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FinOps-Open-Cost-and-Usage-Spec · Aug 24, 2024 · 50af97a · 50af97a
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+# Commitment Discounts
+
+A commitment discount is a billing discount that offers reduced rates on preselected SKUs in exchange for an obligated usage or spend amount over a predefined term. Within cost and usage datasets, commitment discounts typically consist of a set of purchases and usage records.
+
+## Purchases
+
+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:
+
+* In-Advance - The commitment discount is paid in full before the term begins
+* Monthly - The commitment discount is paid monthly over the term.
+* Hybrid (In-Advance & Monthly) - Half of the commitment discount is paid in-advance and half is paid monthly over the term.
+
+For example, if a customer buys a spend-based commitment discount for 1 year, with a $1 hourly commitment, and pays with the hybrid option, their purchase schedule is:
+
+* In-Advance: $4,380 (24 hours * 365 days * $1 * 0.5)
+* Monthly: $182.50 (24 hours * 365 days * $1 / 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 (typically hourly) over the term.
+
+For example, if a customer buys a spend-based commitment with a $1 hourly commitment in January (31 days), only $1 is eligible for amortization for each hourly charge period. This means that if I have eligible resources running during this charge period, some or all of the $1 allocated to the charge period will be also be allocated to one or more resources. Conversely, if I don't have eligible resources running during this charge period, the $1 allocated to the charge period is wasted.
+
+# Commitment Discounts in FOCUS
+
+Within the FOCUS specification, the following examples demonstrate how a commitment discount would appear across various payment and amortization scenarios.
+
+## Purchases
+
+All commitment discount purchases appear with a positive `BilledCost`, `PricingCategory:Committed`, and the commitment discount's id as both the `ResourceId` and `CommitmentDiscountId` value. In-advance purchases appear as a single record with `ChargeCategory:Purchase` and `ChargeFrequency:One-Time`. Monthly purchases are spread across all corresponding charge periods of the term with `ChargeCateogry:Purchase` and `ChargeFrequency:One-Time`, and a positive `BilledCost`.
+
+Using the same example as above, various purchase for a one-year, spend-based commitment discount with a $1 hourly commitment purchased on Jan 1, 2023 can be seen as:
+
+### In-Advance
+
+The entire commitment is billed _once_ during the first charge period of the term for $8,670 (24 hours * 365 days * $1).
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ { 
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2024-01-01 00:00:00Z",
+ "ChargeCategory": "Purchase",
+ "ChargeFrequency": "One-Time",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "BilledCost": 8760.00,
+ "EffectiveCost": 0.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountPurchasedQuantity": 8760.00,
+ "CommitmentDiscountUnit": "USD"
+ }
+]
+```
+
+### Monthly
+
+The commitment is billed across all 8,760 charge periods of the term with $1 allocated to each charge period over the term.
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Purchase",
+ "ChargeFrequency": "Recurring",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "BilledCost": 1.00,
+ "EffectiveCost": 0.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountPurchasedQuantity": 1.00,
+ "CommitmentDiscountUnit": "USD"
+ },
+ ... more recurring purchase records ...
+]
+```
+
+### Hybrid (In-Advance & Monthly)
+
+Half of the commitment is billed _once_ during the first charge period of the term _and_ the other half is billed across each charge period over the term. Amortized costs incur half of the amount (i.e. $0.50) from the in-advance purchase and the other half from monthly purchase.
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2024-01-01 00:00:00Z",
+ "ChargeCategory": "Purchase",
+ "ChargeFrequency": "One-Time",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "BilledCost": 1.00,
+ "EffectiveCost": 0.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountPurchasedQuantity": 4380.00,
+ "CommitmentDiscountUnit": "USD"
+ },
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Purchase",
+ "ChargeFrequency": "Recurring",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "BilledCost": 0.50,
+ "EffectiveCost": 0.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountPurchasedQuantity": 0.50,
+ "CommitmentDiscountUnit": "USD"
+ },
+ ... more recurring purchase records ...
