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Monthly Recurring Revenue

Zuora

Monthly Recurring Revenue

This article introduces the concept of MRR, the three types of MRR that Zuora supports, the methods to access MRR, and the calculation logic for each type of MRR. It also gives an introduction to the concept of Contracted MRR. For Order MRR, see Key Metrics for Orders.

Monthly recurring revenue (MRR) is a key metric for subscription businesses and represents the monthly revenue for a tenant, entity, account, subscription, charge, or any number of other dimensions stored in Zuora. MRR calculates recurring fees normalized to a monthly value and does not include one-time or usage fees. 

Since MRR is a normalized monthly fee and the charge pricing can change at any time within a month, you can calculate the MRR value on a specific date. 

Types of MRR

For regular charges, Zuora supports Gross MRR, Discount MRR, and Net MRR:

  • Gross MRR is the MRR exclusive of any discounts applicable.
  • Discount MRR equals the total MRR of all the discount charges that are applied to the regular charge.
  • Net MRR is the MRR inclusive of all the discounts applicable, including the fixed-amount discounts and percentage discounts.

For discount charges, Zuora supports Discount MRR only. It is the MRR normalized from the discount value that can be allocated to a particular regular charge from the discount charge. 

General Rules for MRR Calculation

The following formula applies to the MRR calculation:

Net MRR = Gross MRR - Discount MRR

The calculation of Gross MRR is dependent on the following factors:

  • Charge price 
  • Charge quantity
  • Charge effective date, including effective start date and effective end date

The calculation of Discount MRR is dependent on the following factors. See Processing Discounts in MRR Metrics for how discounts are processed in the MRR calculation. 

  • Discount charge fields, including:
    • Discount charge price
    • Discount charge effective date, including effective start date and effective end date
    • Discount class
    • Discount charge model
    • Discount level
    • Discount charge number
    • Discount charge type
  • Regular charge fields, including:
    • Regular charge price
    • Regular charge quantity
    • Regular charge effective date, including effective start date and effective end date
    • Regular charge type
    • Regular charge number
    • Regular charge segment ID

Accessing MRR

Below is a table that summarizes all the locations you can access the MRR that is described in this article:

Interface Gross MRR Discount MRR Net MRR
Subscription Detail Page Available for regular charges Unavailable Unavailable
Account Detail Page Displayed as "Today's MRR" key metrics Unavailable Unavailable
Zuora Reporting Available in the "Total MRR" standard report or via the Rate Plan Charge data source Unavailable Unavailable
Data Source Export

Available via the Rate Plan Charge data source

Unavailable Unavailable
Aqua API Available via the Rate Plan Charge data source Unavailable Unavailable
Zuora Analytics Available as the "Gross MRR" metric Available as the "Discount MRR" metric Available as the "Net MRR" metric
Data Query  Available in the ChargeMetrics table
  • Available in the ChargeMetrics table (for regular charges)
  • Available in the ChargeMetricsDiscountAllocationDetail table (for discount charges)

Available in the ChargeMetrics table

REST API Use Get subscriptions by key or Get subscriptions by account with the charge-detail request parameter. Unavailable Unavailable
SOAP API Use the query() call on the  RatePlanCharge object. Unavailable Unavailable

The following sections describe the calculation of Gross MRR, Discount MRR, and Net MRR in both the charge and subscription levels.

Charge-level Gross MRR

The lowest level of granularity for Gross MRR in Zuora is a Rate Plan Charge segment (referred to as a "charge segment"). A regular Rate Plan Charge (referred to as a "charge") can be segmented to several charge segments with a different price for each charge segment, as a result of amendments or order actions. The charge-level Gross MRR for a regular charge (on a specific date) equals the Gross MRR of the corresponding charge segment. 

