Precursive Pillars

REVENUE RECOGNITION & FORECASTING SOFTWARE FOR SALESFORCE

WHAT IS REVENUE RECOGNITION?

Revenue recognition is the process of understanding when your business has earned its revenue.

Companies that use a cash basis of accounting will earn revenue when the cash hits the cash register or bank account. However if your organization uses accrual based accounting then you will recognize revenue only when you have earned it.

The revenue generating activity for SaaS companies is the delivery and usage of your product by the customer - this activity must be complete for that revenue to be included into a respective account period.

Revenue standards make up an important part of revenue recognition as a whole. It affects all or your existing contracts with customers, and it can have major impacts on the financial performance of your company. Read our blog on ASC 606 here to learn more about these standards.

FINANCIAL IMPLICATIONS OF DELAYED IMPLEMENTATIONS

To understand the true value of Professional Services, let’s explore what happens if the implementation is delayed.

CASH FLOW IMPACT

1 month delay on a 3 month $50k implementation will mean $16.6k of delayed cash collection per delayed project.

STAFF UTILIZATION

1 month delay to a 3 month implementation would lead to a 25% reduction in utilization for each fully utilized team member that can not be reallocated to other work over the course of the project.

LOST REVENUE

1 month delay to a new client launch would mean $4.2k of lost revenue based on a $50k fee. With 50 new clients this could mean $208k of lost revenue.

REDUCED PROFITABILITY

Good margin on SaaS PS is 40%. One months idle time caused by delays in implementation would be $10k of staff cost (for staff that can not be reallocated) for a 3 month $50k implementation.

WHY IS REVENUE RECOGNITION IMPORTANT?

Foremostly revenue recognition is a regulatory requirement of GAAP/IFRS and therefore it is vital to get this correct to ensure compliance. Getting this wrong can have different implications based on whether you’re viewing these as an internal or external stakeholder. If you're reading this in the UK and want to know more about the revenue standards closer to home, read our guide on FRS 102.

Revenue/deferred revenue reporting is often one of the most important performance metrics monitored by the senior management of a business. It tells them your current earnings as well as expected earnings for the remaining period. Forecasting future revenue recognition correctly is critical for business planning. It enables management to ensure that the necessary resources required to deliver the revenue are in place. This all helps Finance Teams understand the company's current and predicted cash position, an important tool in financial planning. It is also a crucial factor in valuations when potential investors are interested in acquiring a stake of your business.

Incorrect revenue recognition can be viewed as fraudulent reporting and this can have negative effects on a company’s brand.

"We knew we were spending a lot of time on overage or warranty work, with Precursive we can easily track this. This build in functionality and the ease of extending Precursive has been great."

POLSOURCE MAXIMIZED UTILIZATION THROUGH BETTER RESOURCE MANAGEMENT, AND REDUCED TIME SPENT ON NON-BILLABLE WORK BY 50% WITH PRECURSIVE

Brandon Marsee.

Senior VP of Finance & Operations | Polsource

READ CASE STUDY

PRECURSIVE MAKES REVENUE RECOGNITION EASY

Precursive is a Professional Services Automation (PSA) solution which is built on Force.com (native to Salesforce). Precursive is used by Consultancies and Professional Services teams in Software such as BetterCloud, Dealertrck, Gong and MX, to manage and improve all elements of service delivery.

Professional services, project management and implementation teams improve delivery times to pull forward revenue and accelerate time-to-value for customers. See how Precursive's software is the perfect fit for SaaS & IT companies.

Precursive PSA helps companies to forecast and recognize revenue aligned to their business model. Revenue can be forecast and booked at a project level for fixed price, T&M and milestone based work. Precursive will automatically calculate revenue forecasts so you can see where you are at any given time. Finance teams can reduce the admin burden for period-end with a view of both recognized and deferred revenues. A solid delivery strategy is crucial to successful revenue recognition. According to our revenue recognition field guide, for an average ACV of $75,000, a one month delay over 100 customers could cost you $750,000+ in overrun costs. Precursive can help services teams and finance leaders avoid this.

IMPROVE REVENUE MANAGEMENT

Get more visibility and control over financial performance with better forecasting and recognition of services revenues.