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Get clear, actionable steps for revenue recognition for services. Learn how to stay compliant, avoid common mistakes, and keep your financials accurate.
As your service business grows, the manual spreadsheets you once relied on to track income can quickly become a liability. Juggling multiple contracts, milestone payments, and subscription renewals makes it nearly impossible to get an accurate financial picture without a solid system in place. This is why establishing a formal process for revenue recognition for services is a foundational step for any company looking to scale sustainably. It moves you from guesswork to a clear, data-driven understanding of your performance. This guide is designed to help you build that process, covering everything from the core principles of ASC 606 to best practices for automation, so you can create a financial backbone that supports your growth.
At its core, revenue recognition is the accounting principle that determines the specific conditions under which a business can record revenue. For service-based companies, this gets a little more complex than for businesses selling physical products. It’s not about when a client pays their invoice; it’s about when you actually deliver the service and earn the money. Think of it as the official rulebook for counting your income in your financial reports, ensuring that the story your numbers tell is accurate and consistent.
Getting this right provides a clear picture of your company's financial performance over time. Instead of seeing unpredictable spikes and dips based on when cash arrives, you see a steady, realistic reflection of the value you’re delivering. This is especially critical for businesses with long-term contracts, subscription models, or multi-part projects where services are rendered over weeks, months, or even years. Properly recognizing revenue ensures your financial statements are reliable, which is the bedrock of sound financial management and a non-negotiable for passing audits. It’s the difference between guessing how your business is doing and knowing for sure. HubiFi’s automated solutions are designed to handle this complexity, ensuring your financials are always accurate and compliant.
This isn't just about keeping your accountant happy—it's a critical part of running a healthy business. When you recognize revenue correctly, you get a clear view of your company’s performance, which helps you make smarter decisions about everything from hiring new team members to investing in growth. Accurate financial reports build trust with investors, lenders, and potential buyers who need to see a reliable picture of your profitability. On the flip side, getting it wrong can create misleading reports, cause you to fail audits, and lead to poor business choices based on faulty data. You can find more expert advice on our HubiFi Blog.
For nearly all service businesses, proper revenue recognition means using the accrual method of accounting. Unlike cash accounting, which logs revenue only when a payment is received, accrual accounting records revenue when it’s earned—that is, when you’ve delivered the promised service. This is a game-changing distinction. For example, if you’re working on a six-month consulting project, you would recognize that revenue over the six months, not all at once when the final invoice is paid. This method perfectly aligns your reported income with the work you’re actually doing, giving you a far more accurate snapshot of your company’s financial health in any given month or quarter.
If you’ve been in the finance world for a bit, you’ve probably heard of ASC 606. This isn't just another piece of accounting jargon; it's the rulebook that standardizes how companies report revenue from customer contracts. Before ASC 606, the rules were a bit fragmented and varied by industry, which made comparing financials between companies a real headache. The Financial Accounting Standards Board (FASB) introduced this new standard to create a more consistent and transparent approach for everyone.
Think of it as a universal language for revenue. It provides a single, comprehensive framework that applies across all industries, making your financial statements clearer and more reliable for investors, lenders, and your own leadership team. Getting a handle on ASC 606 is essential for any service business that wants to maintain compliance, pass audits without a hitch, and make informed strategic decisions based on solid data.
At its heart, ASC 606 is built on one core principle: you should recognize revenue when you transfer control of a promised good or service to a customer. The amount you recognize should reflect the payment you expect to receive in exchange for those goods or services. This shifts the focus from the company's earnings process to the customer's perspective—what they receive and when they gain control over it. This principle is the foundation for the entire standard, guiding you through every contract and transaction. It ensures that your revenue recognition practices accurately depict the value you've delivered to your clients.
The biggest change with ASC 606 was the move from a risk-and-rewards model to a control-based model. Previously, you might have recognized revenue when the risks of ownership passed to the buyer. Now, the key question is: when does the customer gain control of the service? This can be a subtle but significant difference. ASC 606 also introduced much more detailed disclosure requirements, forcing companies to be more transparent about their contracts, performance obligations, and pricing. To help businesses apply these principles consistently, the standard provides a clear, five-step framework. This framework is your roadmap for analyzing contracts and ensuring your financial accuracy is spot-on.
