Recurring Billing for Subscription Products

Salesforce Billing evaluates several factors when invoicing for a recurring order product, such as how frequently to invoice. For example, billing each month is less than billing quarterly. We use a formula to account for these factors and calculate how much Salesforce Billing bills a recurring order product on any given invoice. The result of this calculation is known as the billable unit price. Salesforce Billing calculates it for recurring products using the following formula. The “unit” in Billable Unit Price represents a unit of time, not a per unit value.

Billable Unit Price = [(Total Amount * Billing Frequency) ÷ (Prorate Multiplier * Subscription Term)]

Note If the charge type is recurring, the product subscription type isn’t evergreen, and the order product is created from a quote line, then the prorate multiplier value is equal to the quote line value.

Here are a few exceptions to the formula:

• If the charge type is one time, then the billable unit price is determined by the total amount of the order product.
• If the charge type is recurring and the subscription type is evergreen, then Billable Unit Price = Billing Frequency * Total Amount.
• If the charge type is recurring and the billing frequency is invoice plan, then the billable unit price is null. In this case, the billable unit price is ignored for invoice line subtotal calculation.

Note The billing frequency can be monthly, quarterly, semiannual, or annual.

We now have a value for the amount we expect to bill a recurring order product on any given invoice. When you invoice this order product, its balance by default is equal to the billable unit price. If your order had partial periods or proration, Salesforce Billing then prorates the invoice line’s balance accordingly.

Users can also manually set the billable unit price. If it’s lower than the original calculated amount, Salesforce Billing accrues the difference over time and puts the remaining amount in the final invoice. This feature is useful if a sales rep renegotiates terms after the initial sale.

Note We recommend against changing a non-evergreen recurring order product’s billable unit price from the value that Salesforce CPQ calculated, as the change causes errors. If you’re using an uninvoiced evergreen order product, you can use the order product’s Override Billable Unit Price field to set a new billable unit price.

Example A $100 product sold in yearly increments is quoted for 10 months, to be invoiced quarterly. Salesforce CPQ is using monthly proration precision, so our proration multiplier is (10/12). This gives us the following billable unit price formula.

[($100 * 3) ÷ ((10/12) * 12)] = $30

With a billable unit price of $30, a typical invoice in this scenario would be billed at $30. The first three invoices, which cover 9 of the 10 months, would cover $30 each. The last invoice has a different balance than the billable unit price, since there’s only $10 left to bill.

Example

Next, let’s look at how subscription prorate precision can affect recurring billings.

A product sold in monthly increments is quoted for January 1 through March 5 for $21.64, to be invoiced monthly. In this scenario, we’ll have a small portion to bill for the five-day period in March. Depending on the CPQ package setting Subscription Prorate Precision, you can charge either for the full month, or prorate based off the five extra days.

If your proration precision is Month + Day, you’ll bill a total amount of $21.64: $10 in January, $10 in February, and $1.64 in March. However, dividing the total amount of $21.64 across three invoices evenly comes out to a price per month of $7.21, notably different than the $10/$10/$1.64 we originally expected. It’s important to keep these differences in mind for internal book keeping and revenue recognition reporting.

So, to bill for the right amount at the right time, you have to use the known prorate multiplier to calculate the price per month. In this case, the prorate multiplier for Month + Day precision is 2.164. This leads to a billable unit price of $10.