You can calculate the charge segment Gross MRR based on the billing period:

  • Weekly
  • Monthly 
  • Subscription term

Weekly Based Billing Period  

Follow the formula below to calculate Gross MRR values for weekly based billing period:

Gross MRR = (Price / Number_of_Days_of_Base_Price) * 30

For example 1: Suppose your customer subscribes to your recurring charge:

  • Charge Model: Flat Fee Pricing
  • Price: $140
  • List Price Base: Week

Gross MRR = ($140/7) * 30 = 600

For example 2: Suppose your customer subscribes to your recurring charge:

  • Charge Model: Flat Fee Pricing
  • Price: $140
  • List Price Base: Per Billing Period (2 Weeks)

Gross MRR = ($140/14) * 30 = 300

Monthly Based Billing Period 

Follow the formula below to calculate Gross MRR values for monthly based billing period:

Gross MRR = Price / Number_of_Months_in_a_Billing_Period

Example 1: Suppose your customer subscribes to your recurring charge:

  • Charge Model: Flat Fee Pricing
  • Price: $300
  • List Price Base: Per Billing Period
  • Billing Period: Month

Gross MRR = 300 / 1 = 300

Example 2: Suppose your customer subscribes to your recurring charge:

  • Charge Model: Flat Fee Pricing
  • Price: $300
  • List Price Base: Per Billing Period
  • Billing Period: Quarter

Gross MRR = 300 /3 = 100 

Full-term Based Billing Period 

If you select Subscription Term as the billing period, Gross MRR of recurring charge is calculated based on the list price base:

Subscription-level Gross MRR

The Gross MRR of a subscription (on a specific date) is the sum of the Gross MRRs of the regular recurring charges in that subscription (on that date).

Example:

Suppose your customer had a termed subscription with two monthly recurring charges:

  • Charge 1 of $10/month was amended on 3/1/2019, with the price changed to $15/month and then amended on 7/1/2019, with the price changed to $20/month.
  • Charge 2 of $20/month was amended on 6/1/2019, with the price changed to $10/month and then removed on 10/1/2019.

The Gross MRR of Charge 1, Charge 2, and the subscription are shown in the diagram below:

Subscription Gross MRR .jpeg

Processing Discounts in MRR Metrics

This section introduces how discounts are processed in the MRR calculation and why it is different from that in Invoicing.

Zuora applies discounts as charges. Two types of discount charges are supported: fixed-amount discounts and percentage discounts. A discount charge can be restricted to a regular rate plan charge, a rate plan, a subscription, or an account. See more information in Discount Charge Models.

The Orders feature does not support account level discounts.

The sequence of applying multiple discount charges to one regular charge

In the MRR calculation, if more than one discount charge can be applied to a regular charge, the sequence below is used to decide which discount goes first:

  1. Order by discount classes:

    The discount charge with the discount class in a higher application order is applied before those with discount classes in lower application orders. The discount charge without any discount class is applied in the end.

  2. If the discounts have no discount class or have the same discount class, order them by discount charge model types:

    Discount-Percentage > Discount-Fixed Amount

  3. 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

  4. 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.

See the example in Applying both a fixed-amount and percentage discount charges to one regular charge. See more information in Processing Discount Charges.

The sequence of applying a fixed-amount discount charge to multiple regular charges

In the MRR calculation, if a fixed-amount discount charge can be applied to more than one regular charge, the sequence below is applied to decide which charge to apply first.

  1. Order by charge types: Recurring regular charges get the discount first; One-time regular charges get the discount next; Usage regular charges are not supported in the MRR calculation. 
  2. If the regular charges have the same charge type, order them by the charge number from the lowest to the highest.
  3. If a regular charge has more than one charge segments to apply the discounts, order them by start dates:

    The discount is applied to the earliest charge segment first, then the second earliest, and so on.

See the examples below:

Differences in applying discounts between MRR and Invoicing

  • MRR calculation aligns its calculation period with the calendar month rather than the Billing Period as in Invoicing. Also, the Billing Cycle Day of a subscription is not taken into account when calculating MRR.
  • MRR is applicable to recurring charges only, and TCV is applicable to both one-time and recurring charges. If a subscription includes any usage charge, the metrics calculation will ignore the usage charge and calculate metrics only for the one-time and recurring charges.
  • The purpose of MRR is revenue prediction and contract value measuring. Therefore, to enable MRR calculation, when applying fixed-amount discounts to regular charges, the discount must be distributed evenly and applied as a recurring charge. The Invoicing allocates fixed-amount discounts differently because of a different business intention, which is to collect a payment, so it takes an eager allocation model. See the following example:

    Suppose you are going to apply a $500 quarterly discount charge to a monthly recurring regular charge. During a Bill Run, $300 will be applied to the first month, $200 to the second month and $0 to the third month. In the MRR calculation, the discount is applied as a monthly recurring discount charge of $166.667/month.

