Minimum Commitment Products

A minimum commitment is a contractual obligation to spend a defined dollar amount (or other currency) on usage products within a billing period. If usage does not reach the committed amount, a minimum commitment fee is charged for the difference, ensuring the total invoice always equals at least the committed value. Minimum commitments can be billed in advance or in arrears.

Product Catalog Configuration

• “Minimum Commit” type products can only be added to Offerings with the type Minimum Commit.
• When configuring the Rate for a Minimum Commit product, users can define:
  • Whether the minimum commitment is billed in advance or in arrears.
  • Whether the commitment applies only to specific usage products or to all usage products when determining if the minimum has been met.

How It Works

Minimum Commitments in Arrears

The most common configuration is to bill the Minimum Commitment in arrears, alongside usage.

In arrears mode, the minimum commitment is evaluated at the end of the billing period after all usage has been calculated. A fee is only applied if total usage falls short of the committed amount.

1. All other invoice line items (usage, subscriptions, etc.) are calculated first.
2. The Minimum Commit product then evaluates the total of all in-scope charges against the committed amount.
   1. If the in-scope total is less than the commitment, a minimum commitment fee line item is created for the difference.
   2. If the in-scope total meets or exceeds the commitment, no additional fee is added.

Example: Arrears Mode

A customer has a $1,000 minimum commitment on storage and incurs $900 in usage during the billing period.

If usage had been $1,000 or more, no minimum commitment fee would appear on the invoice.

Minimum Commitments in Advance

In advance mode, the **full commitment amount is charged upfront **at the start of the billing period. At the end of the period, once usage is finalized, a negative adjustment line item (credit) is applied to offset the amount used.

This ensures that the customer pays the greater of actual usage or the committed amount, never both.

How Advance Invoicing Works

1. Start of Period (Advance invoice): The full minimum commitment amount is invoiced as a line item.
2. End of period (Arrears invoice): Usage is calculated and usage line items are added.
   1. A negative minimum commit adjustment is applied to offset the amount already charged in advance.
      1. If the Usage is less than the commitment, the negative adjustment equals the usage total.
         1. The customer has already paid the full commitment upfront, and the usage charges are fully offset so they are not double-billed.
         2. The total across both invoices equals the commitment.
      2. If the Usage meets or exceeds the commitment, the negative adjustment equals the full commitment amount.
         1. This zeroes out the advance charge, and the customer pays only the actual usage total.
         2. The total across both invoices equals the usage amount.

Example: Advance Mode (Usage Below Commitment)

A customer has a $1,000 minimum commitment on storage and used $800 during the period.

Advance invoice (start of period):

Arrears invoice (end of period):

Combined result: $1,000 + $0 = $1,000 (the commitment amount). The customer paid the commitment upfront and usage did not exceed it, so no additional charge is needed.

Example: Advance Mode (Usage Exceeds Commitment)

A customer has a $1,000 minimum commitment on storage and used $1,400 during the period.

Advance invoice (start of period):

Arrears invoice (end of period):

Combined result: $1,000 + $400 = $1,400 (actual usage). The advance charge is fully credited back, and the customer pays the true usage amount.

Quoting

When adding a minimum commit to a quote, the quantity represents the commitment amount.

• For example, setting the quantity to 1,000 on a minimum commit product priced in USD means the customer is committing to $1,000.

A quote can contain at most one offering that includes a minimum commit product, since its scope applies globally to all products on the quote.