Revenue Management: #5 Revenue Recognition in SaaS

If you're building or running a SaaS business, you've probably encountered this. You get paid upfront for a subscription and a one-time onboarding fee, but you end up with confusion about when to consider it revenue. Can I book all of it now? Should I spread it out? What if the customer upgrades or downgrades midway?

How do SaaS companies manage revenue recognition and stay compliant?   

Revenue Recognition Scenarios in SaaS 

In the world of SaaS, a business's billing of its customers has a direct impact on how and when it recognizes revenue. While the five-step model stays the same, the application varies significantly depending on the contract structure, billing frequency, and delivery pattern. Below are the common real-world scenarios that define these differences.

Annual Contract Paid Upfront

Most SaaS companies bill customers annually or quarterly in advance. However, accounting standards do not permit revenue to be recognized when cash is received. Instead, the revenue must be recognized over time, as the service is delivered.

For example, a $12,000 annual contract with $1000 onboarding. $1000 will be recognized immediately during billing, and $11,000 is spread across 12 months.

Monthly Billing

Customers pay monthly for access. There is typically no deferred revenue, and revenue is recognized in the same month the service is delivered.

Example: $500 per month subscription recognized monthly as it is earned.

Bundled Pricing

A typical SaaS contract might include platform access, onboarding, training and support as a part of the contract that gets billing as a bundle. According to ASC 606 and IFRS 15, these are separate performance obligations. The business must allocate revenue to each and recognize it based on how and when each is fulfilled.

Example: A $10,000 contract includes $2000 for setup, $6000 for software access, and $2000 for support. Revenue is recognized based on the timeline of each deliverable.

Amendments & Discounts

Customers often switch plans mid-cycle, receive promotional pricing, or get billed based on the actual usage. These changes introduce variable consideration and require contract modification, revenue reallocation, and recalculations for the remaining service term.

Example: A new allocation and recognition schedule must be set up if a customer moves from a $1000/month plan to a $1500/month plan mid-year.

Usage Based or Tiered Pricing

Some businesses charge based on consumption. For instance, API usage, user access, data storage, etc., they charge the customer again as and when the upper cap is met. This means revenue cannot be recognized until the service is used. Businesses must track usage data and apply the prorated or usage-based revenue rule to stay compliant.

Example: $0.10 per API call. If a customer makes 10,000 calls in March, $1000 is recognized in that month.

These scenarios illustrate the diverse billing models in SaaS and their direct impact on revenue recognition timing. Businesses that manage multiple pricing plans, onboarding services, or usage billing must ensure their recognition strategy aligns with the service delivery. This is where automation becomes critical.

Scenario:
You sign an annual contract worth $1,20,000 with a client. The client pays the full amount upfront. The contract includes $20,000 onboarding and $1,00,000 for uninterrupted access to the software for 12 months.  

Zoho Billing for SaaS Revenue Recognition

Zoho Billing simplifies SaaS revenue recognition by allowing the finance team to define a recognition rule based on the product or service offered.

For this kind of business, the Revenue recognition rule should be set in the following way:

There are two deliverables here: one is Onboarding, and the other is software access.

	For onboarding	For Software Access
Recognition Frequency	Once	Monthly
Recognition Method	One-Time (Daily)	Evenly Distributed
Recognition Time	Period Start	Period End

 

Although the full payment is collected in advance, you cannot recognize the entire $1,20,000 as revenue immediately. Only the onboarding revenue of $20,000 is recognized in the first month. The remaining $1,00,000 must be recognized evenly over 12 months at $8,333 monthly.

Reports in Zoho Billing

If you look at the reports in Zoho Billing after three months of service rendering, you will see,

i) Recognized Revenue Report

Onboarding is complete three months into the contract, and three out of 12 months of application access have been delivered.

Component	Recognized Revenue	Description
Onboarding	$20,000	Fully recognized in Month 1
Software Access	$25,000	$8333/month for 3 months out of ($1,00,000)
Total Recognized	$45,000	Recognized at the end of 3 months

 

ii) Deferred Revenue Report

After three months, the company will have nine months of software access remaining.

