Proration is charging or crediting a customer for only the part of a billing period that a change is in effect, by scaling the full-period price to the time remaining.
A worked example
Example, with made-up numbers: a customer on a calendar-year contract adds 20 seats at $600 per seat per year on 1 October, with 92 days of a 365-day term left. Daily proration: 20 × $600 × 92 ÷ 365 = $3,024.66. Monthly proration: 3 remaining months × 20 seats × $50 = $3,000.00. The two methods differ by $24.66 on one change. Across a year of amendments the gap adds up, and it is exactly the kind of difference a customer's accounts-payable team will ask about. A downgrade runs the same arithmetic in reverse to produce a credit, if the contract grants one.
Pick the method once
Daily proration is the most precise and fits annual contracts with changes on any date. Monthly proration fits monthly billing where changes take effect on the first. Some teams skip proration for small changes and bill the new quantity from the next cycle. The mistake is leaving the method out of the contract, or letting the system use one rule while the contract states another: if the customer can't reproduce the number, they will dispute it. Write down the method, the rounding rule and the downgrade policy, configure them once, and test them on a live amendment. The arithmetic for every amendment type is in subscription amendments explained, and the date side is co-terming.
In Salesforce
Standard Salesforce has no proration engine. The standard Opportunity Amount doesn't factor time, and changing a date on a Contract or Order doesn't recompute a price, so proration comes from the CPQ or billing app. Salesforce CPQ prorates subscription lines on quotes and amendments against the subscription term, with a package setting that decides whether partial periods are counted by day or by month. External billing platforms prorate on their own side and sync the result back, so the CRM and the invoice can disagree when the two systems use different conventions.
How Kugamon handles it
Kugamon prorates on Expansion. When an Expansion Quote or Order adds lines to an existing Contract, Kugamon co-terms and prorates every added line to the Contract End Date automatically, and releasing the Order creates the Invoice. Services are priced Price × Quantity × Term, with the term on each line; Service Term Behavior decides whether term counts in the amount and the invoice schedule, and Service Term Scale sets how many decimals a partial term carries. Kugamon's Opportunity Amount field factors the Service Term where the standard Amount doesn't. Bring a real amendment to a demo to confirm the proration convention matches your contract.
Related terms
- Co-terming
- Amendment
- Annual recurring revenue (ARR)
- Total contract value (TCV)
- Revenue recognition (ASC 606)
Source: www.kugamon.com