Proration
Also called: Prorated refund, Pro rata billing, Prorated charge
Proration charges only for the part of a billing period a customer had. Prorated refund meaning, a worked mid-cycle upgrade example, and refunds vs credits.
Prorated charge = Full period charge × (Days remaining in period ÷ Days in period)
Proration means charging a customer only for the part of a billing period they actually had something. When a customer adds 20 seats on the 19th of a 30-day month, they pay for the 12 days they had them, not the full month. A prorated refund is the same arithmetic in reverse: the customer gets back the unused share of what they prepaid.
The arithmetic is simple. The decisions around it are not.
Worked example: a mid-cycle upgrade with daily proration
A customer on the $3,000/month Growth plan upgrades to the $4,500/month Scale plan on June 19. June has 30 days, so 12 days remain (June 19–30).
| Line | Calculation | Amount |
|---|---|---|
| Credit for unused Growth | −$3,000 × 12 ÷ 30 | −$1,200.00 |
| Charge for Scale, rest of June | $4,500 × 12 ÷ 30 | $1,800.00 |
| Prorated amount due now | $600.00 | |
| July 1 invoice | Scale plan, full month | $4,500.00 |
The customer pays $600 for the upgrade — exactly the difference between the two plans for the days they have Scale — and moves to full price from the next cycle.
Prorated refund meaning, with an example
A prorated refund returns the unused portion of a prepaid charge when a customer cancels or downgrades mid-period, and the contract allows money back.
A customer pays $12,000 on January 1 for a year. They cancel effective April 1, with 275 of 365 days unused:
$12,000 × 275 ÷ 365 = $9,041.10 refunded
Annual contracts almost always prorate daily like this. Monthly proration (“nine months left = 9/12 of the price”) is tidier and slightly wrong, because months are different lengths.
Refunds vs credits
A proration that goes in the customer’s favour can be settled two ways:
- Refund. Money goes back to the customer’s card or bank account. Use it for cancellations where the contract permits refunds.
- Credit. Money stays with you and reduces the customer’s next invoice. Use it for downgrades and service credits on accounts that are staying.
Most B2B contracts default to credits and say so explicitly — refunding cash you have already collected (and possibly recognised) is the expensive option. Either way, it should be documented with a credit note tied to the original invoice. In Bunny, refunds are issued as credit notes against the invoice, itemised per line, so revenue recognition knows which charge was reversed.
The decisions that have to be made explicitly
- Daily or monthly basis? Daily proration is exact but produces awkward amounts. Monthly proration is tidier and slightly wrong.
- Invoice immediately or roll forward? A mid-term upgrade can be invoiced straight away, or the prorated amount can be rolled into the next scheduled invoice. Rolling it forward is gentler on the customer and harder on cash flow.
- What happens on downgrade? Refund, credit, or no change until renewal — all three are common; pick one and write it into the terms.
- Do usage charges prorate? Generally no — usage is metered on actual consumption, so only the recurring component needs adjusting.
Where it breaks
Proration errors are among the most common causes of billing disputes, and they cluster around three situations: changes made on the same day as a renewal, multiple changes within one period, and plan changes that also change the billing cycle.
Each of those requires the billing system to know the precise state of the subscription at the moment of the change. Where quoting happens in a CRM and the change is then keyed into a separate billing tool, the prorated amount on the quote and the prorated amount on the invoice routinely disagree — and the customer notices. That is why Bunny subscription management prices the change from the live subscription, and why add-ons are usually co-termed to one end date rather than given their own.
Proration in Bunny
Bunny calculates proration automatically on any mid-term change quoted against a subscription — seat increases, add-ons, upgrades — using the exact state of the subscription at the change date, so the prorated amount on the quote is the amount on the invoice.
Frequently asked questions
What does proration mean?
Proration means charging only for the portion of a billing period a customer actually had a product, plan or quantity. A change made halfway through a month is billed for half a month.
What is the meaning of a prorated refund?
A prorated refund returns the unused share of a payment. If a customer prepaid $12,000 for a year and cancels with 275 days left, the prorated refund is $12,000 × 275 ÷ 365 = $9,041.10.
How do you calculate proration?
Multiply the full period price by the fraction of the period remaining: price × (days remaining ÷ days in period). For an upgrade, charge the prorated new price and credit the prorated old price; the difference is what the customer owes.
What is the difference between a prorated refund and a prorated credit?
A refund sends money back to the customer’s card or bank. A credit keeps the money and reduces a future invoice. Most B2B SaaS contracts use credits for downgrades and reserve refunds for cancellations the contract allows. Both are documented with a credit note.
Do usage charges get prorated?
Generally no. Usage is metered on actual consumption, so there is nothing to prorate. Only fixed recurring charges such as seats or platform fees are adjusted.
Does Bunny prorate mid-term changes automatically?
Yes. When a quote changes an existing subscription, Bunny prorates the change from the change date to the end of the period and puts the same amount on the invoice. See Bunny subscription management.
Stop calculating this in a spreadsheet
Bunny computes SaaS metrics, revenue schedules and retention from your live billing data — because quoting, subscriptions, usage and invoicing all sit in one system.