Component	Deferred Amount
Software Access	$75,000 (9 months x $8333)
Total Deferred	$75000

 

iii) Revenue Waterfall Report

Months	Onboarding	Software Access	Total​
Month 1	$20,000	$8,333	$28,333
Month 2	-----	$8,333	$8,333
Month 3	-----	$8,333	$8,333
Month 4 (upcoming)	-----	$8,333	$8,333
Month 5 (upcoming)	-----	$8,333	$8,333
Month 6 (upcoming)	-----	$8,333	$8,333
Month 7 (upcoming)	-----	$8,333	$8,333
Month 8 (upcoming)	-----	$8,333	$8,333
Month 9 (upcoming)	-----	$8,333	$8,333
Month 10 (upcoming)	-----	$8,333	$8,333
Month 11 (upcoming)	-----	$8,333	$8,333
Month 12 (upcoming)	-----	$8,333	$8,333

 

Best Practices for SaaS Revenue Recognition 

• Disaggregate Contract Elements: Break down your subscriptions, onboarding, support, and other one-off deliverables as separate individual obligations.
  
• Use Automated Rules: Configure a Recognition Rule based on the billing method and avoid tracking them manually.
  
• Handle Modifications: Plan changes and upgrades should trigger reallocation of revenue.
  
• Monitor Revenue Waterfall: Visual schedules ensure predictable reporting and forecasting.
  

 

Up Next: Revenue Recognition in the Professional Services Industry

• Topic Participants

• Hari | Zoho Billing

  

• Sticky Posts

• Community Learning Series | Digest #5 — September 2020

  Dear customers, We're happy to bring you the September edition of our #CommunityDigest! Keep track of your subscription KPIs right from your smartphone: Last month, we enhanced our Android mobile app to help our customers get daily updates on their business health. We got to know from a lot of customers that this has made their job much more easier because they no longer have to keep a reminder to manually check on the previous day's revenue or activations. If you have not downloaded it yet, here's

• Community Learning Series | Digest #4 - August 2020

  Dear customers, We hope you're staying safe and healthy. I'm happy to bring you the fourth edition of our #CommunityDigest with some brand-new updates from us. 1. Daily Business Updates (for Android users) The Zoho Subscriptions Android app has got a cool new update: You can now get a push notification to your smartphone that lets you know how many activations and cancellations have taken place, and what's the net revenue for the previous day. The best part is, you can tell the app when exactly you

• Community Learning Series | Digest #3 - July 2020

  Dear customers, We hope you're staying safe and healthy. We're glad to bring you the July edition of our #CommunityDigest. New community members can view our previous newsletters here. This time, we have two major updates and three interesting topics for you: 1. Zoho Subscriptions Developer Community Since the inception of Zoho Subscriptions, our team believed that the recurring billing platform we provide should be able to offer an extensive API library that empowers businesses to automate most

• Introducing: Community Learning Series | Digest #1 - May 2020

  Dear customers, We hope you are staying safe and healthy. Helping businesses manage their customer subscriptions more efficiently has always been, and always will be, our goal at Zoho Subscriptions. We strongly believe this is possible if we grow together as a community and share what we know with each other. To nurture this shared learning experience, here is our brand-new Community Learning Series! ​ Welcome to the first edition of our digest! Each edition of our community digest includes guides

• Recent Topics

• Cross References Do Not Update Correctly

  I am using cross references to reference Figures and current am just using the label and number, i.e. Figure #. As seen here: When I need to update the field, I use the update field button. But it will change the cross reference to no longer only including

• Manage control over Microsoft Office 365 integrations with profile-based sync permissions

  Greetings all, Previously, all users in Zoho CRM had access to enable Microsoft integrations (Calendar, Contacts, and Tasks) in their accounts, regardless of their profile type. Users with administrator profiles can now manage profile-based permissions

• How to Track and Manage Schedule Changes in Zoho Projects

  Keeping projects on track requires meticulous planning. However, unforeseen circumstances can cause changes to schedules, leading to delays. It becomes important to capture the reason for such changes to avoid them in the future. Zoho Projects acknowledges

• Is there a notification API when a new note is addeding

  Trying to push to Cliq, or email notification when there's a new note added in module. How to implement this?

• Collaborate Feature doesn't work

  Hello Team. It seems that the collaborate section is broken? I can post something but it all appears in "Discussions". In there is no way how I would mark something as Draft, Approval, post or any of the other filter categories? Also if I draft a post

• Edit Permission during and after approval?