    Difference in Applying Discounts.jpeg

Charge-level Discount MRR

This section introduces both the Discount MRR for discount charges and Discount MRR for regular charges.

  • Discount MRR for discount charges:

    A discount charge is always applied to a specific charge segment of a regular charge. The charge-level Discount MRR of a discount charge is normalized from the discount amount that can be allocated on the charge segment from the discount charge. The discount amount that can be allocated is dependent on the factors described in General Rules for MRR Calculation.

  • Discount MRR for regular charges:

    Multiple discount charges can be applied to a single regular charge. This means that the charge-level Discount MRR of a regular charge equals the sum of all the charge-level Discount MRR for discount charges that are applied to the charge segment (of the regular charge).

The following example demonstrates the discount amount allocation to a charge segment in a typical scenario: two discounts are applied to a charge segment, a percentage discount charge is applied first, and then a fixed-amount discount charge is applied. See the example in Applying both a fixed-amount and percentage discount charges to one regular charge that demonstrates the discount amount allocation to a charge segment in another typical scenario: two discounts are applied to a charge segment, a fixed-amount discount charge is applied first, and then a percentage discount charge is applied.

Example:

Suppose your customer had a one-year termed subscription from 1/1/2019 to 1/1/2020 with one regular charge and two discount charges as below.  

  • Charge 1: a recurring regular charge of $10/month, and was amended on 7/1/2019 with the price changed to $20/month.
  • Charge 2: a recurring fixed-amount discount charge of $5/month with an effective period from 3/1/2019 to 7/1/2019. 
  • Charge 3: a recurring percentage discount charge of 20% with an effective period from 5/1/2019 to 9/1/2019.

In this example, Charge 1 is segmented by an amendment into two charge segments. The two charge segments are then further segmented by the two discount charges into several charge periods in which the net pricing of the regular charge remains constant. See more information about charge segments and charge periods in Charge-level Net MRR.

The MRR of the three charges are shown in the diagram below:

Charge Level Discout MRR .jpeg

The discounts are applied as in the following manner:

You can get the following sets of Discount MRRs for Charge 2 and Charge 3, as in the table below.

Discount Charge Target Charge Segment
(of the Regular Charge)
Target Charge Period
(of the Regular Charge)
Start Date End Date Discount MRR for Discount Charge
Charge 2 Charge Segment 1 of Charge 1 Charge Period 2 3/1/2019 5/1/2019 5
Charge Period 3 5/1/2019 7/1/2019 5
Charge 3 Charge Segment 1 of Charge 1 Charge Period 3 5/1/2019 7/1/2019 10*20%=2
Charge Segment 2 of Charge 1 Charge Period 1 7/1/2019 9/1/2019 20*20%=4

You can get the following sets of Gross MRR, Discount MRR, and Net MRR for Charge 1, as in the table below. During Charge Period 3, the Discount MRR for Charge 1 is the sum of the Discount MRRs for Charge 2 and Charge 3.

Regular Charge Charge Segment  Charge Period Charge Period Start Date Charge Period End Date Discount MRR for Regular Charge Gross MRR for Regular Charge Net MRR for Regular Charge
Charge 1 Charge Segment 1 Charge Period 1 1/1/2019 3/1/2019 n/a 10 10
Charge Period 2 3/1/2019 5/1/2019 5 10 10-5=5
Charge Period 3 5/1/2019 7/1/2019 5+2=7 10 10-7=3
Charge Segment 2 Charge Period 1 7/1/2019 9/1/2019 4 20 20-4=16
Charge Period 2 9/1/2019 1/1/2020 n/a 20 20

Charge-level Net MRR

The lowest level of granularity for Net MRR in Zuora is determined by the alignment of effective time range between a regular charge and a discount charge that is applicable to the regular charge.

