Real World Challenges in Managing Ramp Pricing [+Solutions]

Ramp pricing is a tactical pricing strategy that gives you flexibility to win customers today and grow revenue tomorrow. Whether it’s step-up pricing, loyalty discounts, or tiered upgrades, the ramp pricing model is now core to most modern subscription ramps.

But here’s the catch: If your billing and rev rec systems can’t keep up with these dynamic pricing shifts, you’ll find yourself deep in spreadsheets, fixing misallocated revenue and chasing down refund logic.

This guide breaks down real-world ramp pricing challenges across the customer lifecycle—and how to solve them.

What is ramp pricing?

Ramp pricing is a structured pricing model where charges increase or decrease over the life of a contract. It permits complex adjustments, including changing plans, adding, removing, or updating add-ons and charges, applying or removing discounts and coupons, adjusting prices for plans, add-ons, and charges, and modifying pricing tiers.  Common in B2B SaaS, this approach enables:

• Introductory discounts to drive adoption
• Step-up pricing as usage or value grows
• Price drops or loyalty discounts for long-term retention
• Custom renewal offers that adjust based on customer behavior

Real world challenges in managing ramp pricing

Revenue misallocation

• Ramp deals often involve several stages with varying prices, which means revenue must be allocated differently across each phase.
• Without automation, revenue accountants must manually create Performance Obligation (POB) excel templates for multi-phase pricing models and contract amendments. Each phase requires different configurations for revenue allocation, which can lead to miscalculations. Here’s an example:

Challenges illustrated by this template

1. Multiple pricing changes across phases
   
   • POB 1 offers a discount for the first three months, which requires accurate monthly revenue recognition based on a lower price.
   • POB 2 switches to the standard pricing after the initial discount period, requiring a seamless transition.
   • POB 3 introduces a price increase after the first year, and accountants must ensure that the revenue recognized in year 2 aligns with this new pricing.
     
2. Tracking add-ons and removals
   
   • POB 5 tracks an add-on service (e.g., data analytics) for the first year, but then in POB 6, it’s removed in year 2. Tracking the removal of services, especially with mid-contract changes, introduces complexity in calculating revenue.
     
3. Adjustments for mid-contract changes
   
   • POB 7 reflects a mid-year discount for early renewal, which affects the entire remaining term. Ensuring accurate revenue allocation over the months requires adjustments to the contract values and proper reconciliation of the discount’s impact.

Financial reporting pitfalls in ramp pricing

• According to Madhu Jagannathan, ex CFO, Lob in a webinar hosted by Zenskar: When sales teams customize deals—like applying discounts or ramp pricing—without clearly communicating those changes to accounting, it creates discrepancies between what is agreed upon in the contract and what is actually recognized as revenue. 

• Without knowing the exact terms of the deal (e.g., discounts, ramp-up pricing schedules, or amendments), revenue accountants might recognize revenue prematurely, too late, or in the wrong amounts.

Risks of manual revenue reconciliation for ramp deals

• The invoice-based rev rec method does not account for the dynamic nature of ramp pricing model—which includes price increases or decreases—leading to the risk of underreporting revenue or recognizing it incorrectly across the contract lifecycle, especially if the invoicing periods and performance obligations don't align perfectly.
• Suppose a company offers a ramp deal: $4.99/month for the first 6 months, and then $9.99/month after the 6 months. If an invoice is issued for the full contract amount at the initial $4.99 price, but the service continues past 6 months with the $9.99 rate, invoice-based revenue recognition will recognize the revenue based on the initial price, ignoring the future price increase. As a result, the company could understate its revenue for the latter months of the contract.
• When payment signals (actual customer payments) don’t align with the revenue recognized, reconciliation efforts are forced to start with bank statements rather than the invoice data. This misalignment creates an additional layer of complexity for revenue accountants, as they need to manually adjust and reconcile payment timing with recognized revenue.

Manual calculation of Standalone Selling Price (SSP)

• SSP represents the price at which an entity would sell a good or service separately without any discounts, bundled offers, or changes in pricing. Recalculating the SSP for every price ramp, especially in multi-phase contracts, is time-consuming. For every contract amendment or pricing shift, the accountant must update the SSP and ensure it aligns with the performance obligations.

