As promised, we are back again with our Managing Your Subscription Products with Salesforce CPQ series. Last time, we explored the basics of setting up subscription products and some of the essential configuration decisions that need to be considered as you enable those products in Salesforce CPQ. In case you missed the last blog by any chance, here’s the link to it.
This time, we will discuss Proration inside Salesforce CPQ with an elaborate example. The topics we are going to cover are:
- Overview – CPQ Subscription Proration
- How Proration is evaluated on different levels
- Proration CPQ Settings
- Common Prorate Precision Examples
As always, we will continue with our fictitious Spaceflix streaming service in outer space as an example.
Let’s talk about the Quote Line evaluation. This is how the Proration is evaluated and applied to your Quote within CPQ. There is a hierarchy for the evaluation; here is the link to a great help article about it.
The three records that are under consideration are Quote Line, Quote Line Group, and the Quote itself. We will be looking at the Start Date, End Date, and Subscription Term. In the example below, we will start with the Quote Line and move to the Quote line Group; the Start and End Dates are considered first, and the Subscription Term is considered last.
As per the example, we set the Start Date to 1/1/2020 and the End Date to be 12/1/2020. So basically, we are ignoring the Start Dates with the Quote line Group in the Quote Level and then ignoring the Subscription Terms because we have the End Date at the Quote Level. This is an example of how evaluations happen and help us troubleshoot and determine what fields we want to put on the surface at each level.
Jumping to the Salesforce CPQ settings, the package settings help us set the Subscription Term Unit, which is something we covered in the last blog. The Subscription Proration setting for the Day is very simple; it filters down to only allow Day Prorate Precision. This is less common than the Month, which we will discuss shortly.
There are quite a few options with Month. Within a Month, we will still have a Day, then there is Calendar Monthly + Daily, Day with Calendar Month Weighted and Monthly + Daily. We also have the Proration Day of Month, which we do not cover in this blog – as it pertains to Salesforce Billing. So, we are starting off with day-based Proration. Subscription Term is the Day, and Proration Precision is one Day.
In our Subscription example here, we can see the annual Subscription is $200. It is straightforward, and the Subscription starts on 2/1/2022, and it’s a Renewable Subscription. The $200 is a flat fee, so this is Subscription Proration, and our term is behind the scene. One thing to note in Day is that CPQ will use 366 days for a leap year, so calculating the precision multiplier on your Quote Line record will be considered 366 days.
As an example, we are taking the exact Quote and have reduced our overall time frame to a shorter Quote. You can see the End Date on the Quote record; the quantity is one Subscription for $200. We have got our Prorate multiplier, so we are now at $16.44, which turns out to be near about two and half Months’ Subscription. This demonstrates how CPQ helps calculate the price in the backend based on the Subscription term.
Now, we are changing settings in our back end to set it from Date to Month, and then the Proration Precision is Day with Calendar Month Weighted. In this example, the CPQ will not consider the leap day if your term is not included. Some options and settings change depending on which Prorate Precision method you choose, so be aware of that while configuring CPQ.
Moving to the Month-based Proration, the Subscription Term and Prorate Precision are set on Month. The process is straightforward, even for a Partial Month, like ten days. Here the Quote starts on 2/1/2022, the Quote ends on 5/10/2022, making the Subscription Term ten weeks long. But, with Month-based Proration, we will count from Month to Month, whether it is the 10th Day of the Month or the last Day of the Month. It is one-on-one, so the calculation is straightforward. From Feb to May, it is four Months in total, the quantity here is one, so it gives us a total of $66.67. So, from a financial perspective, this Proration term gives you the most revenue associated with the Subscription fee as it considers a partial Month, as a whole Month.
Now for the Month + Daily, we are going to consider an example. In the following example, we will consider for ten days. The subscription term is of 3 Months, from February to April. We will calculate the precise value for those days in May Month and charge accordingly. So, the total amount of the Prorated term drops down to $55.48, which is significantly lower compared to the previous Proration term. So, you can see the difference between the total calculated amount and the Proration rate for a Month + Daily.
Now, we have an example for a calendar Month + Daily. As usual, we will first find the Start and End Date. We will only calculate the specific days of the first Month and last Month. The Months in between will be considered whole Months. So, if you are signing up people on specific days for Subscription within your business model, we can fix the signup to that specific Date. Let’s say it is the 15th – we can fix the signup day as the 15th. This way, you know how long the Month is going to last.
In this example, we have 28 days in February, which make up a whole Month, but it’s still going to calculate that, and then we will calculate the ten days in May the same way we calculated previously. In this example, the total amount adds up to $55.38, which is only a 10-cent difference from the last example, but if there are hundreds of Quote Lines, and different Subscription products, then this can have a significant impact on the total value.
So, that was a quick overview of Proration Precision in Salesforce CPQ. If you have any doubts about CPQ Subscription Proration , you can connect with our CPQ experts, who could help you.
In our next blog, we will discuss Salesforce CPQ renewals and amendments in detail. Stay tuned!