How are License-Based Subscriptions billed?
Introduction
This article explains how License-Based Subscriptions are calculated and invoiced in the Platform. It covers the billing events that trigger charges, the types of fees applied, and provides detailed examples of various billing scenarios. Understanding these principles will help you predict and manage subscription costs effectively.
License-Based Subscriptions are invoiced in advance based on the last Subscription quantity in the previous Billing Period. When changes occur after advance payment, a Correction appears in the next Billing Period.
In this article:
Billing events and charge types
License-Based Subscriptions are calculated based on the following Subscription events:
- Subscription provisioned
- Subscription suspended or reactivated
- Subscription quantity changed
- Billing Frequency changed
Charge types
There are three types of charges that may appear on your Invoice:
Purchase Fee: Initial fee for a Subscription, generated in the next Invoice after the Subscription start date. The Purchase Fee cost is a prorated cost for the first Billing Period of the Subscription.
Cycle Fee: Periodic charges for Subscription, generated based on the Subscription's quantity at the end of its Billing Period if the Subscription is active. Monthly Billing Subscriptions receive a Cycle Fee every month, while Annual Billing Subscriptions receive it every year (if the Subscription is active on the Invoice date).
Correction: Prorated charges for a Subscription based on the previous Cycle Fee or Purchase Fee and actual Subscription cost for the previous period. Generated when the number of Seats changes or the Subscription is suspended or reactivated. The quantity for a Correction is always 1, which means that Cost Price equals Total Price.
How proration works
Proration ensures you only pay for the exact number of days a Subscription is active at a specific quantity.
Purchase Fee calculation differs from Cycle Fee calculation. The Purchase Fee is a prorated cost for the entire first period, while the Cycle Fee is calculated based on the initial quantity of a period.
Example: If a Subscription starts on January 8th with a Cost Price of 10 EUR and quantity 1, then increases to quantity 5 on January 29th, the Purchase Fee calculated on February 1st will be:
In contrast, if quantity changes during a billing cycle, the Cycle Fee Correction appears in the next month's Invoice.
Billing examples for common scenarios
Example 1: Purchase Fee and Cycle Fee with same billing cycle
Scenario: Subscription started on April 15th, 2018. The organization's invoicing date is the 1st of each month.
On the first billing date (May 1st, 2018), the Invoice contains:
- A Purchase Fee for the period from April 15th to May 1st
- A Cycle Fee for the period from May 1st to June 1st
Starting from June 1st, 2018, Invoices contain only the Cycle Fee.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 05/01/2018 | 04/15/2018 | 05/01/2018 | 1 | Purchase Fee |
| 05/01/2018 | 05/01/2018 | 06/01/2018 | 1 | Cycle Fee |
| 06/01/2018 | 06/01/2018 | 07/01/2018 | 1 | Cycle Fee |
Example 2: Purchase Fee and Cycle Fee with different billing cycles
Scenario: Subscription started on April 15th, 2018, with a billing cycle of the 15th.
On the first invoicing date (May 1st, 2018), the Invoice contains only a Purchase Fee with a prorated fee for the period from April 15th to May 15th.
Starting from June 1st, 2018, Invoices contain only the Cycle Fee.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 05/01/2018 | 04/15/2018 | 05/15/2018 | 1 | Purchase Fee |
| 06/01/2018 | 05/15/2018 | 06/15/2018 | 1 | Cycle Fee |
| 07/01/2018 | 06/15/2018 | 07/15/2018 | 1 | Cycle Fee |
Example 3: Correction when Subscription is suspended on invoicing day
Scenario: Subscription started on September 1st, 2018. On October 1st, 2018, the Invoice contains:
- A Purchase Fee for the period from September 1st to October 1st
- A Cycle Fee for the period from October 1st to November 1st
On November 1st (the day the Subscription is suspended), the Invoice contains the Cycle Fee for the entire period from November 1st to December 1st.