See General Rules for MRR Calculation and Processing Discounts in MRR Metrics for the factors and rules that determine whether a discount charge is applicable to a regular charge. 

See Subscription-level Net MRR for more examples of the MRR calculation for a regular charge in different scenarios.

Charge-level Net MRR Calculation Based on Charge Segments

When the effective time range of a discount charge aligns with that of a regular charge, the regular recurring charge can be segmented to several charge segments as a result of amendments or order actions. The net pricing of a charge segment remains constant. Therefore, the charge-level Net MRR on a specific date equals the Net MRR of the corresponding charge segment.

The Net MRR for a charge segment can be calculated by:

Net MRR of Charge Segment = Gross MRR of Charge Segment - Discount MRR of Charge Segment

Example:

A percentage discount charge of 20% is applied to a regular monthly charge. The effective ranges of both charges are 2019/1/1 - 2020/1/1. The price of the regular charge is $300/month for the first half year. It is then amended to $500/month for the second half year.

The following diagram shows the Net MRR calculation for each charge segment of the regular charge:

Charge level MRR-Sample 1 .jpeg

In this example, the regular charge has two charge segments. The Net MRR of each charge segment is:

  • Charge Segment 1 (2019/1/1-2019/7/1): 300 - 300 * 20% = 240
  • Charge Segment 2 (2019/7/1-2019/9/1): 500 - 500 * 20% = 400

Charge-level Net MRR Calculation Based on Charge Periods

When the effective range of a discount charge does not align with that of a regular charge, a charge segment of the regular charge can be further segmented to several charge periods as determined by the effective dates of discounts. In such a charge period, the net pricing of the regular charge remains constant. The charge-level Net MRR on a specific date equals the Net MRR of the corresponding charge period.

The Net MRR of a charge period can be calculated by:

Net MRR of Charge Period = Gross MRR of Charge Period - Discount MRR of Charge Period

Example: 

A percentage discount charge of 20% is applied to a regular monthly charge for the last quarter of a one-year term (2019/1/1-2020/1/1). The price of the regular monthly charge is $300/month for the first half year. It is then amended to $500/month for the second half year.

The following diagram shows the Net MRR calculation for each charge segment and each charge period of the regular charge:

Charge-level Net MRR - Sample 2  .jpeg

In this example, the regular charge has two charge segments. The second charge segment is segmented by the discount charge into two charge periods.

The Net MRR for each charge segment or each charge period is: 

  • Charge Segment 1: 300 - 300 * 20% = 240
  • Charge Period 1: 500 - 500 * 20% = 400
  • Charge Period 2: 500

The following diagram shows how a charge segment of a regular charge can be segmented by a discount charge into several charge periods.

Charge Segment Divided by Discount.jpeg

Subscription-level Net MRR

This section has several examples to demonstrate how discounts are allocated to regular charges in different scenarios, including:

These examples also show how charge-level MRRs (Gross, Discount, and Net MRRs) are calculated for regular charges in these scenarios and how they are added up to get the subscription-level MRR.

Applying an account level fixed-amount discount charge to multiple subscriptions

This example demonstrates how an account level fixed-amount discount charge is allocated on the four regular charges that belong to the two subscriptions of the same customer account. You can see the following analysis in this example:

  • The discount applying sequence
  • The discount amount allocation
  • The charge-level MRR calculation
  • The subscription-level MRR calculation

Example:

Suppose a new customer account (as the subscription owner) has two subscriptions: 

  • Subscription 1 is a half year termed subscription with a rate plan containing two regular charges triggered on 1/1/2019. 
    • Charge 1 (R1) is a regular monthly charge of $300/month.
    • Charge 2 (O1) is a regular one-time charge of a $100 flat fee.
  • Subscription 2 has the same product rate plan (containing R2 and O2), but the effective term is from 1/16/2019 to 7/1/2019.
  • An account-level discount charge of $1500/quarter is added to Subscription 1 for the first quarter.

