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 Hara Sudhan. S

  

• 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

• Getting Attachments in Zoho Desk via API

  Is there a way to get attachments into Zoho Desk via an API?      We have a process by which a zoho survey gets sent to the user as a link in a notification.    The survey has several upload fields where they can upload pdf documents.    I've created

• Multiple currencies - doesn’t seem to work for site visitors / customers

  I am trying to understand how the multiple currency feature works from the perspective of the website visitor who is shopping on my Zoho Commerce site. My site’s base currency is US Dollars (USD) but my store is for customers in Costa Rica and I would

• Pincode based Product Restriction

  we have different types of products. 1) Very bulky items like plywood. 2) Too delicate items like glass These type of products we want to sell to local customers. Other products we want to supply all over India. There should be an option to restrict products

• Can multiple agents be assigned to one ticket on purpose?

  Is it possible to assign one ticket to two or more agents at a time? I would like the option to have multiple people working on one ticket so that the same ticket is viewable for those agents on their list of pending tickets. Is something like this currently

• Related Lists filter

  I have Contacts showing in our Accounts module. I customized the Contacts module with an Employment Status field, with the following picklist options: "Primary Contact", "Secondary Contact", "Active Staff(not a main contact)", and "No longer employed".

• Standalone custom function not generating logs

  Why dont't standalone custom functions generate logs when the're called from another function? I have some functions (workflow, buttons and blueprint) that have common parts, so I put that part in a standalone function which is called from the others.

• Add "Reset MFA" Option for Zoho Creator Client Portal Users

  Hello Zoho Creator Team, We hope you are doing well. We would like to request an important enhancement related to Multi-Factor Authentication (MFA) for client portal users in Zoho Creator. Currently, Creator allows us to enforce MFA for portal users,

• Support Bots and Automations in External Channels

  Hello Zoho Cliq Team, How are you? We actively use Zoho Cliq for collaboration, including with our external developers. For this purpose, external channels are a key tool since they work seamlessly within the same interface as all of our other channels

• Urgent Security Feature Request – Add MFA to Zoho Projects Client Portal Hello Zoho Projects Team,

  Hello Zoho Projects Team, We hope you are doing well. We would like to submit an urgent security enhancement request regarding the Zoho Projects Client Portal. At this time, as far as we are aware, there is no Multi-Factor Authentication (MFA) available

• Creator HTML page refresh

  Hi, I have added around 5 different html snippets in single creator page. I understand, I can refresh the entire page from page script using Navigational URLs https://help.zoho.com/portal/en/kb/creator/developer-guide/others/url-patterns/articles/navigational-urls

• Zoho Desk - Custom Module Related List Columns on Tickets

  I have a custom module in Zoho Desk called Asana Tasks, each task has a lookup to a Ticket. On the Ticket I want to see the columns of the Asana Tasks in the related list . Is there a way to do this? Right now it just has the name of the record and I

• Google Analytics import data inaccurate (as of October 11, 2025)

  We have Zoho Analytics connected to GA4 to import daily event data. This has been running without issue for a couple of years. However, a month ago we started noticing discrepancies. All data until October 10 lines up perfectly - October 11 onward is

• What is your opinion of the new UI?

  Hi Everyone, I would like to see what everyone thinks of the new Zoho One Dashboard. I don't get it, but perhaps I'm missing something. What are your thoughts?

• Zoho mail to Teaminbox

  Hello, We're searching for new mail program. Now I'm testing a bit with zoho mail and team inbox. My findings in the research: Pop mail throught zoho mail is almost instant. Any pop or imap via external provider takes a couple minutes to 15 minutes before

• What are the OAuth scopes needed to access the Zoho MCP server?

  I think I'm authenticating with the MCP server endpoint successfully using a bearer token but I can't successfully initialize an MCP session. I'm using the official MCP Python sdk (https://github.com/modelcontextprotocol/python-sdk). I get as far as here

• Account blocked for IMAP use

  Hello, My email client (Evolution) can't sync mail anymore. It gives the error: "Your account is temporarily blocked for IMAP use. This may happen if you exceed the maximum number of simultaneous IMAP connections allowed. Kindly try again after some time."

• Is SMTP included in the free plan?

  My client has a Zoho Mail Free 14 day trial that ends tomorrow. She has set up a domain email address with SMTP on a third party app and is wondering if it will continue working once her plan downgrades to the free forever plan. Thanks

• Zoho mail issue.

