When a customer changes the subscription plan in the middle of the billing cycle, we will pro-rate charges for the rest of the billing period. Depending on whether it is an upgrade / downgrade the appropriate proration logic will be applied.
Why we prorate charges for YesHello? Since we allow changes to subscription plans in the middle of a billing cycle, it is important to align your usage charges based on your consumption. To make this effective, we have outlined a clear & unambiguous way of prorating charges that is fair to your business.
The billing amount depends on the plan the customer has subscribed to and the length of time they are subscribed to it. In the usual scenario, the customer remains subscribed to the same plan and makes the recurring payments accordingly.
But the billing becomes a little challenging when the customer decides to switch plans or make other tweaks before the next billing date. In such cases, the billing amount has to be calculated based on the number of days under a particular plan - in other words, on a proportional basis. This is what is known as prorated billing.
Your customer made the decision to move to a higher-tier plan before the next billing date (May 5th), so the bill has to be adjusted on a pro-rata basis for the period they were still using the lower-tier plan.
To do that, you need to calculate the per-day amount owed by the customer for the lower-tier plan.
This amount is then multiplied by the number of days under that plan (10 days), and the result is deducted from the total amount to be paid for the higher tier plan.
However, because the plan has been switched before the next billing date, you need to calculate the per day charge of the higher-tier plan ($500/30) and multiply by the number of days remaining in that month (20).
The credits that we calculated, earlier has to be deduCted from this final amount.
The remaining amount is the actual amount that the customer owes until the next billing date [($500/30)*20]-$200 = 133.33.
Proration logic example:
Current Plan: $300 / month
New plan: $500 / month
$300 paid at the beginning of billing cycle.
Assume, changes are made 10 days after start date.
Prorated “consumed” charge $100.
Prorated credit remaining is $200.
Additional charge on new plan for remaining period: $333.33
Net additional charges after adjusting credits: $133.33.