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

• Seamless multilingual messaging and tone control in Zia IM Composer

  Hello everyone! Managing customer conversations across multiple languages can be time-consuming. Using Zia in the Instant Messaging (IM) Composer helps you overcome this by providing tools to translate content, adjust your tone, and refine your messages

• Customer happiness customisation

  Hi, I was wondering if it's possible to somehow customise to whom and when customer happiness request is sent? Can you enable it only for selected tickets for example based on workflow or any other criteria (customer name, tag or anything else)? Also

• Request to Add Support for PDF Templates and More Flexibility in Email Editor

  Hi Zoho Campaigns Team, I hope you're doing well. I wanted to share some feedback and request a few improvements in the Email Template feature of Zoho Campaigns. Right now, we can create email templates using the HTML editor, which is helpful. But we’re

• Advanced Deluge help needed with custom function and COQL limits

  I have a scheduled function that takes a snapshot of specific metrics and saves them to a custom module. However I'm struggling with the limits of COQL. I attach my full code, but an example of the issues I'm having is that it's erroring with a 'Limit

• Tip of the Week - Conditional Formatting Chart

  Conditional formatting allows you to highlight your data series based on a pattern or a trend in your data. This makes it easy for you to identify when your data reaches certain values or when it deviates from the trend.  Zoho Analytics allows you to

• Zoho Learn - AI Translate

  Hi Learn team, I had a situation today where I was providing training to a client team and I had written articles into their Zoho Learn to support their learning. I realised that one of the team members was a non-native English speaker and they were struggling

• Payroll In Canada

  Hi, When can we expect to have payroll in Canada with books 

• Power of Automation :: Auto-Sync Custom Date Field Between Related Tasks via Blueprint Transition

  Hello Everyone, 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

• Introducing auto-upgrade in Zoho LandingPage

  Hi everyone, We’re excited to share an upcoming update to help you get the most out of your landing pages — the auto-upgrade option, launching on October 22, 2025. Your landing pages are designed to bring in leads, and we want to make sure you never miss

• Workdrive comment links stopped working.

  I have marked a PDF file with 95 comments, they have worked for a while. When i clicked on them they brought me to the correct page and showed me the outline that i had drew on the plans. The comments included the page number of the outline, but now it

• In arattai received message can't be deleted

  The issue has been noticed in following: arattai app (Android) arattai app (Window) arattai web While the message posted by me may be deleted, the ones received from others can't be. The item <Delete> change to <Report> when the message is a received

• How to Bulk-Update Sales Orders in CRM

  Hi - I need to bulk update existing sales orders with dates from our ERP of when the sales orders were created. I made a date field on the Sales Order module where I want to insert that data. I can't Mass Update because I am not updating the fields to

• How to iterate through excel data using zoho rpa

  I wanted to iterate or loop through excel data ( datatable). How can i do that

• Zoho ToDo in Cliq

  Our organization utilizes Zoho ToDo in the Zoho Mail Desktop app. Is there a way for these to show up in Cliq Desktop app as well?

• Rich-text fields in Zoho CRM

  Hello everyone, We're thrilled to announce an important enhancement that will significantly enhance the readability and formatting capabilities of your information: rich text options for multi-line fields. With this update, you can now enjoy a more versatile

• 【Zoho CRM】サンドボックス機能のアップデート：カスタムビューが利用可能になりました。

  ユーザーの皆さま、こんにちは。コミュニティチームの中野です。 今回は「Zoho CRM アップデート情報」の中から、サンドボックス機能のアップデートをご紹介します。 目次 1. カスタムビューとは 2. 今回の機能アップデートについて 1. カスタムビューとは カスタムビューは、ユーザーが設定した条件に基づいてデータをフィルタリング・整理し、 重要な情報へ効率的にアクセスできるようにする機能です。 「過去15日間の見込み客」や「受注間近の商談」、「特定の優先度レベルが設定された案件」など 条件を指定してわずか数クリックで設定できます。

• Changing an agents email address

  How do you change an agent's email address? I keep getting a red circle even though I am an admin. And on one of my agents he has two email addresses? How is that possible?

• Zoho CRM - Potentials Tab

  Hi! When I create a Deal (Potentials tab) the header looks like this: After a refresh on the page it looks like this: What should I do so that it is displayed like in the second pic without refresh? Also I have a user that as of recently, cannot see this

• Is there a way to automatically add Secondary Contacts (CCs) when creating a new ticket for specific customers?