  When a record is sent for approval Can a user request for edit permission from the approver? We don't want to give edit permissions for all the records under approval Only on a case-by-case basis How can we achieve this?

• Zoho web and mobile application not workingn

  Both zoho forms web and mobile application aren't working. I have checked my network connections and they are fine.

• Bulk Moving Images into Folders in the Library

  I can't seem to select multiple images to move into a folder in order to clean up my image library and organize it. Instead, I have to move each individual image into the folder and sometimes it takes MULTIPLE tries to get it to go in there. Am I missing

• Latest updates in Zoho Meeting | Breakout rooms and End to end encryption

  Hello everyone, We’re excited to share a few updates for Zoho Meeting. Here's what we've been working on lately: Introducing Breakout Rooms for enhanced collaboration in your online meetings and End-to-end encryption to ensure that the data is encrypted

• Systematic SPF alignment issues with Zoho subdomains

  Analysis Period: August 19 - September 1, 2025 PROBLEM SUMMARY Multiple Zoho services are causing systematic SPF authentication failures in DMARC reports from major email providers (Google, Microsoft, Zoho). While emails are successfully delivered due

• Accidentally deleted a meeting recording -- can it be recovered?

  Hi, I accidentally deleted the recording for a meeting I had today. Is there a way I can recover it?

• How to access email templates using Desk API?

  Trying to send an email to the customer associated to the ticket for an after hours notification and can't find the API endpoint to grab the email template. Found an example stating it should be: "https://desk.zoho.com/api/v1/emailtemplates/" + templateID;

• Update Portal User Name using Deluge?

  Hey everyone. I have a basic intake form that gathers some general information. Our team then has a consultation with the person. If the person wants to move forward, the team pushes a CRM button that adds the user to a creator portal. That process is

• Unable to retrieve Contact_Name field contents using Web API in javascript function

  Hello, I've added a field in the Purchase Order form to select and associate a Sales Order (Orden_de_venta, lookup field). I've also created a client script to complete some fields from the Sales Order (and the Quote), when the user specifies the related

• Updating Woocommerce Variation Products Prices Via Zoho CRM

  I can update product prices with this flow: But I can't update variant products. I got a code from Zoho for this, but I couldn't get it to work. It needs to find the product in the CRM from the SKU field and update the variation with the price there.

• Emails Disappearing From Inbox

  I am experiencing the unnerving problem of having some of the messages in my inbox just disappear.  It seems to happen to messages that have been in there for longer than a certain amount of time (not sure how long exactly). They are usually messages that I have flagged and know I need to act on, but have not gotten around to doing so yet.  I leave them in my inbox so I will see them and be reminded that I still need to do something about them, but at least twice now I have opened my inbox and found

• Power of Automation :: Automatic removal of project users once the project status is changed.

  A custom function is a software code that can be used to automate a process and this allows you to automate a notification, call a webhook, or perform logic immediately after a workflow rule is triggered. This feature helps to automate complex tasks and

• Customizing Form Questions per Recipient Group in Zoho Campaigns/Forms

  Hello everyone, I would like to ask if it’s possible in Zoho Campaigns or Zoho Forms to send out a campaign where the form questions can be customized based on the group of recipients. Use case example: I have prepared 20 questionnaire questions. For

• Forms - Notification When Response Submitted

  How do I set it up to generate an email notification when a response (class request) is submitted?

• How to disable user entry on Answer Bot in Zobot

  Hi, I have an Answer Bot in my Zobot, here is the configuration: I only want the user to choose 1 of the 4 the options I have provided: When no answer found, user chooses 'I'll rephrase the question' or 'Ask a different question When answer is found,

• More admin control over user profiles

  It's important for our company, and I'm sure many others, to keep our users inline with our branding and professional appearance. It would be useful for administrators to have more control over profile aspects such as: Profile image User names Email signatures

• Please Make Zoho CRM Cadences Flexible: Allow Inserting and Reordering Follow-Up Steps

  Sales processes are not static. We test, learn, and adapt as customers respond differently than expected. Right now, Zoho Cadences do not support inserting a new step between existing follow-ups or changing the type of an existing primary step. If I realize

• Clear Tag & Linking Between Quotes and Sales Orders

  Hi Zoho Team, In Zoho Books, when a quote is converted into a sales order, it would be extremely useful to have: A clear tag/indicator on the quote showing that it has been converted into a sales order. A direct link in the sales order back to the originating

