Revenue recognition strategies
Revenue recognition strategies determine how you recognize revenue within the constraints of the ASC 606 guidelines. There are five different revenue recognition strategies that can be used in ChartMogul.
These can be found under Admin > Data settings > Revenue Recognition
Spread revenue evenly throughout service periods - The share of a billing period that falls into a given calendar month defines the share of the billing amount, that is recognized in this calendar month. The precision of this share is defined by the billing system.
Recognize all revenues at the start of service periods - Recognize full amount in the calendar month corresponding to the start of the service period.
Recognize all revenues at the end of service periods - Recognize full amount in the calendar month that indicates the end of the period.
Slice billing periods by month, and recognize revenues at the start of each month - Recognize partial amount slice by month starting at the beginning of the billing period and continuing in monthly increments.
Slice billing periods by month, and recognize revenues at the end of each month -Recognize partial amount slice by month starting at the end of the first month of the billing period and continuing in monthly increments.
Revenue recognition timing
Revenue recognition timing determines when recognition starts and continues according to your chosen revenue recognition strategy.
The setting can be found under Admin > Data settings.
Recognize revenues when invoices are paid - Recognition starts when a transaction associated with an invoice succeeds. Should a transaction fail and succeed in the following month, we would immediately recognize the amount associated with the passed service period on the day of the transaction. The remaining amount of the service would be recognized according to the strategy selected.
Recognize revenues when invoices are issued - Recognition starts immediately when an invoice was issued. If an invoice that was previously in an open state fails, previously recognized revenue would be removed. Similarly, an invoice that had failed and succeeds at a later time could add additional revenue to be recognized in a previous month. Hence, having this option enabled could rewrite historic months.
Understanding your data
Let us look at an example that illustrates how revenue would be recognized depending on the recognition rule selected. Let’s say that a customer pays for an annual contract on July 15th, 2016 (exact middle of the month) for $120.
Spread revenue evenly throughout service periods - ChartMogul will recognize $5 in the first month and ~$10 in the next 11 months. (A little bit more in months with 31 days and a little bit less in the others.) In the 13th month, we will recognize $5 again as in the starting month.
Recognize all revenues at the start of service periods - ChartMogul will recognize 120 USD in July of 2016.
Recognize all revenues at the end of service periods - ChartMogul will recognize 120 USD in July of 2017.
Slice billing periods by month, and recognize revenues at the start of each month - ChartMogul will recognize $10 on July 15 and the next 11 months in one-month increments.
Slice billing periods by month, and recognize revenues at the end of each month - ChartMogul will recognize $10 on August 15 and the next 11 months in one-month increments.
What do we generate data for?
Our revenue recognition feature only generates data for the following charge items originating from your billing system:
- Charges that have the status: open or successful
- Charge items with of the type: non-recurring, setup fee, subscription, prorate, add-on, discount, refund, usage-based, gift card and manual balance
How does balance affect revenue recognition?
There are different types of balance. Some originate from downgrades (money that the customer paid), the second comes from goodwill balance that is given to the customer (effectively a discount). The first type is considered revenue and the second type is not.
Charges that were paid using the first type of balance will eventually convert to recognized revenue as the corresponding subscription progresses. This is because the balance is based on a previous payment from the customer to you.
Charges that were paid using the second type of balance do not convert into recognized revenue because you never received any money from the customer.
- Balance from pro-ration credit is money that was actually received and will be recognized.
- Balance from manual credit is treated as a refund in that it reduces revenue.