What is a Usage Commitment?

A usage commitment is a promise a customer makes to spend at least a certain amount (or use at least a certain quantity) over a set period of time, in exchange for pricing or terms tied to that promise.

It's a common structure in usage-based contracts — the customer commits to a minimum and is billed a “true-up” if they fall short; or the customer prepays for a certain threshold, and is billed overages if they exceed the prepaid amount.

The basic shape of a commitment

In Tabs, a usage commitment has three layers:

1. The commitment itself — the top-level container. It has a name, an amount (in dollars or units), and settings for how prepayment and true-up work.

2. Schedules — a commitment is broken into one or more date ranges called schedules. Most commitments have just one schedule that runs for the life of the contract, but a schedule can also end and be followed by a new one — for example, if a single commitment spans multiple years with the committed amount increasing year over year (often referred to as step up commitments). Schedules always sit back-to-back with no gaps or overlaps.

3. Steps — within a schedule, a step represents a tier of the commitment. Most schedules have a single step, but you can add extra steps to represent a step-up in the committed amount partway through a schedule that is triggers based on usage, not dates — for example, if more capacity is added to an existing commitment, a new step can be added to take into effect once the initial committed amount is met. Steps do not have dates associated, and automatically move to the next step based on depleting the usage amount in the previous step.

So a simple commitment is just: one commitment → one schedule → one step.

More complex ones layer in additional schedules or steps as for more dynamic commitment structures and subsequent amendments.

Key concepts

• Amount and unit type — a commitment is measured either in dollars or in units of usage.

• Billing terms — a commitment is tied to one or more specific usage-based billing terms on the contract. Billing terms are connected to commitments at the step level.

• Event types — determines what usage burns down the commitment. Event types are selected at the schedule level, and are already linked to billing terms. Then, billing terms are chosen for each step that are linked to the selected event types for that schedule.

• Interval — how often the commitment resets and is measured (e.g., monthly, quarterly, yearly), or it can run for the "full duration" of the schedule with no resets.

• Prepayment — optionally, a customer can prepay some or all of the commitment upfront, on a schedule you define (all at once, per commitment period, or spread across billing periods).

• True-up — if the customer doesn't hit their committed amount by the end of a measurement period, Tabs can automatically bill them for the shortfall. This can be turned off if you never want to true up unmet commitments.

• Price priority — when a commitment covers more than one event type, this tells Tabs which product's usage to apply toward the commitment first in the event that usage events come in at the same date and time.

• Overage pricing — usage beyond the committed amount can be priced differently (a flat rate, or tiered rates that change based on how much extra was used).