Revenue Schedule

Why Are Revenue Schedules Important?

Your bill rate helps ensure your services are priced correctly. To secure a healthy profit margin for the work you do, you must set your bill rate above the actual cost of delivering those services. Let’s break down the formula:

While not everyone uses revenue schedules, they’re especially important for subscription-based and professional service companies. That’s because these companies 1) deliver services over time and 2) may not recognize revenue immediately when payments are received.

Subscription companies, for example, often collect the total contract value upfront, in advance of actually providing the service. If they do collect payments in advance, they need to regard GAAP principles, which state revenue is only recognized when it’s “earned.” To reflect this, you typically divide the total contract value by the number of months in the subscription period.

For professional service companies, proper revenue recognition can be just as — if not more — complicated. That’s mainly because single opportunities can include multiple products or services, which means those opportunities have a combination of different billing and revenue recognition schedules.

It’s this complexity that makes tools like Salesforce or Maxio — which allow you to set up detailed, product-based revenue schedules — a godsend for finance teams.

Revenue schedules are useful for understanding when the company will earn revenue from customers and helps FP&A teams get a handle on revenue recognition, guiding pro-forma financials and financial modeling. Revenue schedules also help more accurately forecast deferred revenue on your balance sheet.

To understand how revenue schedules work a bit clearer, let’s look at a hypothetical example.

Example Revenue Schedule

Say you’re a web marketing agency, and a sales rep closes an opportunity that includes three different products: a SaaS subscription, a website overhaul, and an PPC advertising service delivered over time.

To get the total contract value, you’d add up the price of all three products — $30,000 for the SaaS subscription, $10,000 for the website overhaul, and $20,000 for the PPC advertising service, for a total of $60,000.

Simple enough, right? Buckle up — things are about to get a bit more complex. That’s because the revenue recognition for each of these products will unfold differently, even though they’re all part of the same opportunity.

Let’s start with the SaaS subscription. Say the opportunity’s been won in April, and the client signed up for a 12-month contract. You receive the total subscription payment all at once but, thanks to our friend ASC 606, you have to record that as deferred revenue (a liability) in your balance sheet. Only over the 12-month period will this revenue be “transferred” to your income statement, so $833 per month will be recognized as revenue.

Next, the website overhaul. This is a bit easier — you require 2 months to give your client’s website an SEO makeover. Here, payment is spaced out over the length of the service delivery, meaning you’ll receive and recognize $5,000 in both April and May.

Finally, the PPC advertising service will only begin after the website overhaul, in June, and covers 6 months. Here, again, you’re getting full payment upfront. Similar to the SaaS subscription, you’ll only recognize revenue as the service is delivered, month by month.

Eventually, in April of the following year (when the SaaS subscription ends) you fulfill the contract and all revenue has been collected and recognized.

While tools like Salesforce make recording these sales possible, revenue scheduling helps finance teams understand and automate the process of how sales turn into recognized revenue on your income statement each month. Revenue schedules are crucial for revenue forecasting.

Simply put, if your company has complex offerings that are delivered over time, you can’t afford to ignore revenue scheduling.

To get you started, let’s break down how to create revenue schedules in Salesforce.

How to Setup Revenue Schedules in Salesforce

Setting up revenue schedules in Salesforce involves four steps: enabling product schedules, adding products to the opportunity, creating product schedules, and creating dashboards.

1. Set Up Product Schedules

First, go to the Setup section to enable the product schedules feature. You do this by navigating to Product schedule settings under Platform tools. Alternatively, you can use the Quick Find box.

Once the Product Schedules window is open, you’ll see checkboxes for “enable quantity scheduling” and “enable revenue scheduling” under “Schedule Type.”

You’ll want to enable revenue scheduling, but whether you enable quantity scheduling depends on the product. Is it a product you’ll deliver over time, spaced out by quantity — for example, a widget? If so, select this option.

Click Save.

2. Add Products to the Opportunity

Next, navigate to the opportunity you want to create a schedule for. Click “Add products” in the Products related list, and select each product you want to add to the opportunity.

As you add each product, you’ll be prompted to enter the quantity (only relevant to certain product types) and the sales price.

3. Create Product Schedules

Next, you’ll need to connect a payment and delivery schedule to each product in the opportunity. How often will you receive payment, and for what amount?

To do this, click on your product on the opportunity page and go to the “Related” tab, where you’ll find schedules. Click on the Establish Schedule button and a new window will pop up.

Here you’ll set your revenue start date, the total amount of revenue, installment period (daily, weekly, monthly, etc.), along with the number of installments.

Repeat this process for as many products as there are on the opportunity.

If you navigate back to the “Related” tab for each product, you’ll see your schedules. These are default schedules in Salesforce, but you can modify them as needed.

Understand Revenue Schedules in Context

For businesses that don’t receive or recognize revenue all at once, accurate revenue schedules are crucial for building accurate revenue forecasts. Accurate revenue forecasts, in turn, serve as a guide to effective decision-making.

Through Salesforce integration with Mosaic, you can make sense of your future revenue and plan out growth. For example, consider headcount. Future headcount plans are tied directly to your projected revenue growth. As your largest cost, it’s crucial to get it right. With an accurate top-line forecast based on solid revenue schedules, you can optimize headcount planning, balancing out revenue growth with hiring plans and the fully-loaded cost of labor.

Speaking of costs, relying on a CRM alone also won’t show revenue in the context of overall expenses — those live in your ERP. Typically, someone in finance would have to dig through both systems, combining the information in a spreadsheet. Only then would they be able to squeeze out any useful insights.

What you need is a platform that integrates both systems, along with HRIS, billing system, and data warehouses to provide a complete, centralized view of your business.

Automate Revenue Schedules With Mosaic

For SaaS and professional service businesses, getting revenue schedules right can be awfully complicated. Still, to get a clear picture of separate revenue streams and cash flow over time — and build accurate revenue forecasts — it’s critical to do.

By allowing you to create detailed product schedules, CRMs like Salesforce serve as your starting point. But while building revenue schedules in Salesforce is streamlined, it can be labor intensive — many companies just don’t have the time or resources to do it.

Fortunately, there is a way to get around the painstaking Salesforce process, while still reaping the benefits of revenue schedules.

Through integration with your CRM, Mosaic can automatically build revenue schedules for you. It does this by looking at closed/won opportunities, their start and end dates, and then inferring a revenue schedule. This gives you a broadly accurate view of how you’ll earn and recognize revenue over time, helping you build out plans for targeted, sustainable growth without spending lots of time setting up schedules in Salesforce.

At the same time, you need to be able to understand revenue schedules in the context of your whole business. Mosaic provides a complete view of each aspect of your company so you can balance revenue against expenses, and strategize according to your true cash flow.