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Ramp allocation in Zuora Central Revenue

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Ramp allocation in Zuora Central Revenue

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A ramp deal is a set of time-based periods where products or pricing can change. After the ramp deals are collected by Zuora Revenue, Zuora Revenue provides the ramp allocation functionality to identify the ramp deal lines in a revenue contract and perform allocation based on the ramp percentage that is calculated according to the average pricing method of each ramp group. 

If you create ramp deals in the Zuora Billing, Zuora Revenue will perform ramp allocation for the ramp deals. The benefit of performing ramp allocation for ramp deals is to get more accurate revenue allocated for the ramp deal line.

This article applies to Zuora Central Revenue, which does not provide the SSP allocation functionality. If you are a user of Zuora Advanced Revenue, the ramp allocation is based on the standard relative allocation. For information about relative allocation, see Accounting treatments and Ramp allocation in Zuora Advanced Revenue.

Configuration requirement

To use the ramp allocation functionality, you must configure the AVERAGE_PRICING_METHOD profile in Zuora Revenue. This profile determines how to calculate the ramp allocation percentage within each ramp deal group. Valid values are Term and Volume, and the default method is Volume.

Key data points 

The following data points are the key to the ramp allocation functionality. Those data points are populated in Zuora Revenue staging tables by the processor that is configured in Zuora Revenue configurations when ramp allocation is enabled.

  • RAMP_DEAL_REF

    Line with the RAMP_DEAL_REF value populated is identified as a ramp deal line. Within a revenue contract, lines with the same RAMP_DEAL_REF value are grouped into one ramp deal group to participate in allocation.

  • AVG_PRCING_MTHD

    This field determines how to calculate the ramp allocation percentage within each ramp deal group. Valid values are Term and Volume. Different values result in different ways to calculate the ramp allocation percentage.

    AVG_PRCING_MTHD Ramp allocation percentage (RAMP_ALLOC_PCT) calculation
    Term
    1. Calculate the term in days for each ramp deal line. 
    2. Calculate the total by summing up all the line-level values within the ramp deal group. 
    3. Calculate the ramp allocation percentage (RAMP_ALLOC_PCT) for each line based on the following formula:

      Line-level term in days/Total line-level term in days
    Volume
    1. Calculate the total volume for each line based on the following formula:

      Line-level term in days * Quantity

    2. Calculate the total volume for each ramp deal group by summing up all the line-level values within the group.
    3. Calculate the ramp allocation percentage (RAMP_ALLOC_PCT)for each line:

      Line-level term in days * Quantity/Total line-level term in days * Quantity

Calculation logic 

When ramp allocation is enabled and the processor is set up appropriately, Zuora Revenue completes the following steps to perform ramp allocation for the ramp deal lines in the revenue contract:

  1. Identify the ramp deal lines in the revenue contract. The ramp deal lines are indicated by the RAMP_DEAL_REF field for each line.

  2. Group the lines with the same RAMP_DEAL_REF value into one ramp deal group. There can be more than one ramp deal group in one revenue contract.

  3. For each ramp deal group, validate whether the included lines have the same setting for the AVG_PRCING_MTHD field. If yes, proceed to the next step; otherwise, place a hold on the revenue contract.

  4. Calculate the ramp allocation percentage for each ramp line within every ramp deal group based on the AVG_PRCING_MTHD value, which is explained in the table above. The ramp allocation percentages of the line within the same ramp deal group must sum up to 100%. 

  5. Calculate the sum of the Extended Sell Price within every ramp deal group. 

  6. Calculate the net revenue from ramp allocation for each line based on the ramp allocation percentages in Step 4 and the total amount in Step 5.

    Net Revenue = Total Extended Sell Price * Ramp Allocation Percentage

  7. Validate whether the per unit per day rate (for Volume average pricing method) or the per day rate (for Term average pricing method) is the same for all the lines in the same ramp deal group. The rate for each line is calculated based on the following formula:

    • Validation for Volume average pricing method: Per Day Per Unit Rate = Net Revenue (from ramp allocation) / Term in days / Quantity

    • Validation for Term average pricing method: Per Day Rate = Net Revenue (from ramp allocation) / Term in days

    If the validation passes, proceed to the next step for ramp allocation. Otherwise, a hold is applied to the whole revenue contract with the recovery code provided.

  8. Calculate the net revenue per day for each ramp deal line in the same ramp deal group. The per unit per day rate for each line is calculated based on the following formula:

    Net Revenue Per Day = Net Revenue / Total terms in days

  9. Calculate the net revenue for each period based on the net revenue per day and the actual days of the period.

Limitations

Currently, the following limitations apply to Zuora Revenue:

  • The scenarios where the subscription term does not align with the ramp interval are not supported.
  • The Ramp Interval object is restricted from the mapping template and the query filter.
  • Usage charges are not supported.
  • Account-level discounts are not supported.
  • Fixed amount discounts (FAD) are standalone transactions in Zuora Revenue, so they are not supported. 
  • Only one Average Pricing Method, either Term or Volume, can be configured at the tenant level. The configuration on the transaction level is not supported.
  • The price-based average pricing method is not supported.
  • All scenarios where the ramp interval does not align with the charge segment are not supported, for example, evergreen subscriptions.

