Prorating Plan Upgrades?
Does CG prorate plan upgrades?
Meaning, someone is on Plan A for $10/month and half-way through their billing cycle upgrades to Plan B which is $20/month. Ideally their billing date would be left alone, but a transaction would immediately be run for a prorated upgrade amount. Does this happen?
Thanks!
EDIT: This discussion is a bit outdated. See comment 6 for more information about prorating.
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Support Staff 1 Posted by Marc Guyer on 11 Nov, 2009 03:32 PM
No, CG doesn't do any prorating. In our experience, this just creates unnecessary complexity.
If the customer moves from a free plan to a paid plan, the billing cycle starts at the moment of the change. More information on free plans.
If the customer moves from one paid plan to another, the billing cycle remains the same and the customer is simply billed for the plan they are subscribed to on their billing date.
If you really want to prorate, you can do so with custom credits/debits. Just issue a custom credit for the past portion of the billing period upon a plan upgrade. For example, if a customer's period is 11/15-12/15 and they are subscribed to a $10 plan and they change to the $20 plan on 12/1 then you would issue a credit for $5 (the difference of half of the old plan and half of the new plan). Then their next bill would be a net of $15. That sounds pretty simple but consider if a customer changes to the $20 plan on 12/1 but changes back to the $10 plan on 12/10. Now you have an invoice with a $5 credit and another custom entry to account for the usage of the $20 plan for 10 days. The complexity just snowballs from there. Add in some tracked items and overage charges and it's madness.
The point is that there really is no commonly agreed upon way to do this. It is our opinion that the complexity involved is just not worth the trouble. So, I guess you could say that CG's way of doing it is to not bother at all. Consider an average customer lifetime of 3 years and an average monthly fee of $50 and customers typically upgrade once during their lifetime. The total value of the customer is $1800. The average amount of a plan change adjustment would be about $25.
2 Posted by jbritten on 12 Nov, 2009 05:05 AM
Yeah, prorating is a hassle, but I don't think it has to be so complicated. You could treat any upgrade in plans as an immediate prorated upgrade fee to jump from Plan A to Plan B, keeping the billing date the same. As for downgrades, you could simply "schedule" a downgrade to occur on their billing date (since the customer has already paid for the upgrade) and not issue credits.
Simply ignoring upgrades and downgrades leaves my app wide open for some abuses. Suppose a customer pays for Plan A at $10 then immediately upgrades to Plan E at $200 (but pays nothing for the upgrade). On the day prior to their billing date they downgrade back to Plan A or cancel their account. They've gotten a free month of E service at A price. Can CG handle this? What if on the billing date CG looked back and charged the customer for 2 days of A and 28 days of E?
It seems like you're considering the above scenario a wash based on the logic that a customer's lifetime is 3 years and an average monthly ticket is $50; however, these are arbitrary variables which simply don't hold true for my particular app/service.
3 Posted by kent13304 on 12 Nov, 2009 05:26 PM
Well, your arguments are sort of true with monthly plans but really don't make sense on annual plans.
If the customer starts on 1/1/2010 with a $100/year Basic plan and upgrades to a $200/year Pro plan on 1/2/2010, you'd wait until 1/1/2011 to bill them the new $200/year, correct?
Support Staff 4 Posted by Marc Guyer on 16 Nov, 2009 05:30 PM
Annual plans sound nice at first because of the boost to cash flow up front. However, they make accounting and cash flow management difficult. If you bill in advance for a year, it's best to carry the "unearned" revenue on your books as a liability until it is earned. Even if you don't, it's still really a liability. If for some reason you need to refund a significant number of subscriptions, you're looking at trouble unless you're saving up for a rainy day.
Also, the risk managers don't like it when you bill in advance for a long period of time. That could translate into a higher discount rate. It can also lead to a high chargeback rate. If a customer is used to being billed monthly and seeing the charge on their statement, they're more likely to remember what it is.
Credit cards and services like CheddarGetter make it easier to bill more often too.
Anyway, I realize these are all arguments against annual billing and we're a little off subject. However, the same arguments apply to billing in advance in general. Either way, you can still use custom credits and debits to prorate a subscription upon plan changes.
@jbritten to answer your question about plan A->E->A: Presumably the customer is getting something more from you on the $200/mo plan. Switching back to the A plan removes the additional features which the customer presumably wants/needs. I understand that this argument doesn't hold water in some cases but it might in yours.
Our goal is to make billing easy and simple. It shouldn't be complicated. If it is, you can spend more time dealing with billing issues than on making money in general. It can quickly have an effect on your gross margins and so on the bottom line.
Ok, after all that, here you go: We're working on a new feature that will allow building the subscription and billing for that first period immediately (or whenever you want). This will allow for a true in-advance model. We will also be implementing a feature that allows building a custom invoice and billing for that invoice immediately. This will allow for prorating plan changes when there is a desire to settle the prorate immediately rather than adjusting the next bill accordingly.
Support Staff 5 Posted by Marc Guyer on 14 Feb, 2010 04:25 PM
A new upgrade is going out tonight that will better address plan changes and lengthy billing periods. Here's a new KB article on the subject: http://support.cheddargetter.com/faqs/pricing-plans/pricing-plan-changes-upgradedowngrade. Attached is a sneak preview of the new config options.
Marc Guyer closed this discussion on 14 Feb, 2010 04:25 PM.
Kent Johnson re-opened this discussion on 14 Feb, 2010 04:38 PM
6 Posted by Kent Johnson on 14 Feb, 2010 04:38 PM
Nice change. I know you were relunctant to do this but the lack of
prorating is what caused us to choose Spreedly instead. Maybe we'll
come back.
Support Staff 7 Posted by Marc Guyer on 14 Feb, 2010 04:45 PM
Sorry you had to do that. We still believe in the simple method of changing plans when possible. Too bad it just doesn't support large fee amounts and lengthy billing periods. Now that's all taken care of.
Marc Guyer closed this discussion on 18 May, 2010 01:42 PM.