the sequence of the unique charge numbers, the amount returned is also based on that sequence. Because of this, the amount that is returned can vary based on the order of the invoice item charges. 

Discount Balance

A discount charge, while being processed by the RBE, maintains an "open period" and a discount balance. This means that any invoice generated in the open period will be able to take advantage of the discount before its balance runs out. Canceling an invoice will reverse the discount applied on the invoice and return the discount amount to the discount balance.

For example, if you have a $100 monthly discount at the account level, and for the month of January you have only applied $10 of that discount, any additional invoices created in January may be discounted until the remaining $90 of the $100 monthly discount is fully applied.

Rollover

Unused discounts cannot be rolled over to the next period. Because of this, the only option that you can select under Additional Options > Rollover is no.

Applying Discounts to Past Periods

Zuora tracks the fixed amount discount balance for every recurring billing period. This allows you to take advantage of available discounts, even in past (non-open) periods even when the billing operation has advanced to the current billing period. You can use apply a discount for billing within a past period for add-on products that you later added as amendments.

You can apply a discount to charges of a specific type: One-time, recurring, or usage.

The service period to use for the discount is always selected based on the service period of the recurring charge to which you are applying the discount.

A discount will always terminate at the end of a subscription term even if the subscription is set to auto-renew. However, if you run an invoice after the auto-renew has activated, the subscription term will be set to the next period.

Last modified
21:57, 19 Sep 2016

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