As a Salesforce Admin, I do a lot of reporting around financial numbers: revenue, retention, ROI, etc. One term I have heard several times in discussions about financial numbers is revenue recognition. I asked Bo Javia, a financial expert turned Salesforce Administrator/Consultant to help me understand what revenue recognition is.
Revenue Recognition for Salesforce Admins
By Bo Javia
Revenue is the most important metric for a company. It is what keeps a company alive and allows it to continue to grow. In order to grow, the front office and back office operations has be connected leveraging the Salesforce platform. Stakeholders (sales, marketing, IT, accounting/finance, IT, product, legal) all need to be aligned and managed properly with new revenue recognition standard, ASC 606.
To the average non-accountant, learning about accounting topics like revenue recognition might not be a priority on the reading list, however, understanding ASC 606 will make you a better Salesforce admin to your finance team.
As a former auditor for the Big 4 and now in the SFDC ecosystem, I want to my fellow SFDC admins to understand what ASC 606 is, what it is not, and how it impacts your role. For most Admins, as long as the sales and marketing team are aligned on Salesforce and processes are operationally efficient as you have configured, we do not have to worry about what happens in back office.
What is ASC 606 – Revenue Recognition?
First, let’s discuss what revenue recognition is not. It is not when the salesperson determines the sale is “closed won”, contract start date, or invoice date. The company can not recognize or account revenue until the promised goods/services transfers to the customer by matching the amount of consideration expected in the exchange for that goods/services. The old rule was industry specific and less transparent. The new rule is industry-neutral and better representation of the financial health of the company as the economy has become more digital with subscription based financial models. Weather its grooming products, food or streaming services, most of us pay for a several subscriptions every month. The SaaS model makes it convenient to pay as a customer because of the recurring payment from your bank to the company, however, it’s a complicated transaction to account for on the receiving end. According to the Financial Accounting Standards Board (FASB), under the new principle, ASC 606, the company has to comply with these 5 steps to recognize revenue:
- Identify the Contract with the Customer (Is there a deal?)
- Identify Performance Obligations in the Contract (Who is doing what?)
- Determine the Transaction Price (What is owed?)
- Allocate Transaction Price to the Performance Obligations in the Contract (What is split up on the contract?)
- Recognize Revenue When the Company Satisfies a Performance Obligation (Company earned the money.)
- Sales contracts Object
- Order – Object
- Sales commission – Field
- Recognized revenue by type (i.e. contract, project, sales invoice, revenue contract)
- Contracts vs. Actual Revenue
CPQ & Billing
While there are various tools to be compliant to ASC 606, implementing Salesforce CPQ and Billing ensures proper flow of company’s financial data. No more manipulating data from excel docs and scrabbling through emails for information. As Admins, you are the “data glue” that connects sales, operations, and accounting. You have to evaluate the customer sales cycle and establish rules and processes when creating products and enforcing data integrity for reporting. Not only CPQ will ensure revenue is recognized in compliance, it will allow the company leaders to accurately forecast, allocate budgets, compensate employees, and overall better decisions through collaboration.