At the heart of ASC 606 is a five-step model that guides you through the entire revenue recognition process. Think of it as a universal framework designed to make revenue reporting consistent and transparent, no matter what industry you’re in. For service-based businesses, this model provides a clear path for recognizing revenue from contracts that might span weeks, months, or even years. It shifts the focus from when you get paid to when you actually deliver value to your customer.
Following these five steps ensures your financial statements accurately reflect your company's performance and helps you stay compliant. It might seem like a lot to take in, but breaking it down step-by-step makes the process much more manageable. Getting this right is crucial for accurate financial reporting, passing audits, and making informed business decisions. For a deeper look at financial best practices, you can find more Insights on our blog. Let’s walk through each step together.
First things first, you need to identify the contract with your customer. This might sound obvious, but under ASC 606, a "contract" isn't just a formal document with signatures. It's any agreement—written, oral, or even implied by your standard business practices—that creates enforceable rights and obligations. For the contract to be valid under this standard, it must meet a few key criteria: both parties have approved it, you can identify each party's rights and the payment terms, the contract has commercial substance, and it's probable that you'll collect the payment you're entitled to.
Once you have a valid contract, the next step is to identify your "performance obligations." These are the specific promises you've made to transfer goods or services to your customer. For a service business, this could be a single ongoing service or a bundle of different services. The key is to determine if each promised service is distinct. A service is considered distinct if the customer can benefit from it on its own. For example, if you offer a one-time setup service and a monthly software subscription, those are likely two separate performance obligations because the customer gets value from each one individually.
Now it's time to figure out the transaction price. This is the total amount of compensation you expect to receive in exchange for fulfilling your performance obligations. In many cases, this is straightforward—it’s the fixed fee you charge for your service. However, it can get more complex if your contracts include things like discounts, rebates, performance bonuses, or other variable considerations. If the price is variable, you need to estimate the amount you expect to receive. This step is all about determining the total value of the contract before you start allocating it.
If your contract has multiple performance obligations (like the setup and subscription example), you can't just recognize the revenue in one lump sum. You need to allocate the total transaction price from Step 3 across each separate obligation. This allocation is based on the standalone selling price of each item—basically, what you would charge for each service if you sold it separately. This ensures that you assign a fair portion of the total contract value to each distinct promise you've made to the customer, reflecting the value you're delivering with each part of the service.
This is the final and most important step: recognizing the revenue. You can recognize revenue only when (or as) you satisfy a performance obligation by transferring the promised service to your customer. This happens when the customer gains control of the service. For some services, control transfers at a single point in time—like completing a one-off consulting project. For others, like a monthly maintenance contract, control transfers over time. Accurately tracking this fulfillment is key to compliance. If manual tracking is becoming a headache, you can schedule a demo to see how automation can simplify the process.
This is where the rubber meets the road in the five-step process. Deciding when to recognize revenue isn't about tracking your bank account; it's about matching the revenue to the period you actually delivered the service. For service-based businesses, this timing can be a bit more complex than for a company selling a physical product. You aren't just handing over a widget and calling it a day. Instead, your delivery might happen over weeks, months, or even years.
Under ASC 606, there are two primary ways to time your revenue recognition: over time or at a point in time. The right choice depends entirely on how and when your customer receives the benefit of your work. If you provide a continuous service where the customer benefits as you perform the work—like a monthly cleaning service or an annual software subscription—you'll recognize that revenue over time. If you deliver a one-off project where the customer gets the full benefit upon completion—like designing a single logo—you'll recognize the revenue at that specific point in time. Getting this timing right is crucial for accurate financial reporting and a clear picture of your company's health.
For most service businesses, revenue is recognized over time as the service is delivered. This approach aligns with the core idea of accrual accounting, which dictates that you record revenue when it's earned, not just when you get paid. Think of it this way: if a client pays you upfront for a 12-month consulting contract, you haven't earned all that money on day one. Instead, you earn it incrementally, month by month, as you provide your expertise. This method is used when the customer simultaneously receives and consumes the benefits of your service as you perform it. Common examples include subscription services, long-term consulting retainers, and managed IT services.
Sometimes, a service is delivered all at once. In these cases, you recognize revenue at a single point in time—specifically, the moment the customer gains control of the promised service. Revenue is considered "earned" when a few key things are true: a clear contract exists, the service has been fully delivered, the price is set, and payment is reasonably assured. This method is perfect for distinct, one-off projects. For example, if you’re hired to conduct a one-day corporate training workshop or to complete a specific home repair, you would recognize the full revenue once that workshop or repair is finished and the client has received the full benefit of your work.
