XaaS Digital Assets with Tiered Pricing Model in SAP S/4HANA Public Cloud
In our previous blog XaaS Digital Assets with SAP S/4HANA Public Cloud we saw an E2E Business process for XaaS Digital Assets with Fixed Recurring Charges for the software sold as a Subscription.
In this blog let’s take a look at E2E Business Process for “Tiered Pricing Model based on number of Licenses” in SAP S/4HANA Public Cloud & connected BTP applications including SAP Subscription billing & SAP Entitlement Management.
We’ll take the same example of a Digital Assets Company, having a software portfolio including various software’s & different pricing models.
Apart from software’s with Fixed Recurring Charges, this company also have a Digital Asset portfolio where customer is billed based on number of Licenses they use & pricing is Tiered Pricing Model.
End-to-End Business Process Includes:
By definition, A tiered pricing model refers to the cost of goods going down — or discounts increasing — based on the quantity/licenses purchased.
For the Software, Billing period is “Quarterly on reference date” & “Billing in Advance” is selected in SAP Subscription Billing Rate plan template.
Rate Plan Template in Subscription Billing:
Example Pricing Tiers configured in SAP:
- From 0 to 10 licenses customer to pay 200 USD per license.
- From 10 to 50 licenses customer to pay 160 USD per license.
- From 50 to 100 licenses customer to pay 140 USD per license.
- Above 100 licenses customer to pay 120 USD per license.
As the number of licenses increase, the price per license will go down.
Assuming we have all the relevant configurations, Org structure, Master Data & IFlows in place. We can get started with an E2E Business process with Tiered Pricing Model.
As part of E2E business process, we start with creation of a Solution Order in SAP S/4HANA Public Cloud.
Similar our previous blog, we create a Solution Order with two line items – one for software & another one for one time installation service.
We can also have a 24*7 Support Plan for this software, which is also a Subscription item based on number of license but Fixed price of 5 USD per license.
Only thing different in this case is, we have to enter the number of licenses required at the line item level under Subscription parameter in the Solution Order.
Imagine that customer needs 25 licenses for the Software & for 24*7 Support Plan.
For 25 licenses, the price for the software will be 200 USD for first 10 licenses + 160 USD for remaining 15 licenses. Which is 2000 + 2400 = 4400 USD per quarter.
And for 25 licenses, the price for 24*7 Support plan is fixed recurring = 25*5 USD = 125 USD per month.
As soon as we release the items in Solution Order, the order distribution will take place. Resulting in an Automatic Subscription Contracts for Software & Support Plan and a Service Order.
We can check the follow up transactions in Transaction History of the Solution Order.
Subscriptions SB772 for Support Plan & SB773 for PCAD_TOOLBOX_TIER software were created.
If needed, customers can also increase or decrease the number of licenses. And the corresponding credit/debit will be automatically taken care by SAP Subscription Billing in the next billing cycle.
Similar to our previous blog, we also have Entitlements created for this software in SAP Entitlement Management.
One entitlement for Trial Access & another for E-Learning access.
We can model as many number of entitlements as we want in SAP Entitlement Management System for a specific offering.
Once the Billing due date is reached the Bills from Subscription Billing will get transferred to SAP S/4HANA Cloud for Invoicing.
For Reference, We can find Tiered Pricing Calculation at the item level in Bills.
Subscription Billing Document Request is created in SAP S/4HANA & can be invoiced as a standard F2 Sales Invoice.
Then we create invoices from BDR for Subscriptions & service item. Assuming service confirmation and other relevant steps are done.
Once the Sales & Service Invoices are created, Revenue has to be recognized at the period end using EBRR (Event-Based Revenue Recognition)
The Revenue Recognition program will recognize the revenue & keep certain amount as deferred revenue after the first Rev Rec Run. As the Billing period for software item is “Quarterly on reference date”.
Only after the quarter ends, the whole revenue will be recognized for the software subscribed.
After the Rev Rec run – we can check the provider contract in Event-Based Revenue Recognition – Provider Contract Fiori Tile.
Similarly for Services the revenue will be recognized after the Rev Rec Run.
The Overall Document progress can be seen under Solution Order Progress.
In conclusion, SAP Customers can run E2E Business Process for Digital Assets providers with Tiered Pricing Model using SAP S/4HANA Public Cloud & its connected BTP applications like SAP Subscription Billing & SAP Entitlement Management.
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Stay tuned for more advanced Pricing Models.