On December 1st, a negative Correction for all unused days from November 1st to December 1st is invoiced.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 10/01/2018 | 09/01/2018 | 10/01/2018 | 1 | Purchase Fee |
| 10/01/2018 | 10/01/2018 | 11/01/2018 | 1 | Cycle Fee |
| 11/01/2018 | 11/01/2018 | 12/01/2018 | 1 | Cycle Fee |
| 12/01/2018 | 11/01/2018 | 12/01/2018 | 1 | Correction (for unused days 11/01/2018 – 12/01/2018) |
Example 4: Correction when Subscription is suspended on a different day
Scenario: Subscription started on May 7th, 2018. On June 1st, 2018, the Invoice contains only a Purchase Fee for the period from May 7th to June 7th.
On July 1st, only a Cycle Fee is invoiced for the period from June 7th to July 7th.
The Subscription is suspended on June 28th. On August 1st, 2018, the Invoice contains a negative Correction for unused days from June 28th to July 7th.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 06/01/2018 | 05/07/2018 | 06/07/2018 | 1 | Purchase Fee |
| 07/01/2018 | 06/07/2018 | 07/07/2018 | 1 | Cycle Fee |
| 08/01/2018 | 06/07/2018 | 07/07/2018 | 1 | Correction (for unused days 06/28/2018 – 07/07/2018) |
Example 5: Correction for quantity change
Scenario: Subscription with quantity 1 started on May 7th, 2018. On June 1st, 2018, the Invoice contains a Purchase Fee for the period from May 7th to June 7th.
On the next billing date, only a Cycle Fee is invoiced for the period from June 7th to July 7th.
The Subscription quantity changes from 1 to 2 on June 18th.
The Invoice on August 1st contains:
- The Cycle Fee for the period from July 7th to August 7th
- A positive Correction for days from June 18th to July 7th when the quantity was already 2
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 06/01/2018 | 05/07/2018 | 06/07/2018 | 1 | Purchase Fee |
| 07/01/2018 | 06/07/2018 | 07/07/2018 | 1 | Cycle Fee |
| 08/01/2018 | 07/07/2018 | 08/07/2018 | 2 | Cycle Fee |
| 08/01/2018 | 06/07/2018 | 07/07/2018 | 1 | Correction (for days with quantity = 2: 06/18/2018 – 07/07/2018) |
Example 6: Annual Subscription with multiple changes
Scenario: Annual Billing Subscription started on January 5th, 2018. On February 1st, 2018, the Invoice contains a Purchase Fee for the annual period from January 5th, 2018 to January 5th, 2019.
The Subscription quantity is increased on April 15th, 2018. On May 1st, the Invoice contains a prorated Correction for days from April 15th, 2018 to January 5th, 2019 with increased quantity.
On July 16th, the Subscription is suspended. On August 1st, the Invoice contains a negative Correction for unused days from July 16th, 2018 to January 5th, 2019.
The Subscription is reactivated on October 14th, 2018. On November 1st, the Invoice contains a positive prorated Correction for days from October 14th, 2018 to January 5th, 2019.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type |
|---|---|---|---|---|
| 02/01/2018 | 01/05/2018 | 01/05/2019 | 1 | Purchase Fee |
| 05/01/2018 | 01/05/2018 | 01/05/2019 | 1 | Correction (for days with increased quantity 04/15/2018 – 01/05/2019) |
| 08/01/2018 | 01/05/2018 | 01/05/2019 | 1 | Correction (for unused days 07/16/2018 – 01/05/2019) |
| 11/01/2018 | 01/05/2018 | 01/05/2019 | 1 | Correction (for used days 10/14/2018 – 01/05/2019) |
Example 7: Full cost refund within first 30 days
Scenario: Subscription purchased on February 4th, 2020, and suspended on February 7th, 2020.
Since the Subscription was suspended during the first 30 days after the purchase date, the Customer receives a full cost refund.
| Invoice Date | Charge Start Date | Charge End Date | Charge Type | Quantity | Cost Price | Total Price |
|---|---|---|---|---|---|---|
| 02/06/2020 | 02/04/2020 | 03/04/2020 | Purchase Fee | 10 | 11.90 | 119.00 |
| 03/06/2020 | 02/07/2020 | 03/04/2020 | Correction | 1 | -119.00 | -119.00 |
Example 8: Annual Subscription suspended within first 30 days
Scenario: Subscription purchased on March 11th, 2020, and suspended on March 27th, 2020.