The discounting logic and the MRR calculation for this example can be illustrated by the diagram below:

Account level fixed-amount discount.jpeg

The discount applying sequence: 

To apply an account-level discount, the regular charges in all the subscriptions of the target subscription owner account is sorted to the following sequence. See The sequence of applying a fixed-amount discount charge to multiple regular charges.

  1. R1
  2. R2
  3. O1
  4. O2

The discount amount allocation:

When applying a discount to a regular recurring charge, the discount must be evenly distributed and applied as a monthly recurring charge:

  • When applying a discount on R1, the $1500/q recurring quarterly discount charge is viewed as a $500/m monthly recurring discount charge. The price of R1 in the charge period from 1/1 to 4/1 is $300/m, so at maximum, a recurring discount charge of $300/m can be applied to R1. The discount balance as a recurring monthly charge is $200/m (500-300) for the charge period from 1/1 to 4/1.
  • The discount charge is then applied as a 200/m recurring discount charge on R2. As the price of R2 in the charge period from 1/16 to 4/1 is $300/m, the discount balance as a recurring charge is 0 in the charge period from 1/16 to 4/1 and $200/m in the charge period from 1/1 to 1/16.

To apply a discount to a one-time charge, the discount is applied as a total amount for the discount charge’s effective time range.

  • To apply the discount on O1, the discount balance as a total amount for the quarterly discount charge is 200 - 200*16/31=$96.744. As the price of O1 is $100, after the discount is applied to O1, the discount balance is 0.
  • As no discount balance is available from 1/1 to 4/1, no discount can be applied to O2.

The charge-level MRR calculation:

The Gross MRR, Discount, and Net MRR of each charge or charge period are calculated as in the table below. O1 and O2 are one-time charges and are not counted in the MRR calculation.

Charge 

Charge Period

Gross MRR

Start Date

End Date

Applied Discount

Discount Balance

Discount MRR

Net MRR

R1 

Charge Period 1

300

1/1

4/1

-300/m

500/m-300/m=200/m

300

0

Charge Period 2

4/1

7/1

0

n/a

n/a

300

R2

Charge Period 1

300

 

1/16

4/1

-200/m

200/m-200/m=0/m

200

100

Charge Period 2

4/1

7/1

0

n/a

n/a

300

The subscription-level MRR calculation:

By adding up the MRR of the charge segments or charge periods with the same start and end dates, the MRR of Subscription 1 and Subscription 2 is as shown in the table below:

Subscription

Charge Period

Start Date

End Date

Subscription Gross MRR

Subscription Discount MRR

Subscription Net MRR

Subscription 1

R1 Charge Period1

1/1

4/1

300

300

0

R1 Charge Period 2

4/1

7/1

300

n/a

300

Subscription 2

R2 Charge Period 1

1/16

4/1

300

200

100

R2 Charge Period 2

4/1

7/1

300

n/a

300

Applying a subscription level fixed-amount discount charge to multiple regular charges

This example demonstrates how a subscription level fixed-amount discount charge is allocated on the four regular charges of a subscription. You can see the following analysis in this example:

  • The discount applying sequence
  • The discount amount allocation
  • The charge-level MRR calculation
  • The subscription-level MRR calculation

Example:

Suppose your customer has a half year termed subscription triggered on 1/1/2019. The subscription has 4 charges:

  • R1:  A recurring monthly regular charge of $300/month, effective from 1/1/2019
  • O1: A one-time regular charge of $100 flat fee.
  • R2:  A recurring monthly regular charge of $300/month, effective from 1/16/2019
  • O2: A one-time charge of $100 flat fee.

A subscription level fixed-amount discount charge of $650/month is added to the subscription for the first quarter.

