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

• How to refresh a ticket view ?

  I am doing a widget where I send a rest api call to make a new draft to the ticket I am viewing. The issue is sometimes it refresh a ticket view and I can see inserted draft right away, but sometimes I do not see it even if it is inserted correctly and

• Ugh! - Text Box (Single Line) Not Enough - Text Box (Multi-line) Unavailable in PDF!

  I provide services, I do not sell items. In each estimate I send I provide a customized job description. A two or three sentence summary of the job to be performed. I need to be able to include this job description on each estimate I send as it's a critical

• Merge Items

  Is there a work around for merging items? We currently have three names for one item, all have had a transaction associated so there is no deleting (just deactivating, which doesn't really help. It still appears so people are continuing to use it). I also can't assign inventory tracking to items used in past transactions, which I don't understand, this is an important feature moving forward.. It would be nice to merge into one item and be able to track inventory. Let me know if this is possible.

• Supervisor Rules - Zoho Desk

  Hi, I have set up a Supervisor Rule in Zoho Desk to send an email alert when a ticket has been on hold for 48 hours. Is there a way to change it so that the alert only sends once and not on an hourly basis? Thank you Laura

• ResponseCode 421, 4.7.0 [TSS04] Messages from 136.143.188.51 temporarily deferred due to user complaints

  Had email bounce. Let me know if you can fix this. Thanks. Michael

• Zoho Canvas - Custom templates for related lists

  Hi, I see that the example pages load always one of our related lists in a custom template, but I dont know how to work with that:  1) How can i make my own custom templates for related lists?  2) Where and how can i check out existing custom templates?

• Automation #15: Automatically Adding Static Secondary Contacts

  Rockel is a top-tier client of Zylker traders. Marcus handles communications with Rockel and would like to add Terence, the CTO of Zylker traders to the email conversations. In this case, the emails coming from user address rockel.com should have Terence

• New Zoho triggers Google Dangerous flag due toabnormal charcters

  Just signed up and doing my first email test. I sent it to my google email account but it got flagged as Dangerous" due abnormal characters. My DNS setup looks ok. Page snips attached Help Please Thanks, Rick DC PowerWorld

• Is there a API to fetch tasks in a Board/Section

  I am writing a scheduled function that retrieves all the tasks and send an reminder on cliq. I cannot seem to find a API to fetch tasks (by user / board / section) What are the way to fetch tasks?

• Having trouble fetching contents of Zoho Connect Feeds using the API, requesting alternative API documentation.

  I'm trying to retrieve feed/post data from Zoho Connect using the API but facing challenges with the current documentation. What I've tried: OAuth authentication is working correctly (getting 200 OK responses) Tested multiple endpoints: /pulse/nativeapi/v2/feeds,

• Adding an Account Name to Tasks/Reminders

  Does anyone know how to add the related account name to a task?  When we look at the list of activities and when the reminders pop up, there is no way of quickly seeing who the account is. 

• Triggering Zoho Flow on Workdrive File Label

  Right now Im trying to have a zoho flow trigger on the labeling/classification of a file in a folder. Looking at the trigger options they arent great for something like this. File event occurred is probably the most applicable, but the events it has arent

• SendMail to multiple recipients

  Hi, I'm trying to send an email to a list of recipients.  Right now the "to" field is directed to a string variable. (List variables won't work here). In the string variable, how can I make it work? trying "user@app.com;user2@app.com" or "user@app.com; user2@app.com" just failed to send the emails. Ravid

• Populate drop down field from another form's subform

  Hello, I found how to do that, but not in case of a subform. I have a Product form that has a subform for unit and prices. A product might have more than one unit. For example, the product "Brocoli" can be sold in unit at 3$ or in box of 10 at 25 $. Both

• Usar o Inventory ou módulo customizado no CRM para Gestão de Estoque ?

  Minha maior dor hoje em usar o zoho é a gestão do meu estoque. Sou uma empresa de varejo e essa gestão é fundamental pra mim. Obviamente preciso que esse estoque seja visível no CRM, Inicialmente fiz através de módulos personalizados no próprio Zoho CRM,

• Signup forms behaviour : Same email & multiple submissions

  My use case is that I have a signup form (FormA) that I use in several places on my website, with a hidden field so I can see where the contact has been made from. I also have a couple of other signup forms (FormB and FormC) that slight differences. All

• getting error in project users api

  Hello, I'm getting a "Given URL is wrong" error when trying to use the Zoho Projects V3 API endpoint for adding users to a project. The URL I'm using is https://projectsapi.zoho.com/api/v3/portal/{portalid}/projects/{projectid}/projectusers/ and it's

• Change total display format in weekly time logs

  Hi! Would it be possible to display the total of the value entered in the weekly time log in the same format that the user input? This could be an option in the general settings -> display daily timesheet total in XX.XX format or XX:XX.

