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cnharris10 committed Sep 19, 2024
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A commitment discount is a billing discount model that offers reduced rates on preselected SKUs in exchange for an obligated usage or spend amount over a predefined term. Commitment discounts typically consist of a set of purchase and usage records within cost and usage datasets.

Usage-based commitment discounts obligate a customer to a predetermined amount of usage over a preselected term, typically measured in "Hours". In some cases, usage-based commitment discounts allow similar resources of different size classifications to relatively benefit from commitment discount rates. This is typically known as "commitment flexibility", and can be derived by multiplying the number of actual hours consumed by a resource by its predetermined *normalization factor* or *ratio* to derive the number of normalized hours consumed.
Usage-based commitment discounts obligate a customer to a predetermined amount of usage over a preselected term, typically measured in "Hours". In some cases, usage-based commitment discounts allow similar resources of different size classifications to relatively benefit from commitment discount rates. This is typically known as *commitment flexibility*, and can be derived by multiplying the number of actual resource hours consumed by a predefined SKU-based coefficient, sometimes referred to as a *normalization factor* or *ratio*, to derive the number of normalized hours consumed.

Spend-based commitment discounts obligate a customer to a predetermined amount of spend over a preselected term, typically denoted by the invoice's selected billing currency (ex: "USD").

## Purchasing

While customers are bound to the term of a commitment discount, cloud-service providers, or CSPs, offer various payment options before and/or during the term:
While customers are bound to the term of a commitment discount, cloud-service providers offer some or all of the following payment options before and/or during the term:

* *Upfront* - The commitment discount is paid in full before the term begins.
* *Recurring* - The commitment discount is paid on a repeated basis, typically over each billing period of the term.
* *Partial* - Some of the commitment discount is paid before the term begins, and the rest is paid repeatedly over the term.

For example, if a customer buys a spend-based commitment discount for 1 year, with a $1.00 hourly commitment, and pays with the partial option, the commitment discount's payment consists of both:
For example, if a customer buys a 1-year, spend-based commitment discount with a $1.00 hourly commit and pays with the partial option, the commitment discount's payment consists of 1 upfront purchase in the beginning of the term *and* monthly recurring purchases with the following totals:

1. *Upfront* - $4,380 (`24 hours * 365 days * $1.00 * 0.5`)
2. *Recurring* - $182.50 (`24 hours * 365 days * $1.00 / 12 months`)

## Usage

Commitment discounts follow a "use-it-or-lose-it" model where the amortization of a commitment discount's purchase applies evenly over each charge period of eligible resources over the term.
Commitment discounts follow a "use-it-or-lose-it" model where the amortization of a commitment discount's purchase applies evenly to eligible resources over each charge period of the term.

For example, if a customer buys a spend-based commitment with a $1.00 hourly commitment in January (31 days), only $1.00 is eligible for consumption for each hourly charge period. This means that if a customer has eligible resources running during this charge period, some or all of the $1.00 that is allocated to the charge period will also be allocated to some or all of these resources. Conversely, if a customer does not have eligible resources running during this charge period, the $1.00 allocated to the charge period is wasted.
For example, if a customer buys a spend-based commitment with a $1.00 hourly commitment in January (31 days), only $1.00 is eligible for consumption for each hourly charge period. If a customer has eligible resources running during this charge period, an amount of up to $1.00 will be allocated to these resources. Conversely, if a customer does have eligible resources running that fully take advantage of this $1.00 during this charge period, then some or all of this amount will go to waste.

## Commitment Discounts in FOCUS

Within the FOCUS specification, the following examples demonstrate how a commitment discount would appear across various payment and usage scenarios.
Within the FOCUS specification, the following examples demonstrate how a commitment discount appears across various payment and usage scenarios.

### Purchase Rows

All commitment discount purchases appear with a positive `BilledCost`, `PricingCategory` as "Committed", and the commitment discount's id populating both the `ResourceId` and `CommitmentDiscountId` value. Upfront purchases appear as a single record also with `ChargeCategory` as "Purchase", `ChargeFrequency` as "One-Time", and the total quantity and units for commitment discount's term as `CommitmentDiscountQuantity` and `CommitmentDiscountUnit`, respectively.
All commitment discount purchases appear with a positive `BilledCost`, `PricingCategory` as "Committed", and with the commitment discount's id populating both the `ResourceId` and `CommitmentDiscountId` value. Upfront purchases appear as a single record with `ChargeCategory` as "Purchase", `ChargeFrequency` as "One-Time", and the total quantity and units for commitment discount's term reflected as `CommitmentDiscountQuantity` and `CommitmentDiscountUnit`, respectively.

Recurring purchases are allocated across all corresponding charge periods of the term when `ChargeCategory` is "Purchase", `ChargeFrequency` is "Recurring", and `CommitmentDiscountQuantity` and `CommitmentDiscountUnit` are reflected only for that charge period.

