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A minimum commitment guarantees you’ll bill a customer at least a set amount for a period, even if their usage comes in below it. The shortfall is charged as a true-up fee at the end of the period. Lago recognizes the commitment in two parts:
  1. The customer’s actual usage is recognized as it’s consumed, exactly like any usage-based charge.
  2. The true-up (the gap between the commitment and actual usage) is recognized in full when the true-up fee is created, at the end of the period.
True-up recognized = commitment amount − actual usage in the period (never less than zero).

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Usage below the commitment

A customer commits to $500 for January but only consumes $300 of usage. The $200 shortfall is trued up at month end. The true-up isn’t spread across the month. It’s recognized at the point the fee is created, because that’s when the shortfall is known and the obligation is settled.

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Usage above the commitment

Same $500 commitment, but the customer consumes $600 of usage. There’s no shortfall, so there’s no true-up.

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What this means for your reports

  • During the period, the Recognized Revenue report shows usage building up day by day.
  • At period end, a true-up (if any) appears as a single point-in-time entry on the last day.
  • The true-up is real recognized revenue for the period it closes, not deferred revenue.