The discounting logic and the MRR calculation for this example can be illustrated by the diagram below:

Subscription level fixed-amount discount.jpeg

The discount applying sequence: 

When applying the subscription-level discount, the regular charges in the subscription are sorted to the following order per The sequence of applying a fixed-amount discount charge to multiple regular charges:

  1. R1
  2. R2
  3. O1
  4. O2

The discount amount allocation:

The discount is first applied to R1 and then to R2:

  • The price of R1 in the charge period from 1/1 to 4/1 is $300/m, so after the discount is applied to R1, the discount balance as a recurring charge is $350/m (650/m-300/m) in the charge period from 1/1 to 4/1.
  • The discount balance is then applied to R2. As the price of R2 in the charge period from 1/16 to 4/1 is $300/m, so at maximum, a recurring discount charge of $300/m can be applied to R2. The discount balance as a recurring charge is $350/m in the charge period from 1/1 to 1/16 and $50 (calculated by 350-300=50) in the charge period from 1/16 to 4/1.

When applying a discount to a one-time charge, the discount is applied as a total amount for the discount charge’s effective time frame. In this example, O1 and O2 are effective charges in January, the discount balance as a total amount for the monthly discount charge in January is 350-300*16/31 = 195.161.

  • The price of O1 is $100. After the discount is applied to O1, the discount balance in January is 195.161-100=95.161.
  • The price of O2 is $100. After the discount is applied to O2, no discount balance is left.

The charge-level MRR calculation:

The Gross MRR, Discount MRR, and Net MRR of each regular charge segment or charge period are calculated as in the table below. O1 and O2 are one-time charges and are not counted in the MRR calculation. Note in this example, both R1 and R2 have only one charge segment.

Charge 

Charge Period

Gross MRR

Start Date

End Date

Applied Discount

Discount Balance

Discount MRR

Net MRR

R1 

Charge Period 1

300

1/1

4/1

-300/m

650/m-300/m=350/m

300

0

Charge Period 2

4/1

7/1

0

n/a

n/a

300

R2

Charge Period 1

300

 

1/16

4/1

-300/m

350/m-300/m=50/m

 

(350/m for 1/1-1/16)

300

0

Charge Period 2

4/1

7/1

0

n/a

n/a

300

The subscription-level MRR calculation:

By adding up the MRR of the charge segments or charge periods with the same start and end dates, the MRR of the subscription is as shown in the table below:

Start Date

End Date

Subscription Gross MRR

Subscription Discount MRR

Subscription Net MRR

Charge Segment or Charge Period Applicable

1/1

1/16

300

300

0

R1 Charge Period1

1/16

4/1

600

600

0

R1 Charge Period1 + R2 Charge Period 1

4/1

7/1

600

n/a

600

R1 Charge Period 2 + R2 Charge Period 2

Applying a percentage discount charge to multiple regular charges

This example demonstrates how a subscription level percentage discount is applied to two regular charges in a subscription. You can see the following analysis in this example:

  • The discount applying sequence
  • The discount amount allocation
  • The charge-level MRR calculation
  • The subscription-level MRR calculation

Example:

Suppose your customer has a one year termed subscription with three charges triggered upon contract effective date on 1/1/2019:

  • Charge 1 is a recurring monthly regular charge of $1000/month. 
  • Charge 2 is a one-time regular charge of $400 flat fee.
  • Charge 3 is a recurring 20% percentage discount charge to apply at the subscription level but limited to recurring charges only.

Then the subscription is amended with two order actions as below:

  • Order Action 1 updated the price of Charge 1 to $1200/month with the new price triggered on 7/1/2019.
  • Order Action 2 added a new recurring monthly charge (Charge 4) to the subscription triggered on 9/1/2019. The price is $800/month.
  • Order Action 3 updated Charge 3 and removed the percentage discount from 11/1/2019.

The discounting logic and the MRR calculation for this example can be illustrated by the diagram below:

Percentage Discount.jpeg

The discount applying sequence:

To apply a percentage discount charge to multiple regular charges, you do not have to consider the applying sequence, as each regular charge has the same discount percentage.

The discount amount allocation:

The two regular charges (Charge 1 and Charge 4) have the same discount percentage. The discount amount is calculated by Regular Charge Price * Discount Percentage.

This discount charge is limited to recurring charges only, so it is not applicable to Charge 2, which is a one-time charge.

