Video: How to Avoid Revenue Wreckognition

Transcript: SaaS revenue recognition is critical to your valuation, how you manage and how you finance your business.

Hi, I’m Justin Talerico with Married2Growth and this is how I look at rev rec and deferred revenue.

Investors and buyers will discount your valuation by either your deferred revenue balance or, if you’re lucky, the COGS percentage of that number. If your rev rec isn’t bulletproof, you’ll likely take what could be a big hit in diligence.

Deferred revenue is a highly valuable balance sheet liability. Sure you owe it to your customers. But you also get to invest it into growing your business. You could be looking at sizable investible cash, but you have to understand the risks of using it.

Bulletproof rev rec gets you to accurate deferred revenue, but you can only get to that point if you’re consistently booking into the proper periods. SaaS pricing and packaging is often fluid and subject to experimentation and testing. As a result, the permutations of billing and booking deals are legion, making reliable rev rec hard to come by. You need the right tools and processes in place for your scale, maturity and complexity.

For more on the what, why and how of rev rec for CEOs, please read or listen to my article on Married2Growth.