When you recognize revenue over time, you need a consistent way to measure your progress toward completing the service. This method should clearly show how much of the service has been transferred to the customer. The two main ways to do this are with input or output methods.
Output methods measure progress based on the value delivered to the customer, like project milestones completed or units produced. Input methods measure progress based on the effort you've expended, such as costs incurred, labor hours worked, or machine hours used. Choosing the right method depends on which one best reflects your performance. Tracking this accurately often requires pulling data from multiple systems, which is where seamless integrations become essential.
Service contracts rarely stick to a single, simple pricing model. You might be juggling fixed-fee projects, retainers with performance bonuses, and contracts that change mid-stream. Each of these scenarios has its own set of rules for revenue recognition under ASC 606. Getting it right means looking closely at the contract terms and understanding how to apply the principles to your specific situation. Let's walk through how to manage some of the most common complex pricing structures you'll encounter.
On the surface, fixed-fee contracts seem straightforward—you agree on a price, deliver the service, and get paid. However, you can't recognize the entire fee the moment the contract is signed. Revenue is considered "earned" only when you've met your end of the bargain. This means you need a clear contract, you've delivered the services promised, the price is set, and you're reasonably sure you'll be paid. For projects that span several months, this often means recognizing revenue over time as you complete the work, rather than all at once. The key is to clearly define your deliverables and timelines in the contract so you can accurately track your progress and recognize revenue appropriately.
Many service contracts include prices that can change based on discounts, bonuses, or penalties. This is known as variable consideration. When you have variable pricing, you need to estimate the total amount you expect to earn. According to ASC 606, you can only include this estimated amount in your transaction price if it's highly probable that you won't have to reverse it later. This requires a solid basis for your estimate, like historical data or experience with similar projects. You’ll also need to re-evaluate your estimate every reporting period, adjusting your recognized revenue as new information becomes available. This is a common challenge in software revenue recognition where usage-based fees are prevalent.
It’s common for the scope of a project to change after the initial contract is signed. A client might request additional services or alter the original requirements. When this happens, you have a contract modification, and you need to determine how it impacts your revenue recognition. Depending on the nature of the change, you might treat it as a brand-new contract or as an adjustment to the existing one. The deciding factor is usually whether the new services are distinct and priced at their standalone value. Proper documentation is critical here, as you’ll need to justify your accounting treatment and show a clear trail of how and why the contract—and your revenue plan—changed.
In a performance-based model, your payment is tied directly to achieving specific results or milestones. These milestones are your performance obligations—the specific promises you've made to your customer. With this model, you recognize revenue as you complete each of these promises. For example, a consulting firm might recognize a portion of its fee after delivering a market analysis and the rest after implementing a new system. This approach aligns your revenue directly with the value you deliver, which is a core tenet of the revenue recognition in the service industry. It requires careful tracking to ensure you’re recognizing revenue at the right time, based on actual performance.
Getting revenue recognition right is a game-changer for your financial reporting, but a few common slip-ups can easily throw you off course. These aren't just minor accounting errors; they can distort your financial health, create compliance headaches, and lead to poor business decisions. The good news is that most of these mistakes are entirely avoidable once you know what to look for. Let’s walk through the most frequent missteps service businesses make and how you can steer clear of them.
It’s an easy trap to fall into: a customer pays you, so you record the revenue. But under accrual accounting and ASC 606, revenue is recognized when it’s earned, not when cash hits your bank account. For service businesses, this means you should record revenue as you deliver the promised service. If a client prepays for a six-month consulting project, you can’t recognize all that cash as revenue in month one. Instead, you’d recognize one-sixth of the total fee each month as you complete the work, giving a much more accurate picture of your company’s performance over time.
Not all services are delivered in a single moment. While it might seem simpler to recognize all revenue once a project is complete, ASC 606 requires a closer look. The key is determining when the customer gains control of the service. Many service contracts, like ongoing marketing campaigns or software development projects, transfer value to the customer continuously. In these cases, you must recognize revenue over time. Defaulting to point-in-time recognition for all contracts can misrepresent your financial performance and lead to non-compliance with the ASC 606 standard.