Examples

Two examples are provided to help you understand the ramp allocation process based on different average pricing methods for users of Zuora Central Revenue.

Example 1

In this example, there is one ramp deal group within the revenue contract, which is indicated by the Ramp Identifier. Three lines are included in this ramp deal group. Both quantity and price are ramping in the three-year period. The AVG_PRICING_MTHD filed for them is set to Term.

Charge # Charge Version Charge Segment Ramp Identifier Quantity Unit List Price Unit Sell Price Ext List Price Ext Sell Price Start Date End Date
C-00001 1 1 RI_0000000001 10 $1,000 $1,000 $10,000 $10,000 1-Jan-20 31-Dec-20
C-00001 2 2 RI_0000000001 20 $1,000 $1,000 $20,000 $20,000 1-Jan-21 31-Dec-21
C-00001 3 3 RI_0000000001 30 $1,000 $1,000 $30,000 $30,000 1-Jan-22 31-Dec-22
        60     $60,000 $60,000    

The calculation for ramp allocation percentage is based on the term of each line as follows:

Charge # Charge Version Charge Segment Ramp Identifier Start Date End Date Term (number of days) Ramp Allocation Percentage
C-00001 1 1 RI_0000000001 1-Jan-20 31-Dec-20 366 366/1096*100%
C-00001 2 2 RI_0000000001 1-Jan-21 31-Dec-21 365 365/1096*100%
C-00001 3 3 RI_0000000001 1-Jan-22 31-Dec-22 365 365/1096*100%
            1096  

The sum of each line's Ext Sell Price is 60,000. The net revenue from ramp allocation can be calculated based on the ramp allocation percentage and the total Ext Sell Price (60,000).

Charge # Charge Version Charge Segment Ramp Identifier Ext Sell Price Ramp Allocation Percentage Net Revenue
C-00001 1 1 RI_0000000001 $10,000 366/1096*100% $60,000*366/1096*100%=$20036.49635
C-00001 2 2 RI_0000000001 $20,000 365/1096*100% $60,000*365/1096*100%=$19981.75182
C-00001 3 3 RI_0000000001 $30,000 365/1096*100% $60,000*365/1096*100%=$19981.75182
        $60,000   $60,000

The the per day rate will be as follows:

Charge # Charge Version Charge Segment Ramp Identifier Net Revenue Term
(number of days)		 Quantity Per Day Rate Net Revenue Per Day
C-00001 1 1 RI_0000000001 $20036.49635 366 10 $20036.49635/366=$54.74452555 $54.74452555
C-00001 2 2 RI_0000000001 $19981.75182 365 20 $19981.75182/365=$54.74452555 $54.74452555
C-00001 3 3 RI_0000000001 $19981.75182 365 30 $19981.75182/365=$54.74452555 $54.74452555
          1096      

The validation passes because the per day rate is the same for the ramp deal line. The waterfall in the year 2020 can be calculated based on the net revenue per day (54.74452555) and the days of each period as follows:

Charge Version Charge Segment Jan-20 (31 days) Feb-20 (29 days) Mar-20 (31 days) Apr-20 (30 days) May-20 (31 days) Jun-20 (30 days) Jul-20 (31 days) Aug-20 (31 days) Sep-20 (30 days) Oct-20 (31 days) Nov-20 (30 days) Dec-20 (31 days) Total
1 1 $1,697.08 $1,587.59 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $20,036.50

The waterfall of the year 2021 is as follows:

Charge Version Charge Segment Jan-21 (31 days) Feb-21 (28 days) Mar-21 (31 days) Apr-21 (30 days) May-21 (31 days) Jun-21 (30 days) Jul-21 (31 days) Aug-21 (31 days) Sep-21 (30 days) Oct-21 (31 days) Nov-21 (30 days) Dec-21 (31 days) Total
2 2 $1,697.08 $1,532.85 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $19981.75

The waterfall of the year 2022 is as follows:

Charge Version Charge Segment Jan-22 (31 days) Feb-22 (28 days) Mar-22 (31 days) Apr-22 (30 days) May-22 (31 days) Jun-22 (30 days) Jul-22 (31 days) Aug-22 (31 days) Sep-22 (30 days) Oct-22 (31 days) Nov-22 (30 days) Dec-22 (31 days) Total
3 3 $1,697.08 $1,532.85 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $1,697.08 $1,642.34 $1,697.08 $1,642.34 $1,697.08 $19981.75

Example 2

In this example, there is one ramp deal group within the revenue contract, which is indicated by the Ramp Identifier. Three lines are included in this ramp deal group. Both quantity and price are ramping in the three-year period. The AVG_PRICING_MTHD filed for them is set to Volume.