Manually calculating refunds and adjusting for pricing tiers

Imagine a SaaS company has a 12-month contract with a ramp pricing structure where the price changes multiple times during the contract term. A customer cancels the contract after 8 months, and as a revenue accountant, you're tasked with calculating the refund. The pricing structure is as follows:

• Months 1-4 (Year 1): Discounted price of $5/month
• Months 5-8 (Year 1, continued): Increased price of $8/month
• Months 9-12 (Year 2): Standard price of $12/month

Challenge 1: Calculating refunds across multiple pricing phases

In this case, the customer was charged differently for the first 8 months, so simply prorating the contract by the remaining months doesn’t work. Here's why:

Step 1: Determine the total paid for the first 8 months

• Months 1-4: 4 months * $5/month = $20
• Months 5-8: 4 months * $8/month = $32
  Total Paid for 8 Months = $20 (Months 1-4) + $32 (Months 5-8) = $52

Step 2: Calculate the remaining contract value for refund

• Total Contract Value (12 months):
  
  • Months 1-4: 4 months * $5/month = $20
  • Months 5-8: 4 months * $8/month = $32
  • Months 9-12: 4 months * $12/month = $48
  • Total Contract Value (TCV) = $20 + $32 + $48 = $100

Step 3: Refund calculation based on time left (simple proration)

If we apply simple proration to the 5 months remaining, we would assume the customer is entitled to a refund of 5/12 of the total contract value, which gives us:

• Refundable Amount (Simple Proration) = (5 months / 12 months) * $100 = $41.67

Challenge 2: Adjusting for different pricing tiers and performance obligations

However, the simple proration model doesn’t work well when the pricing changes over time (as in ramp pricing). The refund must account for the fact that the customer paid $5/month for the first 4 months, then $8/month for the next 4 months, and would have paid $12/month for the remaining months.

Manual adjustment for price differences

1. Months 1-4: The customer paid $5/month. Refund calculation is straightforward: $5/month for the 5 months remaining (out of the 12-month contract).
   
   • Refund for months 1-4 = 5 months * $5/month = $25
     
2. Months 5-8: The customer paid $8/month for months 5-8. Refund calculation for this period needs to adjust for the higher payment. This is where the complexity arises.
   
   • Refund for months 5-8 = 5 months * $8/month = $40
     
3. Months 9-12: The customer was supposed to pay $12/month in Year 2. Since they canceled early, the revenue for these months is fully refunded.
   
   • Refund for months 9-12 = 4 months * $12/month = $48

Why this is challenging for revenue accountants

1. Multiple pricing tiers
   The pricing changes for each phase of the contract, so the accountant must track how much was paid at each price point (i.e., $5/month, $8/month, $12/month) and calculate the refund accordingly for each pricing tier. The refund cannot be prorated simply by time—it needs to account for how much was actually paid at each tier.
2. Complex adjustments
   As seen above, adjusting for the price increases in Year 2 and ensuring that the refund reflects these changes requires careful manual calculations. Any mistake in tracking which months had which price increases the chance of over-refunding or under-refunding.

Disconnected systems create inaccuracies

• Let’s assume a SaaS company has a customer on a 3-year ramp contract with the following pricing:
  
  • Year 1: Discounted price of $5/month
  • Year 2: Price increases to $10/month
  • Year 3: Price increases again to $15/month

• The customer pre-pays for the full 3 years, but with disconnected systems, updating the price across billing, revenue recognition, and subscription management systems is challenging and prone to errors.
• The billing system needs to reflect the discounted price of $5 for Year 1, and then adjust to the new price of $10 for Year 2, followed by the $15 price in Year 3. This requires manually updating the billing schedule and ensuring invoices are sent according to the new pricing strategy for each period.
• In parallel, the revenue recognition system needs to be manually updated to reflect when the revenue should be recognized for each phase:
  
  • Year 1: Revenue is recognized at $5/month.
  • Year 2: Revenue is recognized at $10/month.
  • Year 3: Revenue is recognized at $15/month.
• As the customer transitions to a higher price in Year 2, the subscription management system must be updated to reflect the new pricing terms, including any renewal terms for Year 3.
• This introduces room for errors, as updates may not be accurately reflected across all systems, potentially leading to inconsistent data across platforms.

