Marketing promotions are a fact of life nowadays. While they vary widely across software companies, SaaS providers, hardware appliance vendors, and other tech 2.0 companies, the effects on revenue recognition share one common theme – they make the accounting process more complex! Working with a wide variety of technology companies, we regularly find the need to define revenue recognition rules to accommodate promotion as diverse as maintenance bundled in the purchase of a perpetual license, subscriptions with 90-day “free” cancellations or added months of service tacked onto a term-based agreement (e.g. 13 months for the price of 12).
One such marketing promotion that defers revenue recognition into future periods is the product upgrade offer. Microsoft has provided us an excellent example of this promo type recently in its announcement of a limited-time Office offer whereby purchasers of the current version will receive the next generation upgrade for free. Microsoft will recognize revenue once fulfillment is established, regularly at the point of license agreement activation (a.k.a. product acceptance), or upon the program’s expiration date (to capture the revenue on user accounts opting to not upgrade product versions in an orderly timeline). In Microsoft’s case, the total deferral is forecasted at over $100 million.
Microsoft’s official press release may be read in its entirety at their corporate website:
If thoughts of this or similar scenarios in your company keep you up at night, Tensoft’s Revenue Cycle Management (