Business is dynamic, and so are contracts. Scope changes, add-on services, and revised pricing are common, but many businesses forget to update their revenue recognition approach accordingly. Every time a contract is modified, you need to reassess your performance obligations and transaction price. Ignoring these changes can cause your recognized revenue to drift away from what’s actually been earned. Establishing a clear process for reviewing and accounting for contract modifications is essential for maintaining accurate financial reporting and staying compliant.
If you can’t prove it, you can’t recognize it. ASC 606 requires thorough documentation for every step of the revenue recognition process. This includes the initial contract, a clear breakdown of each performance obligation, how you determined the transaction price, and evidence of when and how services were delivered. Without detailed records, you’ll have a tough time justifying your numbers during an audit. Think of documentation as your financial safety net—it’s crucial for proving compliance and ensuring your team consistently applies your revenue policies correctly.
Understanding when "control" of a service transfers to the customer is at the heart of ASC 606, but it’s also one of the most misunderstood concepts. Revenue is recognized over time if the customer receives and consumes the benefits as you perform the service, or if your work enhances an asset the customer already controls. For example, a monthly SEO service provides benefits continuously. If your work creates a unique asset the customer commissioned, that also qualifies. Misinterpreting these rules can lead you to recognize revenue at the wrong time, so it’s vital to analyze each contract against the specific criteria for control transfer.
Adopting ASC 606 is a major step toward clearer, more consistent financial reporting. But let’s be honest—the path to compliance isn't always a straight line, especially for service-based companies. The nature of service delivery, with its ongoing relationships and multi-faceted agreements, introduces some unique hurdles that product-based businesses might not face.
Many service businesses find themselves wrestling with contracts that bundle several distinct services into one package. Others struggle to measure progress on long-term projects accurately. There's also the technical challenge of getting different software systems to share data, and the human element of getting your entire team on the same page. Tackling these issues head-on is key to making ASC 606 work for you, not against you. By understanding these common pain points, you can create a clear strategy for a smoother, more accurate revenue recognition process.
Service agreements are rarely simple. A single contract might include initial setup fees, training sessions, ongoing maintenance, and consulting hours. Under ASC 606, you can't just recognize the revenue as a lump sum. Instead, you have to break the contract down into separate performance obligations and assign a portion of the total price to each one.
This process can feel like a puzzle, especially when some services are sold at a discount or bundled for free as part of a promotion. It requires a deep look at each contract to figure out what distinct promises you've made to the customer. Without a systematic approach, it’s easy to misallocate revenue and create compliance headaches down the road.
When you sell a physical product, it’s clear when the transaction is complete—the customer has the item. With services, it’s much less defined. If you’re providing a year-long consulting service, how do you recognize that revenue each month? You have to measure your progress toward completion, which can be subjective if not based on clear metrics.
This isn't just an accounting exercise; it directly impacts your financial statements. Getting it right ensures your income statement reflects the work you've actually performed in a given period. Relying on manual spreadsheets to track project milestones or hours worked is risky and quickly becomes unmanageable as your business grows, leading to potential errors and misstated financials.
Your business likely runs on a collection of software—a CRM for sales, an accounting platform for finance, and maybe a project management tool for delivery. ASC 606 requires information from all of them to work together. Your sales data needs to flow seamlessly to your finance team so they can apply the right revenue recognition rules without chasing down information.
If your systems don't talk to each other, you’re left with a lot of manual data entry and reconciliation. This not only wastes time but also dramatically increases the risk of errors. A key challenge is creating a connected ecosystem where data moves automatically from one platform to the next. Finding a solution with smooth integrations is essential for automating the process and ensuring data integrity from the initial sale to the final journal entry.
ASC 606 isn't just a finance department issue; it affects sales, legal, and operations, too. Your sales team needs to understand how contract terms impact revenue recognition, and your project managers need to track progress accurately. A major challenge is ensuring everyone on your team understands the rules and their role in upholding them.
This requires clear, documented internal policies and ongoing training. You can’t just hand everyone a copy of the standard and hope for the best. You need to establish consistent procedures for identifying performance obligations, allocating transaction prices, and measuring service delivery. Without this internal alignment, you risk inconsistent application of the rules, which can cause major problems during an audit.