Using the same commitment discount example as above, a one-year, spend-based commitment discount with a $1.00 hourly commitment purchased on Jan 1, 2023, various purchase options can occur:
Using the same commitment discount example as above with a one-year, spend-based commitment discount with a $1.00 hourly commitment purchased on Jan 1, 2023, various purchase options are available:

#### Scenario #1: Upfront

The entire commitment is billed _once_ during the first charge period of the term for $8,670 (derived as `24 hours * 365 days * $1.00`).
The entire commitment discount is billed _once_ during the first charge period of the term for $8,670 (derived as `24 hours * 365 days * $1.00`).

```json
[
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#### Scenario #2: Recurring

The commitment is billed across all 8,760 charge periods of the term with $1.00 allocated to each charge period over the term.
The commitment discount is billed across all 8,760 (`24 hours * 365 days`) charge periods of the term with $1.00 allocated to each charge period over the term.

```json
[
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"CommitmentDiscountUnit": "USD"
},

/* ... 743 more recurring purchase records for the billing period ... */
/* ... 8,759 more recurring purchase records for the term ... */
]
```

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"CommitmentDiscountUnit": "USD"
},

/* ... 743 more recurring purchase records for the billing period ... */
/* ... 8,759 more recurring purchase records for the term ... */
]
```

### Usage Rows

Amortization of commitment discounts occur the same way regardless of how one or more purchases are made. The same usage-based or spend-based amount is applied evenly across all charge periods and potentially allocated to eligible resources. Continuing with the same commitment discount example, a one-year, spend-based commitment discount with a $1.00 hourly commitment, and 1 resource, 4 types of scenarios can occur during a charge period:
Amortization of commitment discounts occur similarly regardless of how commitment discount purchases are made. The same usage-based or spend-based amount is applied evenly across all charge periods and potentially allocated to eligible resources. Continuing with the same commitment discount example, a one-year, spend-based commitment discount with a $1.00 hourly commitment and 1 resource yields 4 types of scenarios that can occur during a charge period:

* Scenario #1: Eligible resource(s) runs for $1.00 (100% utilization)
* Scenario #2: No eligible resources run (0% utilization)
* Scenario #3: Eligible resource(s) runs for $0.75 (75% utilization)
* Scenario #4: Eligible resource(s) runs for over the $1.00 hourly commitment (100% utilization + overage)
* Scenario #1: An eligible resource fully consumes the allocated amount (100% utilization)
* Scenario #2: No eligible resource consumes the allocated amount (0% utilization)
* Scenario #3: An eligible resource partially consumes the allocated amount (75% utilization)
* Scenario #4: An eligible resource fully consumes the $1.00 hourly commitment with an overage (100% utilization + overage)

#### Scenario #1: Eligible resource(s) runs for $1.00 (100% utilization)
#### Scenario #1: An eligible resource fully consumes the allocated amount (100% utilization)

In this scenario, one eligible resource runs for the full hour, so one row allocated to the resource is produced.
In this scenario, one eligible resource runs for the full hour and consumes $1.00, so one row allocated to the resource is produced.

```json
[
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]
```

#### Scenario #2: No eligible resources run (0% utilization)
#### Scenario #2: No eligible resource consumes the allocated amount (0% utilization)

In this scenario, the entire, eligible amount was unused, so one unused row, allocated to the commitment discount, was produced. Most notably, ConsumedQuantity and ConsumedUnit are null while CommitmentDiscountQuantity is not because $1 was still drawn down by the commitment discount even though it was not consumed by a resource.
In this situation, the full eligible, $1.00 amount remained unutilized and results in 1 unused row. In this scenario, it is important to note that while `CommitmentDiscountQuantity` is not because $1 was still drawn down by the commitment discount even though, no resource was allocated, so `ConsumedQuantity` and `ConsumedUnit` are null.

```json
[
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]
```

#### Scenario #3: Eligible resource(s) runs for $0.75 (75% utilization)
#### Scenario #3: An eligible resource partially consumes the allocated amount (75% utilization)

In this scenario, one eligible resource runs for the full hour. One row shows $0.75 to a resource, and the other shows that $0.25 remained unused.
In this scenario, one eligible resource runs for the full hour and consumes $0.75 of the $1.00 allocation. One row shows $0.75 to a resource, and the other shows that $0.25 was unused.

```json
[
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]
```

#### Scenario #4: Eligible resource(s) runs for over the $1.00 hourly commitment (100% utilization + overage)
#### Scenario #4: An eligible resource fully consumes the $1.00 hourly commitment with an overage (100% utilization + overage)

In this scenario, one eligible resource runs for the full hour and costs $1.50. One row shows that $1.00 was amortized from the commitment discount, and the other shows that $0.50 was charged as standard, on-demand spend.
In this scenario, one eligible resource runs for the full hour and is charged $1.50. One row shows that $1.00 was amortized from the commitment discount, and the other shows that $0.50 was charged as standard, on-demand spend.

```json
[
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