  Some of our customers want multiple contacts to receive all notifications from our support team. Is there a way to automatically add secondary contacts to a ticket when our support team opens a new ticket and associates it with an account? This would

• Zoho CRM's Copy Customization functionality now works across DCs, for customized accounts, and more

  Availability This feature is available in Standard, Professional, Enterprise, and Ultimate editions. These changes have been rolled out to all users in all DCs. For more information, please refer to these help documents: Overview | Instructions Hello

• Zoho Books | Product updates | October 2025

  Hello users, We’ve rolled out new features and enhancements in Zoho Books. From iOS 26 updates to viewing reports as charts, explore the updates designed to enhance your bookkeeping experience. Zoho Books Updates for Apple Devices At WWDC 2025, Apple

• Unable to create embed code for resource of workdrive using API

  Hello Team, I am trying to create embed code for a resource using workdrive api in powershell, however facing some issues with injecting data in body. Followed Doc: https://workdrive.zoho.com/apidocs/v1/filefoldersharing/shareeveryone Please help, below

• Feature Request - Insert URL Links in Folders

  I would love to see the ability to create simple URL links with titles in WorkDrive. or perhaps a WorkDrive extension to allow it. Example use case: A team is working on a project and there is project folder in WordDrive. The team uses LucidChart to create

• not able to convert pdf to jpg and other forms and vice versa.

  i want to change my pdf to jpg, word, etc and some times jpg to pdf. i don't know how to do in this.

• Zoho Marketing Automation 2.0 - Landing Page function not working

  Dear Zoho Team, I am working on implementing Zoho Marketing Automation 2.0, and am now looking into the section "Lead Generation". If I open the "Landing Pages" section, I immediately get an Error code: Error: internal error occurred. Can you help me

• Has anyone built a custom AI support agent inside Zoho (SalesIQ/Zobot)?

  Hi all, I’ve been experimenting with building my own AI support assistant and wanted to see if anyone here has tackled something similar within Zoho. Right now, I’ve set up a Retrieval-Augmented Generation (RAG) pipeline outside of Zoho using FAISS. It

• Zoho CRM custom fields not showing in zoho creator

  Hi Team, I have created a Products form with Zoho CRM integration and connected it to Products module of CRM. But when I see the reports of Products in Zoho creator then I am not able to see custom fields of Products module. Only standard fields of Products

• How do I duplicate / copy a campaign

  I am evaluation Zoho Campaigns and sent an email to one of my personal email accounts from Zoho Campaigns.  It went into my junk file in Hotmail. I want to duplicate that same (1-page) campaign and send it to another of my personal accounts to try to

• Enable / show scroll bar when Mega Menu is opened

  Hey there I am using the mega menu add-on and experience a "flicker" whenever the mega menu opens. The reason is, that the scrollbar, which has a width of a few pixels, stops showing when the mega menu opens. As the scrollbar disappears the whole page

• Shared Mailboxes Disappeared

  Zoho Mail users in our company haven't been able to see their Shared Mailboxes for the past few hours. I've checked with App and Web Access, but they can't access them. When I send emails to their addresses, I get no error messages. They're still visible

• Reports: Custom Search Function Fields

  Hi Zoho, Hope you'll add this into your roadmap. Issue: For the past 2yrs our global team been complaining and was brought to our attention recently that it's a time consuming process looking/scrolling down. Use-case: This form is a service report with

• Introducing Zoho Creator's 2025 Release Projection 2

  Hello Creators! I'm Prakash, from the Creator product management team, and today I'm delighted to unveil our next set of features as part of Release Projection 2 for 2025. With thoughtful analysis and planning, we've curated powerful new capabilities

• Zoho Inventory - Composite Items - Assembly - Single Line Item Quantity of One

  Hi Zoho Inventory Team, Please consider relaxing the system rules which prevent an assembly items from consisting of a single line item and outputting a quantity of 1. A client I'm currently working with sells cosmetics and offers testers of their products

• How can I transfer data from Production to Development environment?

  Hi, I am using Creator V6 and would like to bring all the data in production to the Development and Testing environments? Is there an easy way of doing that or I have to export and import each table?

• 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,

• New portal SAML authentication error: User not found

  Dears, Has anyone else been experiencing this lately? I am creating a new portal authenticated by SAML (Entra ID). I followed the same process as I did with other portals, but any new portal created after this always encounters this error. I’ve been reporting

• Devis et facture multi page

  Bonjour, je suis sur Zoho invoice et je rencontre un problème sur mes devis et factures lorsqu'ils dépassent 1 page. je me retrouve souvent avec des lignes coupées ou le sous total page 1 et le total page 2. j'aimerai savoir s'il existe une possibilité

• Global Search placement in the new UI

  Having a hard time with the global search placement in the UI redesign. Surely I can't be the only one. Previously global search placement was perfect. A bar at the top/center of the page. Exactly where you would expect it to be. Since the new UI has

• Customising Zohidesk portal default widgets

  Hello, I'm wondering how could I customise the default widgets such as "popular topics", "popular articles" using CSS or to make the tiles at the bottom match the ones that I made in the picture attached. I have made some custom widgets and edited them

• Rotate an Image in Workdrive Image Editor

  I don't know if I'm just missing something, but my team needs a way to rotate images in Workdrive and save them at that new orientation. For example one of our ground crew members will take photos of job sites vertically (9:16) on his phone and upload

• Next Page