Getting your revenue recognition process right goes far beyond just checking a compliance box. It directly shapes how your company’s financial health is perceived by everyone from your internal team to investors and lenders. When you accurately report revenue, you create a clear and trustworthy picture of your business's performance. This financial clarity is the foundation for making smart strategic decisions, securing funding, and building a sustainable company. Think of it as the story your numbers tell—proper revenue recognition ensures that story is both accurate and compelling.
This isn't just about following rules; it's about building a reliable financial backbone for your business. When your revenue is recognized correctly, you can confidently assess which services are most profitable, forecast future growth, and manage cash flow effectively. It transforms your financial statements from a simple record of transactions into a powerful tool for strategic planning. A solid revenue recognition process gives you the confidence to make bold moves, knowing they’re backed by data you can trust.
At its core, revenue recognition determines when you can officially count money as earned, which isn't always when the cash hits your bank account. For service businesses, this distinction is critical. Accurate revenue recognition ensures your key financial reports, like the income statement and balance sheet, reflect the true state of your business. Your income statement will show a realistic view of your profitability for a given period, while your balance sheet will correctly display assets like accounts receivable and liabilities like deferred revenue. This gives you a reliable way to track financial performance and provides stakeholders with a clear view of your company’s stability.
The ASC 606 standard isn't just about calculating numbers; it's also about transparency. A major part of compliance involves providing detailed disclosures in your financial statements. This means you need to clearly explain your revenue recognition policies, the nature of your performance obligations, and how you determine transaction prices. Essentially, you’re showing your work. These notes give investors, auditors, and other stakeholders insight into the judgments and estimates you made. Fulfilling these ASC 606 disclosure requirements builds confidence and demonstrates that your financial reporting is thorough and credible, proving you have a solid process behind the numbers.
When auditors come knocking, your revenue recognition process will be one of the first things they examine. They need to see that you have clear, consistent steps for determining when a service is delivered and a performance obligation is met. This is where strong internal controls become essential. You need a documented, repeatable system that ensures revenue is recognized correctly every single time. Having a solid process in place not only makes external audits go much smoother but also gives your internal team confidence in your financial data. Automated revenue recognition solutions can help establish these controls, creating an audit trail that validates your numbers and reduces compliance risks.
Getting ASC 606 compliance right doesn't have to feel like a solo mission. With the right support system, you can streamline the entire process, reduce errors, and get back to focusing on your business. Think of it as building a toolkit: you need the right software for the heavy lifting, specialized tools to track project details, expert guidance to light the way, and solid documentation to build on. Let's walk through the resources that will make compliance a much smoother process.
Manual spreadsheets are a recipe for headaches and costly errors when it comes to ASC 606. The right automated revenue recognition software can completely change the game. Look for a solution that automates the entire process, from capturing sales data in your CRM to posting final journal entries in your accounting system. The key is seamless integrations with your existing tools, which creates a single source of truth. This automation not only saves countless hours but also gives you confidence that your financials are accurate, compliant, and always audit-ready.
For service-based businesses, Professional Services Automation (PSA) tools are a lifesaver. These platforms gather all the critical financial data related to your projects, including bookings, billings, and time records. They are especially helpful for tracking progress on long-term contracts, whether you measure it by milestones or hours worked. This data is then fed into your main accounting system for official revenue recognition. Using a PSA tool helps with accurate forecasting and ensures the revenue you recognize truly reflects the work you’ve delivered.
Sometimes, technology alone isn't enough. Ensuring compliance with ASC 606 requires a deep understanding of the standard and careful contract analysis. This is where bringing in an expert can make all the difference. Consultants can help you interpret the nuances of the guidelines as they apply to your specific business model, train your team, and set up your systems for success. Investing in expert guidance isn't just about avoiding penalties; it's about building a sustainable and compliant financial process. The team at HubiFi has years of experience helping businesses do this right.
Strong documentation is the foundation of solid ASC 606 compliance. Before you can automate anything, you need to create and write down clear policies for how your business recognizes revenue. This internal guide ensures everyone on your team follows the same rules, which is essential for consistency and accuracy. Your documentation should detail how you handle different types of contracts and performance obligations. Maintaining this record is also critical for passing audits. Be sure to tailor any templates to your unique revenue recognition process for services.