• Different Company Name for billing & shipping address

  We are using Zoho Books & Inventory for our Logistics and started to realize soon, that Zoho is not offering a dedicated field for a shipping address company name .. when we are creating carrier shipping labels, the Billing Address company name gets always

• How to display historical ticket information of the total time spent in each status

  Hi All, Hoping someone can help me, as I am new to Zoho Analytics, and I am a little stuck. I am looking to create a bar chart that looks back over tickets raised in the previous month and displays how much time was spent in each status (With Customer,

• Zoho Projects iOS app update: Global Web Tabs support

  Hello everyone! In the latest version(v3.10.10) of the Zoho Projects app update, we have brought in support for Global Web Tabs. You can now access the web tabs across all the projects from the Home module of the app. Please update the app to the latest

• Zoho Community Weekend Maintenance: 13–15 Sep 2025

  Hi everyone, We wanted to give you a heads-up that Zoho Community will undergo scheduled maintenance this weekend. During this period, some community features will be temporarily unavailable, while others will be in read-only mode. Maintenance Window:

• Agent Performance Report

  From data to decisions: A deep dive into ticketing system reports An agent performance report in a ticketing system provides a comprehensive view of how support agents manage customer tickets. It measures efficiency and quality by tracking key performance

• Show both Vendor and Customers in contact statement

  Dear Sir, some companies like us working with companies as Vendor and Customers too !!! it mean we send invoice and also receive bill from them , so we need our all amount in one place , but in contact statement , is separate it as Vendor and Customer, 

• URL validation

  We use an internal intranet site which has a short DNS name which Zoho CRM will not accept.   When attempting to update the field it says "Please enter a valid URL". The URL I am trying to set is http://intranet/pm/ Our intranet is not currently setup with a full DNS name and given the amount of links using the shortname probably isn't a feasible change for us.

• Pourquoi dans zohobooks version gratuite on ne peut ajouter notre stock d'ouverture??

  Pourquoi dans zohobooks version gratuite on ne peut ajouter notre stock d'ouverture ??

• How can I adjust column width in Zoho Books?

  One issue I keep running into is as I show or hide columns in reports, the column widths get weird. Some columns have text cut off while others can take a fourth of the page for just a few characters. I checked report layout guides and my settings, but

• Invalid value passed for file_name

  System generated file name does not send file anymore - what is the problem?

• Custom Function for Estimates

  Hey everyone, I was wondering if there was a way to automate the Subject of an estimate whenever one is created or edited: * the green box using following infos: * Customer Name and Estimate Date. My Goal is to change the Subject to have this format "<MyFirm>-Estimate

• This domain is not allowed to add. Please contact support-as@zohocorp.com for further details

  I am trying to setup the free version of Zoho Mail. When I tried to add my domain, theselfreunion.com I got the error message that is the subject of this Topic. I've read your other community forum topics, and this is NOT a free domain. So what is the

• Search in module lists has detiorated

  Every module has a problem with the search function :-/

• YouTube Live #1: AI-powered agreement management with Zia and Zoho Sign

  Hi there! We're excited to announce Zoho Sign’s first YouTube live series, where you can catch the latest updates and interact with our Zoho Sign experts, pose questions, and discover lesser-known features. We're starting off by riding the AI wave in

• Search in module lists has detiorated

  Every module has a problem with the search function :-/

• Sales Receipts Duplicating when I run reports why and how do we rectify this and any other report if this happens

  find attached extract of my report

• Add Zoho Forms to Zoho CRM Plus bundle

  Great Zoho apps like CRM and Desk have very limited form builders when it comes to form and field rules, design, integration and deployment options. Many of my clients who use Zoho CRM Plus often hit limitations with the built in forms in CRM or Desk and are then disappointed to hear that they have to additionally pay for Zoho Forms to get all these great forms functionalities. Please consider adding Zoho Forms in the Zoho CRM Plus bundle. Best regards, Mladen Svraka Zoho Certified Consultant and

• Bigin: filter Contacts by Company fields

  Hello, I was wondering if there's a way to filter the contacts based on a field belonging to their company. I.e.: - filter contacts by Company Annual Revenue field - filter contacts by Company Employee No. field In case this is not possibile, what workaround

• Has Zoho changed the way it searches Items?

  Right now all of our searches have broken and we can no longer search using the SKU or alias. It was fine last night and we came in this morning to broken.....this is impacting our operations now.

• Refunds do not export from Shopify, Amazon and Esty to Zoho. And then do not go from Zoho inventory to Quickbooks.

  I have a huge hole in my accounts from refunds and the lack of synchronisation between shopify , Amazon and Etsy to Zoho ( i.e when I process a refund on shopify/ Amazon or Etsy it does not come through to Zoho) and then if I process a manual credit note/

• CRM->INVENTORY, sync products as composite items

  We have a product team working in the CRM, as it’s more convenient than using Books or Inventory—especially with features like Blueprints being available. Once a product reaches a certain stage, it needs to become visible in Inventory. To achieve this,

• Zoho Calendar not working since a few days

  Hey there, first off a minor thing, since I just tried to enable the Calendar after reading this in another topic (there was no setting for this though) : For some reason my current session is showing me based in New York - I'm in Germany, not using a

• Next Page