Recurly’s own David Krauss, Vice President of Product Marketing, Aswin Kurella, Head of Product for revenue recognition, and Steve Springsteel, Chief Financial Officer, sat down for a webinar about one of the hottest topics right now, revenue recognition.

Having spent a lot of time with our merchants working around compliance automation, businesses dealing with ASC 606 in the U.S. and IFRS-15 abroad understand the importance of revenue recognition in subscriptions. In this webinar, our in-house experts sit down to discuss best practices around expense accounting and contract modifications, what this means in terms of developing and managing multiple revenue models, and the downstream impact on revenue and accounting.

Unique challenges of revenue recognition

When it comes to recognizing revenue for different types of revenue models, products, and services many subscription businesses face the same issues regardless of whether they’re B2B, B2C, or hybrid. Some common challenges of revenue recognition include: 

  1. With legacy methods, the lack of automation proves challenging for growth-minded businesses, such as with volume processing, managing your auditing risk, and obtaining revenue insight. 

  2. The type of product or service your business offers influences the level of complexity in revenue recognition. While it varies for industries, this challenge applies to every business from Consumer Goods and Retail to Software. For example, Digital Media and Streaming subscription businesses would likely recognize revenue based on usage, whereas Consumer Goods and Retail brands recognize revenue based on shipment and delivery.

Especially in high-tech industries where subscriptions include a combination of services or products, having a comprehensive solution that allows you to recognize revenue accurately and meet all your requirements today and in the future is indisputable. 

The increasing demands of subscription businesses

Subscription businesses need to always look forward a few years–what will it take to be competitive in the marketplace? What will your offers have to look like? Do you have the technology that accommodates these advancements? These are critical questions when evaluating your existing platform or considering building your own versus outsourcing a sophisticated solution. 

First, there is monetary risk involved as well as an operational burden–especially if you’re relying on spreadsheets. What starts as a seemingly simple solution morphs into something nobody wants to or has the capacity to manage as your business grows. 

Before building your own revenue recognition solution, ask yourself this:

  • Do you have the accounting technical staff to manage the complexity of all the transactions?

  • Do you have the engineering staff to keep your system and all related components up to date?

  • Can your team keep up with all of the rules, regulations, and implementations surrounding foreign transactions? 

  • Do you have the staff to thoroughly and accurately audit your documents?

All of the above requires time, money, and expertise–three factors that will inevitably require more and more resources as your business expands. And this doesn’t even cover everything a growing business demands.

While the answer may be to outsource individual modules and integrations to support your homegrown system, you may discover shortcomings as these are not the business’s core competencies, leaving you with lackluster data. 

In addition to the technical and operational elements of a revenue recognition solution, the flexibility of any platform should also be a priority. The flexibility to adapt a solution to your business’s unique needs reinforces the power in your hands and gives you the freedom to develop your subscription service or product in any capacity. From the addition of new products or services to upsells and cross-sells to forecasting capabilities, it’s important to partner with a revenue recognition solution that complements your business in all the right ways.

Five revenue recognition must-haves for subscription businesses

  1. Revenue recognition by product or service: If your business carries various types of products or services, it’s key to optimize revenue recognition practices that pertain to each specific offering to recognize revenue only when an obligation is delivered. By doing this, you have the opportunity to unlock more revenue.

  2. Promotions and bundling: Mixed revenue models create the need to easily account for things like promotions and discounts. A complete revenue recognition solution handles these permutations by automating the complexities of when and how to accurately recognize revenue.

  3. Contract modifications and incremental expenses: Contract modifications and incremental expenses complicate the mundane. With changes happening at various times, performance obligations and revenue recognition are impacted. A reliable revenue recognition tool should be able to minimize audit risks and maximize period-end closes like an expert–quickly and efficiently. 

  4. Global expansion: With business happening globally, there are plenty of different revenue recognition implications to account for. From currency requirements to tax regulations, revenue must be recognized according to local guidelines. Additionally, when dealing with multi-currencies, operational timing is on the table–how quickly can you figure out revenue for any given period?

  5. Contracted revenue forecasting: Don’t limit your business to what’s in front of you–look down the road to visualize revenue recognition against currently contracted amounts. Doing this will also help your business decide if new subscribers are the right opportunity at the right price. The bottom line: onboard a revenue recognition tool that can forecast on a contracted revenue basis.

From common challenges to industry-specific roadblocks, revenue recognition is undoubtedly a crucial element to every growth-oriented subscription business. The complexities of revenue recognition and the expertise required to stay compliant with changing regulations demands a revenue recognition partner that is ready to tackle every current and future problem. Keep a good thing growing faster, smarter, and stronger with Recurly, the subscription management, recurring billing, and revenue management platform for global subscription brands.

Want to hear from the experts? Watch our Revenue recognition: 5 critical must-haves for subscription businesses webinar on-demand.