+]
+```
+
+## Usage
+
+Amortization of commitment discounts occur the same way no matter how a purchase(s) are made. The same fixed usage-based or spend-based amount is applied evenly across all charge periods to eligible resources. Continuing with the same one-year, spend-based commitment discount with a $1 hourly commitment as above, there are 4 possible types of scenarios that can occur with eligible resource(s) during a charge period:
+
+* Scenario 1: 1 resource runs for $1 (100% utilization).
+* Scenario 2: No eligible resources run (0% utilization).
+* Scenario 3: 1 resource runs for $0.75 (75% utilization).
+* Scenario 4: 1 resource runs for over the $1 hourly commitment (100% utilization + overage).
+
+### Scenario 1: 1 resource runs for $1 (100% utilization).
+In this scenario, the entire, eligible amount was allocated to a resource and no portion of the amoutn was unused.
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Committed",
+ "ResourceId": "<eligible-resource-id>",
+ "ConsumedQuantity": 1,
+ "ConsumedUnit": "Hour"
+ "BilledCost": 0.00,
+ "EffectiveCost": 1.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountStatus": "Used",
+ "CommitmentDiscountConsumedQuantity": 1.00,
+ "CommitmentDiscountUnit": "USD"
+ }
+]
+```
+
+### Scenario 2: No eligible resources run (0% utilization).
+
+In this scenario, the entire, eligible amount was unused and remained allocated to the commitment discount.
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "ConsumedQuantity": null,
+ "ConsumedUnit": null,
+ "BilledCost": 0.00,
+ "EffectiveCost": 1.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountStatus": "Unused",
+ "CommitmentDiscountConsumedQuantity": 1.00,
+ "CommitmentDiscountUnit": "USD"
+ }
+]
+```
+
+### Scenario 3: 1 resource runs for $0.75 (75% utilization).
+
+In this scenario, one resource runs for the full hour, costs $0.75, and leaves $0.25 as unused.
+
+*Charge Period: 2023-01-01 00:00:00 - 2023-01-01 01:00:00*
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Committed",
+ "ResourceId": "<eligible-resource-id>",
+ "ConsumedQuantity": 1,
+ "ConsumedUnit": "Hour",
+ "BilledCost": 0.00,
+ "EffectiveCost": 0.75,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountStatus": "Used",
+ "CommitmentDiscountConsumedQuantity": 0.75,
+ "CommitmentDiscountUnit": "USD"
+ },
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Committed",
+ "ResourceId": "<commitment-discount-id>",
+ "ConsumedQuantity": null,
+ "ConsumedUnit": null,
+ "BilledCost": 0.00,
+ "EffectiveCost": 0.25,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountStatus": "Unused",
+ "CommitmentDiscountConsumedQuantity": 0.25,
+ "CommitmentDiscountUnit": "USD"
+ }
+]
+```
+
+### Scenario 4: 1 resource runs for over the $1 hourly commitment (100% utilization + overage).
+
+```
+[
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Committed",
+ "ResourceId": "<eligible-resource-id>",
+ "ConsumedQuantity": 1,
+ "ConsumedUnit": "Hour",
+ "BilledCost": 0.00,
+ "EffectiveCost": 1.00,
+ "CommitmentDiscountId": "<commitment-discount-id>",
+ "CommitmentDiscountStatus": "Used",
+ "CommitmentDiscountConsumedQuantity": 1.00,
+ "CommitmentDiscountUnit": "USD"
+ },
+ {
+ "BillingPeriodStartDate": "2023-01-01 00:00:00Z",
+ "BillingPeriodEndDate": "2023-02-01 00:00:00Z",
+ "ChargePeriodStartDate": "2023-01-01 00:00:00Z",
+ "ChargePeriodEndDate": "2023-01-01 01:00:00Z",
+ "ChargeCategory": "Usage",
+ "ChargeFrequency": "Usage-Based",
+ "PricingCategory": "Standard",
+ "ResourceId": "<eligible-resource-id>",
+ "ConsumedQuantity": 1,
+ "ConsumedUnit": "Hour",
+ "BilledCost": 0.50,
+ "EffectiveCost": 0.00
+ }
+]
+```
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