Contract terms
DEFINITION
Contract terms are the commitment length and conditions a subscriber agrees to when signing up for a plan, including how long they are bound, how billing is scheduled, and what happens at renewal or cancellation.
RELATED TERMS
Contract terms are the commitment length and conditions a subscriber agrees to when signing up for a plan, including how long they are bound to the subscription, how billing is scheduled within that commitment, and what happens at renewal or cancellation.
Contract terms are not the same as the billing interval. The billing interval is how often a customer is charged, such as monthly or quarterly, while the contract term is the commitment length the customer has agreed to, which can span one or more billing intervals. A subscriber can agree to a one year term while still being billed every month or every quarter within that year. Contract terms also define what happens when the term ends: whether the subscription automatically renews, and for how long, or whether it expires. Some subscription models add another layer by tying a cancellation fee to an early exit from a committed term.
Why it matters
Getting contract terms right affects both the subscriber experience and the business's revenue predictability. A business that only offers a single upfront payment can lose subscribers who would prefer a longer commitment paid in smaller installments. When billing intervals and contract terms can move independently, a business can offer more flexible deals, such as a discounted annual plan billed monthly, without giving up the longer-term revenue commitment. Recurly's subscription billing terms let a business set the billing interval and the overall commitment length separately, so a single contract term can span multiple billing periods, such as an annual term billed quarterly, with end of term behavior (auto-renew or expire) set at the plan level and overridable per subscription. Contract terms also matter for cancellation handling: a business that wants to keep billing for the remainder of a committed term, rather than stopping at the moment of cancellation, needs its contract terms configured to reflect that.
How to use
Decide the commitment length for a plan, and whether it should be a single billing period or a longer term spanning multiple billing periods.
Set the billing interval for the plan separately from the term length, such as billing quarterly within an annual term.
Configure end of term behavior: whether the subscription automatically renews and for what length, or expires.
If offering a committed term with an early cancellation fee, define the commitment length and decide whether the fee should be prorated based on how much of the term remains.
Review contract terms whenever a subscription changes, since edits made mid-term may only take effect at renewal unless specifically applied immediately.
Benefits and examples
Decoupling billing interval from contract term length opens up pricing and sales flexibility that a single fixed structure cannot. A B2B software business can offer a prospect a two-year commitment on its top tier plan while still billing quarterly, rather than requiring one lump payment. A streaming service can offer a discount in exchange for a six-month commitment while still billing the subscriber monthly, so the price feels manageable even though the commitment is longer. A business selling a bundled service fee can turn a large one-time charge into a fixed number of smaller installment payments using the same mechanism.
Contract terms with a defined commitment also let a business enforce cancellation terms that continue billing for the remainder of an agreed term, rather than stopping the moment a subscriber asks to cancel, when that structure was agreed to upfront. Recurly Commerce supports a distinct Contract Type setting for physical goods and subscription box businesses: a Flexible contract with no term commitment lets a customer cancel anytime free of charge, while a Committed contract sets a term commitment length measured in deliveries and can include an optional, proratable early cancellation fee.
Frequently asked questions
What is the difference between a contract term and a billing interval? The billing interval is how often a customer is charged, such as monthly or quarterly. The contract term is the total commitment length the customer has agreed to, which can span multiple billing intervals, such as a one year term billed every month.
Can a subscriber be billed monthly but still be under a longer contract term? Yes. Billing interval and contract term length can be set independently, so a subscriber can agree to a longer commitment, such as a year or more, while continuing to make smaller, more frequent payments within that term.
What happens at the end of a contract term? Depending on how the plan is configured, the subscription either automatically renews for another term or expires. This end of term behavior is typically set at the plan level and can often be overridden for an individual subscription.
Can a business charge a fee if a customer cancels before their contract term ends? Some subscription models support an early cancellation fee tied to a committed contract term, which can be prorated based on how much of the term remains unfulfilled. In Recurly's platform, this capability is specific to Recurly Commerce's Committed Contract Type (used for physical goods and subscription box businesses) and isn't available on Prepaid or Membership plans within Commerce, or on the core Recurly Subscriptions product.