Manual calculation of business health metrics

• Let’s assume a SaaS company signs a contract with ramp pricing:
  
  • Months 1-6: Discounted price of $5/month
  • Months 7-12: Increased price of $10/month
  • Year 2 (Months 13-24): Price increases to $12/month
  • Year 3 (Months 25-36): Price increases to $15/month
• Benefits of ramp pricing include the ability to attract new customers with discounted rates, increase revenue over time, and tailor pricing based on customer behavior and loyalty.

1. Monthly Recurring Revenue (MRR)

Manual calculation breakdown

• In Year 1 (Months 1-6), MRR is $5 per month.
• In Year 1 (Months 7-12), MRR increases to $10 per month.
• In Year 2 (Months 13-24), MRR increases to $12 per month.
• In Year 3 (Months 25-36), MRR increases again to $15 per month.

To manually calculate MRR for this customer each month, accountants need to:

• Track the date range for each price change: From $5 to $10 in Month 7, $10 to $12 in Month 13, and $12 to $15 in Month 25.
• Recalculate the total MRR each time the price increases.
  

Challenges

This means, for Month 1 to Month 6, MRR is $5, for Month 7 to Month 12, MRR is $10, and so on, creating the need for manual tracking across several months for each change. It’s easy to see how accountants could forget or make an error in calculating the MRR across these changes, especially when dealing with large datasets and multiple contracts.

2. Annual Contract Value (ACV)

Manual calculation breakdown

• Year 1: ACV is calculated based on $5/month for the first 6 months, then $10/month for the next 6 months.
  
  • ACV for Year 1 = (6 months * $5) + (6 months * $10) = $30 + $60 = $90.
    
• Year 2: ACV is calculated for the entire year at $12/month.
  
  • ACV for Year 2 = 12 months * $12 = $144.
    
• Year 3: ACV is calculated for the entire year at $15/month.
  
  • ACV for Year 3 = 12 months * $15 = $180.

Challenges

• In manual calculations, the accountant has to split the contract into multiple periods to account for price changes.
• As pricing changes throughout the contract, each time the price shifts, the accountant must adjust ACV for each year and ensure the correct amount is recognized in each period. This means revisiting every price increase and adjusting revenue projections for each subsequent year.

3. Projected billing

Manual calculation breakdown

Projected billing forecasts the expected revenue from a customer over a defined period. To manually calculate this for a ramp deal with price increases:

• For Year 1, billing will be $5/month for the first 6 months and $10/month for the remaining 6 months.
  
  • Projected Billing for Year 1 = (6 * $5) + (6 * $10) = $30 + $60 = $90
    
• For Year 2, projected billing will be $12/month for 12 months.
  
  • Projected Billing for Year 2 = 12 * $12 = $144
    
• For Year 3, projected billing will be $15/month for 12 months.
  
  • Projected Billing for Year 3 = 12 * $15 = $180

Challenges

• Manually tracking projected billing requires the accountant to apply the new rates in real-time, each time the price increases. This involves manually updating spreadsheets or internal systems and ensuring all pricing changes are reflected in future projections.
• If the customer renews the contract, the price may change again, requiring another manual adjustment.

Zenskar automates revenue recognition for ramp deals

This brings me to Zenskar. Zenskar is an end-to-end revenue automation platform (backed by Besemmer) for subscription and usage pricing models.

We automatically handle all the rev rec calculations and adjustments when you apply ramp pricing changes—whether step-up or step-down.

You can set up multiple pricing intervals (e.g., by month, quarter, or year), and Zenskar will automatically apply rev rec rules for each pricing phase. You can also customize notifications to alert subscribers about upcoming price changes well in advance.

By integrating seamlessly with your CRM systems like Salesforce, Zenskar ensures your sales and customer success teams always have the most up-to-date customer context, enabling them to manage ramp deals effectively. This synchronization ensures that revenue recognition is always aligned with contract amendments, discounts, or pricing updates.

Zenskar also provides robust reporting and analytics capabilities. You can measure the performance of your ramp pricing plans and see if any specific pricing intervals lead to customer churn. This data helps you adjust your prices accordingly to reduce churn and increase customer retention.

As you grow and evolve your pricing model, Zenskar offers unlimited white-glove support to ensure that revenue recognition remains smooth and efficient, no matter how complex your pricing gets. This support spans migration, implementation, and post-go-live phases, making sure your revenue recognition process is always aligned with business changes.

Take an interactive product tour to see Zenskar’s rev rec module in action, or book a free demo (no strings attached) to evaluate if we are the right fit for your organization.