Revenue Recognition

See Calqulate App: Revenue Recognition

Revenue recognition is the recording of revenue as it is earned. Revenue is usually recognized after a product, or a service has been delivered to the customer. If you want to dive deeper into this topic, check out the blog post of our CEO and CFO Niko laine

For one-off products and services, revenue recognition is easy and straightforward. If you, for example, are selling a one-off training session for $500, you can recognize $500 as revenue during the billing month. For subscription-based companies, revenue needs to be recognized in pieces during the duration of the subscription period.

In the past subscription-based revenue was calculated in large Excel spreadsheets costing CFOs a great amount of time. Calqulate automates this process. Calqulate recognizes the correct monthly revenue for your subscriptions that have been imported from your Subscription Management software (e.g. Stripe), Accounting Software (e.g. Quickbooks) or from your CSV imports and displays the recognized revenue in the Recurring Revenue Dashboard.

A common mistake for SaaS Businesses

Subscriptions are essential for SaaS companies. That means SaaS companies must track the money that flows into their account and recognize their revenue correctly. As SaaS company, your customers can probably sign up for a monthly, quarterly, or annual subscription.

If you are selling period-specific subscriptions, you "deliver" your product or service over a period of time (e.g., every month). Even if the whole amount has been paid into your bank account already, you still have to fulfil your duty every month. Consequently, you do not yet own the money entirely if the customer has paid an upfront payment. This is why you cannot recognize the revenue completely for the first month, but you have to distribute it over the lifetime of the invoicing period.

Revenue Recognition

Monthly

Imagine you sell a SaaS license for $100/month. Your customer signs up for a monthly subscription in January and renews the subscription every month until July. Billing and payment happen monthly. Your revenue would look like this:

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Rev.

100

100

100

100

100

100

100

This is easy. The revenue is recognized every month until the customer cancels their subscription.

Quarterly

Customers who sign up for a longer subscription pay upfront for services that are delivered every month. If customers sign up for a quarterly subscription, they pay $300 in January. A common mistake is to recognize the whole $300 in January's revenue. However, the services are provided for three months. This means the revenue has to be distributed over three months. So, your revenue would look like this:

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Rev.

100

100

100

Annually

For annual subscriptions, it is the same principle. If you sell an annual subscription, you will receive the whole amount of money ($1200) in January, but your revenue would look like this:

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Rev.

100

100

100

100

100

100

100

100

100

100

100

100

If you are selling period-specific subscriptions, you "deliver" your product or service over a period of time (e.g., every month). Even if the money has already been paid into your bank account, you still have to fulfil your duty every month. This is why you cannot recognize the revenue completely in the first month, but you have to distribute it monthly for the whole "delivery period".

Where to see Recurring Revenue in Calqulate App

To access your revenue recognition dashboard, on the left hand menu, click on the last item.

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This will display a list of all current subscriptions with the revenue recognised across the length of the contract.

Expanding on any subscription by clicking on the "+" icon, will show you details on invoicing (Cashflow) as well as deferred revenue calculations, all in one place.

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There are individual views for both invoices and deferred revenues.

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