Revenue Recognition

Definition

Revenue recognition is the accounting process of recording revenue when earned (delivered), not necessarily when billed or collected.

Example

If a customer prepays $24,000 for 12 months, you recognize about $2,000 per month as revenue.

How to use it

• Accrual accounting recognizes revenue as performance obligations are met.
• Cash collection timing can differ from revenue recognition timing.
• For SaaS, revenue is often recognized ratably over the contract term.
• Document recognition policies so metrics remain comparable over time.
• Use deferred revenue schedules to validate recognition math.
• Separate one-time setup fees from recurring revenue for cleaner trends.
• Align recognition schedules with contract start dates and service periods.

Common mistakes

• Using cash receipts as a proxy for revenue in SaaS reporting.
• Mixing bookings, billings, and revenue in the same report.
• Ignoring deferrals and refunds that affect recognized revenue.
• Changing recognition rules without re-baselining reports.
• Recognizing revenue before delivery milestones are met.
• Applying revenue recognition rules inconsistently across segments.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Revenue Recognition" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Deferred Revenue Rollforward Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Deferred revenue: bridge billings to recognized revenue (with formulas)) for context and common pitfalls.

Where to use this on MetricKit