Minimum Commitment concepts
Learn how Minimum Commitment defines a minimum spend using Commitment True-up and Credit Commitment charges, and how commitment periods and supported charge models work.
To set up a Minimum Commitment subscription service, you need to make sure to include one recurring charge with the Charge Function field set to Commitment True-up, and one or more usage charges with the Credit Commitment checkbox selected.
Refer to the following information to understand the relevant concepts:
- Commitment True-up charge: Defines the minimum commitment. If the customer doesn't reach the committed amount, this charge will generate an invoice item that will charge the difference between the actual amount and the minimum commitment.
- Credit Commitment: Defines the unit price and tracks actual usage. Usage records should be uploaded against the Credit Commitment charges.
- Commitment Period: The period by the end of which the customer will be charged with a true-up if they fail to spend the minimum amount. The commitment period is defined on the Commitment True-up charge through the Validity Period field. A validity period can contain one or more Billing Periods. See Validity Period for more information.
Example Use Case for Minimum Commitment
The following diagram shows an example use case for Minimum Commitment:
In this example, the customer signed a 1-year contract with a minimum commitment of $12,000. The customer is billed quarterly. As the customer's total spend this year is only $10,000, which doesn't meet the committed amount, a $2,000 true-up charge was generated at the end of the term.
Note that the commitment period can also be set to any period if it is a multiple of the billing period.
Prerequisites
The following requirements need to be met before you can use this feature:
- Orders or Orders Harmonization should be enabled.
If you are using Orders Harmonization,
You must turn on the "Auto-renew by Order" Billing setting.
You must use an order to create prepaid with drawdown subscriptions.
If you are using Zuora CPQ, you must turn on the "Enable Order for CPQ" Billing setting.
By default, the term start date will be set as the billing day of a Commitment True-up charge. Therefore, you must enable the Term Start Day option for the Billing Day setting.
Supported charge models
The Minimum Commitment feature inherits the same scope of supported charge models from that of the Unbilled Usage feature. For more information, see the supported charge models by the Unbilled Usage feature.