SaaS Revenue Recognition Best Practices

SaaS revenue recognition seems to be a confusing term for a lot of people, and given the wording, I can honestly understand why. But, regardless of whether people really understand what it is or not, there’s a lot of question about the best practices for it. This is partly because of the buzzword effect I’ve often called out, when discussing terms like this in the past. However, while I think people are asking about it for all the wrong reasons, when you actually define what it is, it’s an important concept, and one that I think needs discussion at length.

So, what is SaaS revenue recognition? Well, it’s kind of a quasi-inclusive term that basically equates to business intelligence alongside market model comprehension and clear metrics practices from customer transaction data. Basically, it’s all about getting useful information out of the customer statistics, including a clear picture of what current revenue profiles really are, as well as where things can be improved, reworked or preserved for optimal effectiveness. It also includes, from a customer terminology aspect, a clear and comprehensible business model where customers can account for every cent the service costs them.

It’s arguable that the customer and business angle perspectives should differentiate in terminology, well, overlap like this is going to happen. And since neither of these definitions is wrong, I’ll touch on both a little bit here, and probably more, in specifics, in the future as well.

So, coming from the business angle, the first thing to keep in mind is that, if you want to get good metrics from transactions, and use this to properly profile revenue and profitability (also ROI), then you need to use software which actively tracks data with this in mind.

As an SaaS vendor, you must be willing to embrace the use of other SaaS services yourself, naturally. And, having good business intelligence and CRM software suites, preferably ones capable of interaction and some level of integration, are an excellent start.

Adding to this the use of strong platforms for coordinated data exchange and parallel, realtime cooperative work allows for analysis and report preparation from an expansive, spacially independent business to be timely and efficient to compose and obtain.

Along with this, it is also important to factor in all overhead across the board against all income across the board, in stead of only compartmentalizing it. While compartmentalization is important for some other metrics locally, and within departments, a global ratio is important to do separately.

From a customer perspective, it still falls to the businesses to be advised, on how to build their models. This is a little bit of its own topic, as I said before, but I’ll say this much. When you lay out a business model for customers to behold, be sure that they can get an itemized bill template as part of their shopping experience. Don’t wait for them to intuitively come to conclusions about your revenue practices. Lay it out for them, but as a link they can call on when they’re ready to see that. Forcing it on your terms will look defensive and raise flags.

SaaS revenue recognition is important, and now that I think I’ve made it obvious what it was, and gotten you pointed in the right direction with it, the rest should come naturally, especially for an SaaS vendor, who would naturally have an instinct for BI.

Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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