  I have verified my domain ohhoexpress.online by adding necessary TXT and MX records. But when I am sending email to any external email id, it is showing as zohomail.com. Also while I am sending mail to internal mail id, it is saying user not found whereas

• My email is blocked from sending

  I get this message when I try to send any message .. > Unable to send message, Reason 554 5.1.8 Email Outgoing Blocked We have urgent emails to send and the issue continues to persist from yesterday. Please help us with this issue as soon as possibl

• [WEBINAR] Smooth year-end closure with Zoho Books (KENYA)

  Hello there, This webinar is for all Kenyan businesses looking to wrap up their financial year smoothly! Join our free session to learn how Zoho Books can simplify your year-end process. What to expect from this webinar: - All the latest updates in Zoho

• cannot recieve or send emails

  we are not recieving or cannot send emails.Shows sysytem error

• Zoho Sites - contact us form

  I have added a contact us form to my website. I wanted to change the layout so I deleted the section of Contact Us form. When I again try to add the section of Contact Us form, it shows error that "This form already exists on this page."  I am unable

• switching from POP3 to IMAPI do I need to change settings in Web email?

  hi so I am using Outlook with My Zoho mail, also have Verizon email /AOL. they no longer support POP3 and said imapi is much better, so I want to switch my ZoHo to imapai. I googled and it said i need to change it in my account....i looked at my account

• What functionality is new in the Z025 Spaces UI dashboard compared to the previous Zoho One dashboard?

  My company is interested in creating a revamped dashboard this coming year, and are trying to weigh different platform options. The new Spaces UI is said to be a more "feature-rich" dashboard experience than the previous. Could a developer please explain

• Collections Management: #5 Convenience on Offer, using Self-Checkout

  "Is this the right page? Oh, now, it wants my address again. Why am I being redirected?" These were the exact thoughts running through Karan's mind as he tried to subscribe to an application he genuinely liked. He clicked "Buy Now", expecting a quick

• Uploading a signed template from Sign to Creator

  Good day, Please help me on how to load a signed document back into Creator after the process has been completed in Sign. Below is the code that I am trying, pdfFile = response.toFile("SignedDocument_4901354000000372029.pdf"); info pdfFile; // Attach

• PROBLEMA

  Salve, non riesco a inviare email, e mi esce una tabela errore temporaneo. come posso risolvere il problema ?

• Tip #50- A Closer Look at the Unattended Access Dashboard- 'Insider Insights'

  Having complete visibility and quick access to everything you need certainly makes managing multiple remote devices a lot easier, and that is precisely what the Unattended Access Dashboard in Zoho Assist is designed to offer. Once you go to the Unattended

• How to update custom multi-user field in Zoho Projects?

  I'm trying to update custom multi-user fields in Zoho Projects via a Deluge function in CRM. The code I have so far is below. It works for updating standard project fields and single-line custom fields, but it does not work to update multi-user fields.

• Tip of the Week #75– Manage your social media messages from a single shared inbox.

  Are you tired of jumping between apps or browser tabs to reply to your business's Facebook and Instagram DMs? Handling customer messages on social media might seem simple, but switching between multiple platforms can easily lead to lost messages, duplicate

• Zoho Map integration tasks have changed - you need to "Locate all instances of Zoho Map integration tasks in your Deluge scripts by searching for the v1 marker... before 16 January 2026"

  The Zoho Map deluge integration task has been changed (as at 21 October 2025) to provide a more structured, JSON-like response. This change affects all three Zoho Map integration tasks (Geocode, Reverse Geocode, and Distance Between). More details can

• Using files from Zoho CRM in Gemini/ChatGPT/Claude

  Hi all, I’ve got subscriptions to Gemini and a few other AI tools which I use for tasks like data enrichment, email composition, etc. In our workflow, we often receive various documents from clients — such as process workflows, BRDs/requirement documents

• Zoho Analytics & Zoho Creator - Modified Time value

  I'm trying to use the Zoho Creator system field 'modified time' in Zoho Analytics, but it's consistently showing 12 hours 'out' In Zoho Creator In Zoho Analytics Is this a constant difference that I just need to correct with a timezone change - or is

• Zoho CRM - Option to create Follow-Up Task

  When completing a Zoho CRM Task, it would be very helpful if there was an option to "Complete and Create Follow-Up Task" in the pop-up which appears. It could clone the task you are closing and then show it on the screen in edit mode, all the user would

• Portal For Different Apps

  I found some older threads on this but didn't see anything very recent. I'm new to Zoho One so forgive me if my terminology is off a bit. I was hoping set up a single point of entry into Zoho One. So, many of the apps could be found in one single place

• Calls undetected

  Zoho Voice records indicate my last call ended at 6:00 PM. All incoming and outgoing calls occurred between 6:00 PM and 7:00 PM.

• Unable to Select Authenticated Domain as Sender

  We’ve already authenticated our domain, but it’s still not appearing in the sender list when we try to run a campaign. Could you please check what might be causing this issue?

• Forever FREE Business Email with Zoho Mail

  Forever FREE Business Email with Zoho Mail: is it available?

• Zoho Projects - Project Details on the Project Menu

  Hi Project's team, I've helped may businesses setup and use Zoho Project and one thing I see time and time again is confusion on where to find the Project Details information. I would be much more intuitive if Project Details was on the menu before Dashboard.

• Introducing WhatsApp integration in Bigin

  Greetings! In today's business landscape, messaging apps play a significant role in customer operations. Customers can engage with businesses, seek support, ask questions, receive personalized recommendations, read reviews, and even make purchases—all

• Next Page