The second Invoice contains a Correction for the full annual cycle, as the Suspension occurred during the first 30 days after purchase.
| Invoice Date | Charge Start Date | Charge End Date | Charge Type | Quantity | Cost Price | Total Price |
|---|---|---|---|---|---|---|
| 03/16/2020 | 03/11/2020 | 03/11/2021 | Purchase Fee | 7 | 62.90 | 440.30 |
| 04/16/2020 | 03/27/2020 | 03/11/2021 | Correction | 1 | -440.30 | -440.30 |
Example 9: Subscription suspended after renewal
Scenario: On April 2nd, a Subscription was renewed with a new Cost Price of 48.00 (previously 40.00). The Customer suspended the Subscription on April 15th.
Since the Subscription was suspended during the first 30 days after renewal, the full cost is refunded in the second Invoice.
| Invoice Date | Charge Start Date | Charge End Date | Charge Type | Quantity | Cost Price | Total Price |
|---|---|---|---|---|---|---|
| 04/10/2019 | 04/02/2019 | 04/02/2020 | Purchase Fee | 1 | 40.00 | 40.00 |
| 04/10/2020 | 04/02/2020 | 04/02/2021 | Cycle Fee | 1 | 48.00 | 48.00 |
| 05/10/2020 | 04/15/2020 | 04/02/2021 | Correction | 1 | -48.00 | -48.00 |
Complex scenarios with different billing cycles
Example 10: Vendor-Reseller contract with different billing cycles
Scenario: Subscription started on April 10th, 2018 (billing cycle is the 10th). Subscription was suspended on May 28th. Vendor-Seller contract has billing cycle 1. Cost Price for the Subscription is 50.38 SEK.
For the first two months, the total Price is 302.28 SEK. On May 28th, the Subscription is suspended during the second billing cycle. The third Invoice on July 1st contains a Correction for the period from May 28th to June 10th (14 unused days).
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type | Cost Price | Total Price |
|---|---|---|---|---|---|---|
| 05/01/2018 | 04/10/2018 | 05/10/2018 | 6 | Purchase Fee | 50.38 | 302.28 |
| 06/01/2018 | 05/10/2018 | 06/10/2018 | 6 | Cycle Fee | 50.38 | 302.28 |
| 07/01/2018 | 05/10/2018 | 06/10/2018 | 1 | Correction | -136.51 | -136.51 |
Example 11: Reseller-Customer contract with different billing cycles
Scenario: Subscription started on April 10th, 2018 (billing cycle is the 10th). Seller invoices Customers on the 5th day of each month. Customer Price is 63 SEK.
The third Invoice on July 5th contains a Correction for the period from May 28th to June 10th (14 unused days).
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type | Customer Price | Total Price |
|---|---|---|---|---|---|---|
| 05/05/2018 | 04/10/2018 | 05/10/2018 | 6 | Purchase Fee | 63 | 378 |
| 06/05/2018 | 05/10/2018 | 06/10/2018 | 6 | Cycle Fee | 63 | 378 |
| 07/05/2018 | 05/10/2018 | 06/10/2018 | 1 | Correction | -170.71 | -170.71 |
Example 12: Support organization with matching billing cycles
Scenario: Support organization invoices Seller on the 10th day of each month. Cost Price for the Seller is 3.15 SEK. Billing cycle of the Subscription matches the contract billing cycle (10th).
The Invoice for April 10th, 2018 will not contain any data because April 10th is the start of the billing period (April 10th – May 10th). The first Invoice will contain data for two periods.
| Invoice Date | Charge Start Date | Charge End Date | Quantity | Charge Type | Cost Price | Total Price |
|---|---|---|---|---|---|---|
| 05/10/2018 | 04/10/2018 | 05/10/2018 | 6 | Purchase Fee | 3.15 | 18.90 |
| 05/10/2018 | 05/10/2018 | 06/10/2018 | 6 | Cycle Fee | 3.15 | 18.90 |
| 06/10/2018 | 05/10/2018 | 06/10/2018 | 1 | Correction | -8.54 | -8.54 |
Summary
License-Based Subscriptions use advance billing with prorated adjustments when changes occur. Purchase Fees cover the first partial or full period, Cycle Fees cover subsequent periods, and Corrections adjust for changes made after advance payment. Understanding these charge types and proration logic helps you accurately predict billing amounts for various subscription scenarios.
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