Definition · also called prorate, prorated billing, prorated charge
Proration means adjusting a charge to the portion of a billing period that was actually used. If a customer upgrades halfway through the month, they get a credit for the unused half of the old plan and pay for the remaining half of the new one.
In subscription software, proration happens whenever a plan, price, seat count or billing date changes mid-cycle. Billing systems calculate it automatically; your job is to choose when it applies and to explain the resulting invoice to customers.
Proration formula
Prorated amount = plan price × (time remaining in period ÷ total time in period)
- Upgrade mid-cycle: charge = new plan's remaining share − credit for old plan's remaining share.
- Downgrade mid-cycle: usually a credit applied to the next invoice rather than a refund.
- Stripe calculates prorations to the second by default and uses the discounted price if a discount applies.
Worked example
Stripe's own documentation uses this case: a customer on a $10/month plan upgrades to $20/month halfway through the billing period.
- Credit for unused time on the $10 plan: −$5
- Charge for remaining time on the $20 plan: +$10
- Net prorated charge: $5 (source)
The next full invoice is then $20.
How proration works in Stripe
- Default:
proration_behavior=create_prorationscreates proration items that are added to the next invoice; they are not charged immediately. - Bill now:
always_invoicecalculates the proration and invoices it immediately, the usual choice for upgrades. - Off:
noneskips proration for that change; the customer pays the new price from the next invoice. - Negative prorations (credits) are not refunded automatically, and usage-based billing isn't prorated.
Source: Stripe Billing documentation. Paddle, Lemon Squeezy and Chargebee offer similar options under different names.
Proration choices for a small SaaS
- Upgrades: charge immediately. Customers expect to pay for what they just unlocked, and it brings cash forward.
- Downgrades: apply at the end of the period. No credits to explain, no refunds to process, less support email.
- Seat additions: prorate. Teams add people mid-month; charging a full month for one day annoys them.
- Annual plans: preview the amount. A mid-year upgrade on an annual plan can be a large charge; show it before confirming.
Proration in practice: how indie makers use it
Proration rarely makes headlines, but the plan changes it handles are how indie products grow revenue from existing customers:
ScreenshotOne's plans are tiered by monthly screenshot volume, so customers move between plans as usage grows, exactly the mid-cycle changes proration handles. It grew from $7 MRR in 2022 to about $36K MRR by September 2026. (sources: screenshotone.com, indiehackers.com, x.com)
Built Baremetrics to make Stripe subscription data, including upgrades, downgrades and the MRR they move, readable for founders; it sold for $4M in 2020. (source: baremetrics.com)
Designjoy lets clients pause or cancel at any time. Flat monthly pricing with pausing instead of mid-cycle plan changes keeps billing simple enough for one person to run. (source: highspirit.substack.com)
Free calculators
Frequently asked questions
What does prorated mean?
Prorated means adjusted in proportion to the time actually used. A prorated charge covers only the part of a billing period after a change, not the whole period.
How is proration calculated?
Multiply the plan price by the share of the billing period remaining. On an upgrade, subtract a credit for the unused part of the old plan from the charge for the remaining part of the new plan.
Does Stripe prorate automatically?
Yes. By default Stripe creates proration items when a subscription's price, quantity or items change and adds them to the next invoice. You can invoice them immediately or turn proration off per change.
Should I prorate downgrades?
Many small SaaS businesses apply downgrades at the end of the current period instead, which avoids credits and refunds and keeps billing simple.
Related terms
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Maker examples are paraphrased from the cited sources and from each maker's IndieMakerList profile; revenue is self-reported unless marked verified. Spotted an error? Tell us.