Revenue Recognition - Fenerum Docs

This article explains how revenue recognition works in Fenerum and documents any changes made to the algorithms.

Revenue recognition algorithm

Each revenue group in Fenerum must have a revenue recognition algorithm associated with it. This algorithm is used to determine what part of the revenue, originating from the revenue group, should be recognized within the different periods (months) in the billing period.

E.g. if you have a subscription being renewed once every 12 months, you might want to recognize 1/12 of the revenue each period instead of recognizing it all within the month the subscription is renewed.

There is a lot of different approaches to revenue recognition, and Fenerum supports a wide range of algorithms to cater to different needs. They are all explained in the following sections.

Algorithms

No revenue recognition

The revenue will not be recognized at all. All revenue will be recognized in the period it is invoiced.

Linear (equal revenue each month)

The revenue will be split evenly across the calendar months in the period you invoice.

Example: You invoice 12.000 DKK from 1 Jan - 31 Dec. It will be recognized as 1.000 DKK per month.

Any monthly invoice will not be recognized across multiple months and all the revenue will be at the calendar month where the invoice period starts.

Example: You invoice 1.000 DKK from 15 Jan to 14 Feb. The 1.000 DKK revenue will be placed in January.

The revenue is split into a new period whenever the number of days within the given period is greater than 34 days.

Linear (with a custom percentage for the first month)

This algorithm is based on the algorithm "Linear (equal revenue each month)".

The only difference is that the recognized revenue in the subscription's first period from its start date will be a custom percentage of the total revenue instead of an equal split based on the number of periods in the billing period.

The percentage is set in the field "First month percentage", which is shown when this algorithm is selected.

Linear (with a custom percentage for the first month after each renewal)

This algorithm works in a similar way as the algorithm "Linear (with a custom percentage for the first month)".

The field "First renewal percentage" is used to determine the percentage of the revenue that should be recognized in the subscription's first ever renewal period.

The field "Next renewals percentage" is then later used to determine the percentage of revenue that should be recognized in the following first renewal periods of each billing period. The remaining periods in the billing period will be recognized linearly as described in the algorithm "Linear (equal revenue each month)".

Based on the exact number of days in each period

The revenue will be recognized in each month based on the exact number of days in the period.

The algorithm divides the revenue by the total number of days in entire billing period and multiplies it by the number of days in a given month to determine the revenue to be recognized for each month.

Based on the exact number of days in non-full months, linear in full months

This algorithm is based on the algorithm "Based on the exact number of days in each period".

The difference is that the revenue will be recognized linearly in all the full months in the billing period and based on the exact number of days in non-full months.