Revenue Recognition Policy Best Practices for Increasingly Complex Business Models

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Revenue Recognition Policy Best Practices for Increasingly Complex Business Models

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Revenue Recognition Policy Best Practices for Increasingly Complex Business Models Mike Murphy, CPA, Chief Business Officer, goTransverse

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HISTORY OF REVENUE RECOGNITION

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Recognizing revenue used to be simple

Produce widget Recognize revenue when you sell it

Revenue

Sell it

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Old  Economy  

•  Sell  Widget  •  Recognize  Revenue  

SOFTWARE  =  Disrup(on  

• Dynamically  priced  

•  Lots  of  ways  to  package,  price  

New  Economy  

•  Accountants  try  to  align  old  standards  (97-­‐2)  

•  Taking old ways and applying them to new economy didn’t work

•  Migration to new kinds of product offerings

•  Constantly having to rewrite rules

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New revenue standards moving from rules-based standards to principle-based standards

Polling Question

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ALIGNING REVENUE RECOGNITION WITH GTM

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Offer  • Pricing    • Delivery  

Contract  • Customer  terms  

• Billing  

Sales  • Channel  • Direct  • Online  

Everything starts with GTM

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Recognize  revenue  when  performance  obligaNons  are  met  

Allocate  transacNon  price  to  performance  obligaNons    

Determine  transacNon  price  

IdenNfy  the  performance  obligaNons  in  the  contract  

IdenNfy  tangible  contracts  with  a  customer  

5 Steps to Successfully Recognizing Rev

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Identify tangible

contracts with a

customer

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Identify the performance obligations in the contract

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Determine transaction price

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allocaNon  =  cookie  cuQer  

support  

soRware  services  Allocate

transaction price to performance obligations

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Recognize revenue when performance obligations are met

Polling Question

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NO 1 CHALLENGE TO YOUR REV REC PLAN: SALES

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SALES GUY:

•  “I’ve got this guy who wants to do a deal.”

•  “But we don’t own that car.”

Image by sonnyandsandy on flickr

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•  Address random sales behavior through: –  Sales compensation plan –  Focused leadership team –  Automation of order-to-cash cycle

Your best-laid revenue recognition plans will be defeated by the random sales act.

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BEST PRACTICES

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Pricing  CommiQee  •  Formalized  price  book  

Revenue  RecogniNon  Policy  

Sales  CompensaNon  Plan  

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Pricing Committee

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Revenue Recognition Policy

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Sales Compensation Plan

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