• Add Direct Ticket Link to Zoho Help Center Portal in Email Replies

  Hi Zoho Support Team, We hope you're doing well. We’d like to request a small but valuable improvement to enhance the usability of the Zoho Help Center portal (https://help.zoho.com/portal/en/myarea). Currently, when someone from Zoho replies to a support

• [Webinar] Deluge Learning Series - AI-Powered Automation using Zoho Deluge and Gemini

  We’re excited to invite you to an exclusive 1-hour webinar where we’ll demonstrate how to bring the power of Google’s Gemini AI into your Zoho ecosystem using Deluge scripting. Whether you're looking to automate data extraction from PDFs or dynamically

• Connecting Zoho Inventory to ShipStation

  we are looking for someone to help connect via API shipStation with Zoho inventory. Any ideas? Thanks. Uri

• Subform edits don't appear in parent record timeline?

  Is it possible to have subform edits (like add row/delete row) appear in the Timeline for parent records? A user can edit a record, only edit the subform, and it doesn't appear in the timeline. Is there a workaround or way that we can show when a user

• New in Cadences: Option to Resume or Restart follow-ups when re-enrolling records into a Cadence, and specify custom un-enrollment criteria

  Managing follow-ups effectively involves understanding the appropriate timing for reaching out, as well as knowing when to take a break and resume later, or deciding if it's necessary to start the follow-up process anew. With two significant enhancements

• Im Stuck in an EDIT ONLY WITH WIZARD issue

  So I found Wizards to be a really helpful tool in minimizing the exposure of redundant, superfluous fields to staff that would never otherwise have to edit those fields. My issue is, that when the record (in this case a lead) is created with a wizard,

• Account upgrade

  Good evening, I upgraded my account and paid for it. From standard to professional. Unfortunately after the paiment my account was not upgraded. Please your advise. Best Regards Erik van Staverden

• How to set ALL default dates of my organization to DD-MM-YYYY format?

  All replies to this question comes from a time where the UI was different. It's extremely frustrating not being able to find how to do this simple setting change. I want everything and everyone in my organizations to have DD-MM-YYYY date format by default.

• How can I sync from Zoho Projects into an existing Zoho Sprints project?

  Hi I have managed to integrate Zoho Projects with Zoho Sprints and I can see that the integration works as a project was created in Zoho Sprints. But, what I would like to do is to sync into an existing Zoho Sprints project. Is there a way to make that

• Can we generate APK and IOS app?

  Dears, I want to know the availability to develop the app on zoho and after that .. generate the APK or IOS app  and after that I added them to play store or IOS store.. Is it possible to do this .. I want not to use zoho app or let my customers use it. thanks 

• Zoho Subform Workflows onAdd of Row

  Suppose I have a form with attached workflows onLoad. If I use the form as a subform, will it inherit the workflows or do I need to create new ones onAdd of row?

• Super Admin removal

  I brought a sub, and I gave the Super admin rights to a person who is no longer with us, so I need to change, and I need to make myself the Super admin

• Better Notes Commenting

  Hi, I'd like to suggest better collaboration tools for NOTES. The current notes section for Accounts, Contacts and Deals is not ideally suitable for any degree of communication or collaboration. When responding to a note, there is no ability to leave

• Exporting Templates

  I have just spent 2 hours creating a project template for a Netsuite configuration, and want to share it with other Zoho Projects users - who have a different account. Is there any way to do this?

• Power of Automation:: Streamline Associated Teams based on the Task Owner update.

  Hello Everyone, A Custom function is a user-written set of code to achieve a specific requirement. Set the required conditions needed as when to trigger using the Workflow rules (be it Tasks / Project) and associate the custom function to it. Requirement:

• No Response from Zoho Support in 8 Days - Typical?

  I have a couple of issues I'm trying to work through. Initially, I was getting support from support@zohofsm.com, but I have not received a response in 8 days (11 on another question). Is this typical? Can I pay for support? For context, I am not spamming

• Add QUOTE OWNER profile image to a Quote Template

  I can add their email address.. phone number, DOB. I need to add a users profile picture so when they assign a template to a quote they own it adds their picture to the cover page. I've tried hacking a solution together but there has to be an easier way.

• Next Page