Getting your service revenue recognition right doesn't have to be a constant struggle. By putting a few key practices in place, you can create a system that’s not only compliant but also efficient and reliable. Think of these as the foundational pillars that support your entire financial reporting structure, giving you a solid base to build on as your company grows. They help you stay consistent, keep your records straight, and catch potential issues before they become major headaches. When you have a strong process, you're not just reacting to problems; you're proactively managing your financial health. Adopting these habits will make your financial closes smoother, your audits less stressful, and your data more trustworthy for making important business decisions. It’s all about building a process you can count on, day in and day out, so you can spend less time worrying about compliance and more time focused on strategy. These aren't just abstract concepts; they are actionable steps that any service business can implement to bring clarity and control to their revenue streams.
First things first: you need a rulebook. Creating clear, written policies for how your business recognizes revenue is non-negotiable. This isn't just about checking a compliance box; it's about ensuring everyone on your team is on the same page. When your policies are documented, there’s no room for guesswork. This consistency is crucial for accurate financial statements and for staying aligned with accounting standards like ASC 606. Your policies should clearly outline how you handle different types of service contracts, from identifying performance obligations to allocating transaction prices. Having this guide in place makes training new team members easier and provides a solid reference for any complex situations that arise.
If you can’t prove it, it didn’t happen—at least in the eyes of an auditor. That’s why maintaining detailed contract documentation is so important. You need very detailed records to prove what services were promised and when they were delivered. This includes the initial contract, any amendments or change orders, and correspondence with the client. Think of it as building a complete story for every transaction. This documentation is your primary evidence for when and how you recognize revenue. Keeping everything organized and accessible will save you countless hours during financial reviews and is absolutely essential for a smooth audit process.
Your revenue recognition process isn't something you can set and forget. Your business evolves, contracts change, and accounting standards can be updated. That’s why regular reviews and assessments are key to staying on track. Scheduling periodic internal audits helps you ensure ongoing compliance and identify any areas for improvement before they become significant problems. This proactive approach allows you to fine-tune your methods, update your policies as needed, and confirm your team is following procedures correctly. It’s a simple but powerful way to maintain the integrity of your financial reporting and adapt to the changing needs of your business.
Manual tracking in spreadsheets can only get you so far. As your business grows, the risk of human error increases, and the time spent on manual reconciliation becomes a major drain on resources. This is where technology comes in. Implementing an automated system creates a single source of truth for your revenue data, ensuring everyone is working with the same accurate numbers. The right software should offer seamless integrations with your existing CRM, ERP, and accounting platforms. This connectivity eliminates data silos and streamlines your entire process, giving you more time to focus on strategic analysis instead of manual data entry. If you're ready to see how automation can transform your process, you can always schedule a demo to explore the possibilities.
My business is still small. Does ASC 606 really apply to me? Yes, if your business prepares financial statements according to Generally Accepted Accounting Principles (GAAP), then ASC 606 applies to you, regardless of your company's size. While it might seem complex, adopting the standard early on builds a strong financial foundation that will support your business as it grows. It ensures your financial reporting is accurate and credible from the start, which is crucial if you ever plan to seek funding or sell your company.
What's the simplest way to tell if I should recognize revenue 'over time' or at a 'point in time'? Think about when your customer receives the value of your service. If they benefit from your work as you do it—like with a monthly marketing retainer or a year-long maintenance contract—you should recognize revenue over time. If the customer only gets the full value once the entire project is finished—like a completed website design or a one-off training session—you would recognize the revenue at that single point in time.
Why can't I just recognize revenue when my client pays their invoice? Recognizing revenue based on payments is known as cash accounting, and it doesn't give you an accurate picture of your company's performance. The goal of proper revenue recognition is to match the income you record to the work you actually performed in that period. If a client prepays for a six-month project, you haven't earned all that money on day one. You earn it month by month as you deliver the service, and your financial statements should reflect that reality.
What is a 'performance obligation' in plain English? A performance obligation is simply a specific promise you've made to a customer in a contract. It's a distinct service that provides value on its own. For example, if you sign a contract to set up a new software system and also provide monthly support, you have two separate performance obligations: the setup and the ongoing support. Identifying each distinct promise is the key to allocating your revenue correctly.
My contracts sometimes change halfway through a project. How does that affect revenue recognition? When a contract's scope or price changes, it's called a contract modification, and you absolutely have to account for it. You'll need to assess whether the changes add new, distinct services at a fair price. If so, you might treat it as a new, separate contract. If not, you'll adjust the revenue plan for your existing contract. The most important thing is to document these changes carefully and update your revenue recognition schedule to reflect the new agreement.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
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