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Discount Charge Models

Zuora

Discount Charge Models

Overview

Zuora's Product Catalog offers two discount charge models to help you manage discounts and promotions. A typical scenario would be, your customer subscribe to your product for one year and you give them one month for free. After the first month, the discount expires, and regular charges apply.

When you apply a discount charge model to your product rate plan charge, you create a discount charge. A discount charge behaves just like a one-time charge or recurring charge. It can be set to trigger on a specific date, such as contract effective date or service activation date; it can be set to apply to one or more billing periods. You can create multiple discount charges in a single product rate plan.

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.

Fixed amount model and percentage model

There are two discount charge models you can use on your product rate plan charges.

Model Description Example Note
Discount - Fixed Amount Allows you to give your customer a fixed amount of discount. Fixed amount discount behaves like a coupon. You have a promotion that gives your customers a $100 discount if they sign up in January. To do that, you can set up a fixed amount discount charge of $100 only effective in January. Fixed-amount discount is applied per line item on an invoice. If the invoice amount is greater than the discount amount, Zuora uses the rule described in this article to distribute the discount among various charges.
Discount - Percentage Allows you to give your customer a percentage of the charge amount as a discount. you set up a 10% discount for a customer on a charge of 100$. The customer is then charged $90 (100 -100*10%). Percentage discount does not prorate.

See How do I handle discounts in Zuora? for step-by-step instructions on using the two models.

Specifying the discount scope

You can specify the scope for a discount charge in terms of the discount level, type of applied charges, and application details.

  Description Example
Discount level Rate plan level discount Apply a discount charge to a specific rate plan. At the rate plan level, the discount charge is bundled with other charges within that rate plan, and the discount is applied to the charges in the rate plan only. Offer a 100$ discount to all regular charges in the same product rate plan as the discount charge.
Subscription level discount Apply a discount charge to a specific subscription and all charges contained in that subscription for a period of time. Offer a promotion where the first 5 months are discounted for a 12-month subscription.
Account level discount Apply a discount charge to all the regular charges contained in the account (across all subscriptions). Provide a VIP customer with a 15% discount off all purchases. Note that there are limitations for account level discount.**
Type of applied charges Select the type of charges that should be discounted at any discount level. Offer discounts to one-time setup fees only: select the One-Time check box and clear the Recurring and Usage check boxes.
Application details Specify specific product rate plans and product rate plan charges that a discount charge is applied to. The application details about discount charges are distinct at different discount levels. Offer discounts to one specific or multiple regular charges in one product rate plan.

**Limitations: Orders or Order Metrics does not support account level discounts. See Known Limitations in Orders and Order Metrics for more information. Billing - Revenue Integration does not support account level discounts. See Known limitations of Billing - Revenue Integration for more information.

See Specify application scopes for discount charges for more information.

Processing discounts

If multiple discounts can be applied to a subscription charge, Zuora's rating and billing engine (RBE) uses the following order to decide which discount to use:

  1. Order by discount classes: The discount charge with a higher discount class is applied first. The discount charge without any discount class is applied in the end.
  2. If the discount charges have no discount class or have the same discount class, order by discount charge model types: Discount-Percentage > Discount-Fixed Amount
  3. If the discount charges have the same model type, order by the discount level: Rate Plan Level > Subscription Level > Account Level
  4. If the discount charges have the same model type and discount level, order by discount charge number: The smallest charge number is applied to the subscription charge.

Generally speaking, RBE processes subscription charges in the following order: Charges > Discount > Prepayment > Tax > Invoice.

RBE processes the rating of regular charges first, then it applies discounts and any prepayments, before calculating tax, and generating the invoice. By design, discount charges can only be applied to positive charge amounts. If a customer has multiple percentage discounts that can be applied, the discount will be compounded.

Multiple percentage discounts example

The following example shows how multiple percentage discounts are applied. Customer A 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 table below describes how the discounts will be applied:

Discount Order Level Discount % Base Amount Total Discount Amount Amount Due (Sub Total)
1 Rate Plan 10% $1000 $100 $900
2 Subscription 20% $900 $180 $720
3 Account 30% $720 $216 $504
Total Discounts: $496
Total Amount Due After Discounts: $504

How discounts work with prorated credits

As with discounts, how Zuora applies prorated credits depends on the discount charge model.

Percentage discount model

Consider the following scenario:

  • One-year subscription with a $1,000 regular charge and a 50% discount.
  • Service period is from 2021/04/01 to 2022/03/31.

On the invoice generated on 2021/03/09 for the service period of from 2021/04/01 to 2022/03/31:

  • Regular charge is $1,000
  • Discount charge is -$500 = -$1000 * 50%

Later the rate plan is removed effective 2021/05/01. On the invoice generated on 2021/04/09, a line item called “Proration Credit” for the service period of 2021/05/01 – 2022/03/31 appears with the following breakdown:

  • Proration credit for the regular charge: - $916.67 = rounding -($1000/12 * 11)
  • Proration credit for the discount charge: $458.33 = $500 - ($1000 - $916.67) * 50%

Fixed amount discount model (Coupon)

If a prorated credit is triggered on a charge with a fixed-amount discount, by default Zuora applies as much of the credit as possible towards original net amount (the original charge amount minus the fixed discount). Alternatively, Zuora also supports the Credit for Prorated Discounts feature. If the Credit for Prorated Discounts feature is enabled, Zuora will prorate discounts when issuing the credit back to the customer that simultaneously cancels, updates, suspends, or removes the regular rate plan charge and the corresponding fixed-amount discount charge.

This feature is in Limited Availability. If you want to have access to the feature, submit a request at Zuora Global Support

Considering the scenarios:

Scenario 1

  • One-year subscription with $1,200 regular charge and a $720 fixed amount discount.
  • Invoice is generated showing customer should pay: $480 = $1,200 - $720

If your customer reduces the subscription to 3 months, on the new invoice:

If Credit for proration discount feature is disabled If Credit for proration discount feature is enabled
Proration credit for regular charge is -$900 = $1,200/12 * 3 - $1,200 Proration credit for regular charge is -$900 = $1,200/12 * 3 - $1,200
Proration credit for discount charge is $420: The greater value of ($720 - $1,200/12 *3) and 0 Proration credit for discount charge is $540 = $720 - $720/12*3

If your customer reduces the subscription to 8 months, on the new invoice:

If Credit for proration discount feature is disabled If Credit for proration discount feature is enabled
Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200
Proration credit for discount charge is 0: The greater value of ($720 - $1,200/12 *8) and 0 Proration credit for discount charge is $240 = $720 - $720/12*8

If your customer completely cancels the subscription, on the new invoice:

The result is the same whether the Credit for proration discount feature is disabled or enabled.
Proration credit for regular charge is -$1,200
Proration credit for discount charge is $720

Scenario 2:

  • One-year subscription with $1,200 regular charge and a $1,200 fixed amount discount.
  • Invoice is generated showing customer should pay: 0 = $1,200 - $1,200

If your customer reduces the subscription to 8 months, on the new invoice:

If Credit for proration discount feature is disabled If Credit for proration discount feature is enabled
Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200 Proration credit for regular charge is -$400 = $1,200/12 * 8 - $1,200
Proration credit for discount charge is $400: The greater value of ($1,200 - $1,200/12 *8) and 0 Proration credit for discount charge is $400 = $1,200 - $1,200/12*8

In this case, no matter the customer reduces how many months, the result is always the same.

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.

Apply discount 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. You can apply a discount for billing in 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 apply 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.