The charge-level MRR calculation:

The Gross MRR, Discount MRR, and Net MRR of each charge segment or charge period in the regular charges are calculated as in the table below.
 

Charge Segment

Charge Period

Gross MRR

Discount Charge

Start Date

End Date

Applicable Discount

Discount MRR

Net MRR

Charge1 Segment 1

N/A

1000

20%

1/1/2019

7/1/2019

-1000*20%= -200

200

800

Charge 1 Segment  2

Charge Period 1

1200

 

20%

7/1/2019

11/1/2019

-1200*20%=-240

240

960

Charge Period 2

n/a

11/1/2019

1/1/2020

0

n/a

1200

Charge 4 Segment 1

 

Charge Period 1

800

 

20%

9/1/2019

11/1/2019

-800*20%=-160

160

640

Charge Period 2

n/a

11/1/2019

1/1/2020

0

n/a

800

The subscription-level MRR calculation:

By adding up the Gross MRR, Discount MRR, and Net MRR of the charge segments or charge periods with the same start and end dates, the MRR of the subscription is as shown in the table below:

Start Date

End Date

Subscription Gross MRR

Subscription Discount MRR

Subscription Net MRR

Charge Segment or Charge Period Applicable

1/1/2019

7/1/2019

1000

200

800

Charge 1/Segment 1

7/1/2019

9/1/2019

1200

240

960

Charge 1/Segment 2/Charge Period 1 

9/1/2019

11/1/2019

1200+800

(240+160)= 400

1600

Charge 1/Segment 2/Charge Period 1 + Charge 4/Segment 1/Charge Period 1

11/1/2019

1/1/2020

1200+800

0

2000

Charge1/Segment2/Charge Period 2+ Charge 4/Segment 1/Charge Period 2

Applying both a fixed-amount and percentage discount charges to one regular charge

This example demonstrates how two subscription level discounts (both a fixed-amount and percentage discounts) are allocated on the two regular charges of a subscription. You can see the following analysis in this example:

  • The discount applying sequence
  • The discount amount allocation
  • The charge-level MRR calculation
  • The subscription-level MRR calculation

Example:

Suppose your customer is to apply two subscription level discount charges to a one-quarter termed subscription, which has two regular recurring charges.

  • Charge 1: Monthly regular charge: $5/month for the first month, $10 for the second, and $15 for the third. Effective range: 1/1/2019 - 4/1/2019.
  • Charge 2: Monthly regular charge: $3/month. Effective range: 1/1/2019 - 4/1/2019.
  • Discount 1: Monthly fixed-amount discount charge: $6/month. Effective range: 1/15/2019 - 4/1/2019.
  • Discount 2: Percentage discount: 10%. Effective range: 2/15/2019 - 4/1/2019.
  • Discount 1 has a discount class of higher priority than that of Discount 2. 

The discounting logic and the MRR calculation for this example can be illustrated by the diagram below:

Both Types of Discounts.jpeg

The discount applying sequence:

As the discount priority of Discount 1 is higher than that of Discount 2, when they apply to the same regular charge, Discount 1 (the fixed-amount discount) is applied first. Discount 2 (the percentage discount) is applied to a regular charge after Discount 1 has been applied. See The sequence of applying multiple discount charges to one regular charge

When Discount 1 (the fixed-amount discount) is applied to both regular charges, because Charge 1 and Charge 2 have the same charge type (they are both regular charges) and Charge 1 has a smaller charge number (Charge 1< Charge 2), Charge 1 will get the discount allocation first. Charge 2 will get the remaining discount amount from Discount 1 if there is a discount balance. See The sequence of applying a fixed-amount discount charge to multiple regular charges.

The discount amount allocation:

1/15-2/1: Discount 1 is applied to Charge 1 first, and the amount applicable is $5/m at maximum (The net price of Charge 1 in this charge period is already 0 now. It cannot be a negative value). After that, the discount balance of Discount 1 is $1/m and is applied to Charge 2. 

2/1-2/15: Discount 1 is applied to Charge 1 first, and the amount applicable is $6/m. After that, the discount balance of Discount 1 is 0. Therefore, no discount is allocated on Charge 2.