Charge # Charge Version Charge Segment Ramp Identifier Quantity Unit List Price Unit Sell Price Ext List Price Ext Sell Price Start Date End Date
C-00001 1 1 RI_0000000001 10 $1,000 $1,000 $10,000 $10,000 1-Jan-20 31-Dec-20
C-00001 2 2 RI_0000000001 20 $1,000 $1,000 $20,000 $20,000 1-Jan-21 31-Dec-21
C-00001 3 3 RI_0000000001 30 $1,000 $1,000 $30,000 $30,000 1-Jan-22 31-Dec-22
        60     $60,000 $60,000    

The calculation for ramp allocation percentage is based on the term and quantity of each line as follows:

Charge # Charge Version Charge Segment Ramp Identifier Quantity Start Date End Date Term (number of days) Volume Ramp Allocation Percentage
C-00001 1 1 RI_0000000001 10 1-Jan-20 31-Dec-20 366 366*10=3660 3660/1096*100%
C-00001 2 2 RI_0000000001 20 1-Jan-21 31-Dec-21 365 365*20=7300 7300/1096*100%
C-00001 3 3 RI_0000000001 30 1-Jan-22 31-Dec-22 365 365*30=10950 10950/1096*100%
                21910  

The sum of each line's Ext Sell Price is 60,000. The net revenue from ramp allocation can be calculated based on the ramp allocation percentage and the total Ext Sell Price (60,000).

Charge # Charge Version Charge Segment Ramp Identifier Ext Sell Price Ramp Allocation Percentage Net Revenue
C-00001 1 1 RI_0000000001 $10,000 3660/1096*100% $60,000*3660/1096*100%=$10022.82063
C-00001 2 2 RI_0000000001 $20,000 7300/1096*100% $60,000*7300/1096*100%=$19990.87175
C-00001 3 3 RI_0000000001 $30,000 10950/1096*100% $60,000*10950/1096*100%=$29986.30762
        $60,000   $60,000

The net revenue per day will be as follows:

Charge # Charge Version Charge Segment Ramp Identifier Net Revenue Term (number of days) Quantity Net Revenue Per Day Per Day Per Unit Rate
C-00001 1 1 RI_0000000001 $10022.82063 366 10 $10022.82063/366=$27.38475582 $10022.82063/366/10=$2.738475582
C-00001 2 2 RI_0000000001 $19990.87175 365 20 $19990.87175/365=$54.76951164 $19990.87175/365/20=$2.738475582
C-00001 3 3 RI_0000000001 $29986.30762 365 30 $29986.30762/365=$82.15426746 $29986.30762/365/30=$2.738475582

The validation of per day per unit rate passes. The waterfall in the year 2020 can be calculated based on the net revenue per day ($27.38475582) and the days of each period as follows:

Charge Version Charge Segment Jan-20 (31 days) Feb-20 (29 days) Mar-20 (31 days) Apr-20 (30 days) May-20 (31 days) Jun-20 (30 days) Jul-20 (31 days) Aug-20 (31 days) Sep-20 (30 days) Oct-20 (31 days) Nov-20 (30 days) Dec-20 (31 days) Total
1 1 $848.93 $794.16 $848.93 $821.54 $848.93 $821.54 $848.93 $848.93 $821.54 $848.93 $821.54 $848.93 $10,022.82

The waterfall of the year 2021 can be calculated based on the net revenue per day ($54.76951164) and the days of each period as follows:

Charge Version Charge Segment Jan-21 (31 days) Feb-21 (28 days) Mar-21 (31 days) Apr-21 (30 days) May-21 (31 days) Jun-21 (30 days) Jul-21 (31 days) Aug-21 (31 days) Sep-21 (30 days) Oct-21 (31 days) Nov-21 (30 days) Dec-21 (31 days) Total
2 2 $1,697.85 $1,643.09 $1,697.85 $1,643.09 $1,697.85 $1,697.85 $1,533.55 $1,697.85 $1,643.09 $1,697.85 $1,643.09 $1,697.85 $19990.87

The waterfall of the year 2022 can be calculated based on the net revenue per day ($82.15426746) and the days of each period as follows:

Charge Version Charge Segment Jan-22 (31 days) Feb-22 (28 days) Mar-22 (31 days) Apr-22 (30 days) May-22 (31 days) Jun-22 (30 days) Jul-22 (31 days) Aug-22 (31 days) Sep-22 (30 days) Oct-22 (31 days) Nov-22 (30 days) Dec-22 (31 days) Total
3 3 $2,546.78 $2,300.32 $2,546.78 $2,464.63 $2,546.78 $2,464.63 $2,546.78 $2,546.78 $2,464.63 $2,546.78 $2,464.63 $2,546.78 $29986.31