Subscription types explained

Introduction

This article provides a comprehensive overview of the subscription types supported on the Platform. Understanding these subscription types helps Seller Admins and Platform Users manage billing, invoicing, and customer expectations effectively.

In this article:

• License-based subscriptions
• Consumption-based subscriptions
• One-time subscriptions
• Comparison of subscription types
• Add-on subscriptions

The Platform supports three main subscription types, each with its own billing model and characteristics: License-Based Subscriptions, Consumption-Based Subscriptions, and One-Time Subscriptions. This article explains the key differences between these subscription types, their billing characteristics, and how they appear in invoices.

License-based subscriptions

License-Based Subscriptions are billed based on the number of Licenses (seats) and subscription duration.

Key characteristics

• Billing Cycle: Calculated from the subscription's start date
• Billing Frequency: Can be Monthly Billing or Annual Billing
• Payment Model: Charged in advance based on the number of licenses
• Adjustment Method: Corrections are applied if changes occur during the Billing Period

Billing process

License-based subscriptions are calculated based on subscription events such as subscription provisioned, subscription suspended or reactivated, and License quantity changed.

This type of subscription is invoiced in advance based on the quantity at the end of the previous billing period. If any changes occur after the initial charge, corrections appear in the next Billing Cycle.

Charge types

License-based subscriptions use these charge types:

A customer purchases 10 licenses of Microsoft 365 E3 on January 15th with monthly billing:

1. January 15: Purchase Fee (prorated for Jan 15 to Feb 14)
2. February 15: Cycle Fee for the next month (Feb 15 to Mar 14)
3. February 20: Customer adds 5 more licenses
4. March 15: Cycle Fee for 15 licenses plus Correction for the 5 additional licenses (prorated for Feb 20 to Mar 14)

Consumption-based subscriptions

Consumption-Based Subscriptions are billed based on actual usage rather than a fixed number of licenses.

Key characteristics

• Billing Cycle: Aligned with the billing cycle of the reselling contract
• Billing Frequency: Always monthly
• Payment Model: Charged in arrears based on actual usage
• Adjustment Method: Reconciled at the end of each billing cycle

Billing process

Consumption-based subscriptions are invoiced after their billing cycle ends. The process works as follows:

1. Usage data is collected throughout the billing period
2. At the end of the period, total consumption is calculated for each meter
3. The sum of all meter charges is included in the invoice with the charge type Usage Fee

Supported meters

Consumption-based meters vary by product and Vendor. Common examples include computing resources such as CPU hours and memory usage, storage measured in GB or TB stored or transferred, API calls or transactions, and service usage hours.

Example

A customer has an Azure subscription with consumption-based services:

1. January 1 to 31: Customer uses various Azure services
2. February 1: Invoice generated with Usage Fee for January consumption
3. February 1 to 28: Customer uses Azure services
4. March 1: Invoice generated with Usage Fee for February consumption

One-time subscriptions

One-Time Subscriptions represent a single purchase rather than an ongoing service.

Key characteristics

• Billing Cycle: No recurring billing cycle
• Billing Frequency: One-time payment only
• Payment Model: Full payment charged once
• Adjustment Method: Rarely needed; specific to the vendor's policies

Billing process

One-time subscriptions are invoiced on the next billing date after purchase with the charge type One-Time Fee.

Special case: Reservations

Reserved Instances are special types of subscriptions that can be purchased with monthly or upfront payment. The Term Duration can be 1 or 3 years.

• If a reservation is purchased with an upfront payment, it is treated as a one-time subscription
• If purchased with monthly payments, it is treated as a license-based subscription with a Commitment Period

Example

A customer purchases a software license with a perpetual license on March 15:

• April 1: Invoice generated with One-Time Fee for the full amount

Comparison of subscription types

Add-on subscriptions

Add-On Subscriptions are extensions to a main subscription and always inherit the billing cycle from their Parent Subscription, regardless of their start date.

For example, if a parent subscription has a billing cycle on the 15th of each month, any add-on subscription will also be billed on the 15th, even if the add-on was purchased on the 20th.

Summary

The Platform supports three main subscription types: License-Based Subscriptions billed based on the number of licenses, Consumption-Based Subscriptions billed based on actual usage, and One-Time Subscriptions representing single purchases. Each subscription type has distinct billing characteristics, charge types, and payment timing. Add-On Subscriptions always inherit the billing cycle from their parent subscription. Understanding these differences helps manage customer expectations and billing processes effectively.

Related content

• Billing Cycles and Frequency
• Complete Guide to Charge Types
• Proration and Corrections