2/15-3/1: In this charge period,

  • Discount 1 is applied to Charge 1 first, and the discount amount applicable is $6/m. After that, the discount balance of Discount 1 is 0. Therefore, no discount is allocated on Charge 2. 
  • Discount 2 (the percentage discount) is then applied to Charge 1 and Charge 2.
    • When it is applied to Charge 1, the net price (after Discount 1 is applied) should be used to calculate the discount amount. Therefore, the discount amount applied to Charge 1 by Discount 2 is (10-6)*10%=$0.4/m.
    • When it is applied to Charge 2, the discount amount is 3*10%=$0.3/m.
  • In summary, the discount amount allocated to Charge 1 is 6+0.4=$6.4/m, and the discount amount allocated to Charge 2 is $0.3/m.

3/1 - 4/1: Similar as in the charge period above, in this charge period:

  • Discount 1 is applied to Charge 1 first, and the discount amount applicable is $6/m. After that, the discount balance of Discount 1 is 0. Therefore, no discount is allocated on Charge 2.
  • Discount 2 (the percentage discount) is then applied to Charge 1 and Charge 2.
    • When it is applied to Charge 1, the net price (after Discount 1 is applied) should be used to calculate the discount amount. Therefore, the discount amount applied to Charge 1 by Discount 2 is (15-6)*10%=$0.9/m.
    • When it is applied to Charge 2, the discount amount is 3*10%=$0.3/m.
  • In summary, the discount amount allocated to Charge 1 is 6+0.9=$6.9/m, and the discount amount allocated to Charge 2 is $0.3/m.

The charge-level MRR calculation:

The Gross MRR, Discount MRR, and Net MRR of each charge segment and charge period are calculated as in the table below.

Charge Segment  

Charge Period

Gross MRR

Discount Charge

Start Date

End Date

Applied Discount

Discount MRR

Net MRR

Charge 1 Segment 1

Charge Period 1

5

n/a

1/1

1/15

0

n/a

5

Charge Period 2

Discount 1 (D1)

1/15

2/1

-5

5

0

Charge 1 Segment 2

Charge Period 3

10

D1

2/1

2/15

-6

6

4

Charge Period 4

D1, Discount 2 (D2)

2/15

3/1

-6.4

6.4

3.6

Charge 1 Segment 3

Charge Period 5

15

D1, D2

3/1

4/1

-6.9

6.9

8.1

Charge 2 Segment 1

Charge Period 1

3

 

n/a

1/1

1/15

0

n/a

3

Charge Period 2

D1

1/15

2/1

-1

1

2

Charge Period 3

D1

2/1

2/15

0

0

3

Charge Period 4

D2

2/15

3/1

-0.3

0.3

2.7

Charge Period 5

D2

3/1

4/1

-0.3

0.3

2.7

The subscription-level MRR calculation:

By adding up the MRRs of the charge segments or charge periods with the same start and end dates, the MRR of the subscription is as shown in the table below:

Start Date

End Date

Subscription Gross MRR

Subscription Discount MRR

Subscription Net MRR

Segment or Charge Period Applicable

1/1

1/15

8

n/a

8

Charge 1/Charge Period 1, Charge 2/Charge Period 1

1/15

2/1

8

6

2

Charge 1/Charge Period 2, Charge 2/Charge Period 2

2/1

2/15

13

6

7

Charge 1/Charge Period 3, Charge 2/Charge Period 2

2/15

3/1

13

6.7

6.3

Charge 1/Charge Period 4, Charge 2/Charge Period 3

3/1

4/1

18

7.2

10.8

Charge 1/Charge Period 5, Charge 2 /Charge Period 4

Contracted MRR

Contracted MRR (CMRR) is the future expected MRR that accounts for future creation, upgrades, downgrades, upsells, and cancellations.

The value of CMRR is the MRR of the last charge segment. The charges must meet the following requirements:

  • The charges are not removed
  • The charge end condition must align to subscription end date

Otherwise, the CMRR is 0.