 # Ratable Revenue Recognition

## Overview

RevRec automatically generates revenue recognition schedules based on the service start and end dates. The Ratable method of revenue recognition is commonly used for SaaS-based product offerings. Another common use case is post-contract customer support, where the contract period is generally a year from the initial contract. This article displays the calculations that RevRec uses to establish monthly amounts.

RevRec defines a range of dates using the Half-Open approach (start <= x < end) where the service start date is inclusive while the service end date is exclusive.

You can choose from the following four Ratable methods of revenue recognition for your business:

• 30/360 Ratable Plan
• Modified 30/360 Ratable Plan
• Classic Ratable Plan
• Daily Ratable Plan
• End Month Exclusive

We will look into each of these methods in detail.

## 30/360 Ratable Plan

When this method is used, RevRec generates Ratable plans using a simplifying assumption that each year is a 360-day year with twelve 30-day months. Considering each month to be a 30-day period, RevRec first calculates the revenue per day by dividing the Total Revenue by 360 days as per the 30/360 logic to arrive at the revenue per day.

(1) First Period

The first month's revenue recognition number is prorated based on the number of days remaining in the first month. If the first month has 30 or more days, it is considered a full month. In such a case, the full month's revenue is recognized for the first month.

(2) Last Period

The last month's revenue recognition number is prorated based on the number of days remaining in the last month. If the last month has 30 or more days, it is considered a full month. In such a case, the full month's revenue is recognized for the last month.

(3) Remaining Periods

Revenue for the remaining period, which is the period between the first and last month is calculated by dividing the remaining revenue by the number of remaining periods.

Here is an example to understand each scenario.

## Modified 30/360 Ratable Plan

The Modified 30/360 method allows RevRec to create Ratable plans for revenue recognition that aligns with the contract's Monthly Recurring Revenue (MRR). This is accomplished by considering each month to have a 30-day duration and dividing the total number of days in a contract by 30, creating a term that evenly distributes the revenue recognition across the contract's duration.

First Period

The first month's revenue is calculated by dividing the previously calculated revenue per month by the actual number of days in the month and multiplying it by the number of available days.

Last Period

The revenue figure for the last month can be determined by taking the total allocated revenue of the specific line item and deduct the recognized revenue of the first and all subsequent periods from it.

Remaining Periods

For all periods between the first and last months, revenue is calculated by taking the Total Contract Revenue and dividing it by the determined term length, which is calculated using the number of days in the contract.

Here is an example to understand each scenario.

## Classic Ratable Plan

This plan is a classic method and prorates the first and last period based on the remaining days in a month. RevRec first calculates the revenue per day by dividing the Total Revenue by the total number of actual days in a contract.

(1) First Period

The first month's revenue recognition number is prorated based on the number of days remaining in the first month. If the first month has 28 or more days, it is considered a full month. In such a case, the full month's revenue is recognized for the first month.

(2) Last Period

The last month's revenue recognition number is prorated based on the number of days remaining in the last month. If the last month has 28 or more days, it is considered a full month. In such a case, the full month's revenue is recognized for the last month.

(3) Remaining Periods

Revenue for the remaining period which is the period between the first and last month is calculated by dividing the remaining revenue by the number of remaining periods.

Here is an example to understand each scenario.

## Daily Ratable Plan

In this method, RevRec does not calculates the first month, or last month's revenue and divides the remaining contract value with the remaining terms. Instead, it divides the total contract value by the actual number of days in a contract and multiplies it with the number of days active in each month.

Here is an example.

## End Month Exclusive

In this method, RevRec generates Ratable plans that include a full month's revenue in the first month and none in the expiration month, even if the contract started mid-month. The full month's revenue is calculated for all months in between as well.

Here is an example.

## Examples

### 30/360 Ratable Plan

Consider an annual contract of \$1,200 that starts on 3/21/20 and ends on 3/21/21, wherein the total number of days in a year is considered to be 360.

Period Month Revenue Calculation
First Period March, 2020 \$33.33 First Period Revenue = First Period Percent X Revenue
First Period Percent = First Period Days/Total Number of Days(10/360*100) = 2.78%
Remaining Periods April, 2020 \$100 Remaining Periods' Monthly Revenue = Remaining amount/Remaining duration
Remaining amount = Total Revenue - (First period amount+Last period amount)
(1,200 - (33.33+66.66)) = \$1,100
Remaing duration (13-2) = 11 months
May, 2020 \$100
June, 2020 \$100
July, 2020 \$100
August, 2020 \$100
September, 2020 \$100
October, 2020 \$100
November, 2020 \$100
December, 2020 \$100
January, 2021 \$100
February, 2021 \$100
Last Period March, 2021 \$66.66 Last Period Revenue = Last Period Percent X Revenue
Last Period Percent = Last Period Days/Total Number of Days(20/360*100) = 5.56%
Total 12 months \$ 1,200

### Modified 30/360 Ratable Plan

Consider an annual contract of \$12,000 that starts on 03/15/20 and ends on 03/14/21, wherein the total number of days in a year is considered to be 365.

Period Month Revenue Calculation
First Period March, 2020 \$548.39 First Period Revenue= Per Period Revenue/Actual Number of Days x Available Number of Days (\$1000/31*17) = \$548.39
Remaining Periods April, 2020 \$1000 Number of Days in Contract = 30 for each Month for 12 months
Term = Number of Days in Contract / 30 (360/30=12)
Per Period Revenue = Total Contract Value / Term ( \$12000/12= \$1000)
May, 2020 \$1000
June, 2020 \$1000
July, 2020 \$1000
August, 2020 \$1000
September, 2020 \$1000
October, 2020 \$1000
November, 2020 \$1000
December, 2020 \$1000
January, 2021 \$1000
February, 2021 \$1000
Last Period March, 2021 \$451.61 Last Period Revenue = Total Allocated Revenue - Recognized Revenue for all periods (\$12000-\$11548.39= \$451.61
Total 12 months \$ 12,000

### Classic Ratable Plan

Consider an annual contract of \$1,200 that starts on 3/21/20 and ends on 3/21/21, wherein the total number of days in a year is considered to be 365(or 366 for a leap year).

Period Month Revenue Calculation
First Period March, 2020 \$36.16 First Period Revenue = First Period Percent X Revenue
First Period Percent = First Period Days/Total Number of Days(11/365*100) = 3.01%
Remaining Periods April, 2020 \$99.83 Remaining Periods' Monthly Revenue = Remaining amount/Remaining duration
Remaining amount = Total Revenue - (First period amount+Last period amount)
1200 - (36.16+65.75)) = \$1098.08
Remaing duration (13-2) = 11 months
May, 2020 \$99.83
June, 2020 \$99.83
July, 2020 \$99.83
August, 2020 \$99.83
September, 2020 \$99.83
October, 2020 \$99.83
November, 2020 \$99.83
December, 2020 \$99.83
January, 2021 \$99.83
February, 2021 \$99.83
Last Period March, 2021 \$65.75 Last Period Revenue = Last Period Percent X Revenue
Last Period Percent = Last Period Days/Total Number of Days(20/365*100) = 5.48%
Total 13 months \$ 1,200

### Daily Ratable Plan

Consider an annual contract of \$1,200 that starts on 3/21/20 and ends on 3/21/21, wherein the total number of days in the contract is considered.

Period Month Revenue Calculation
First Period March, 2020 \$36.16 First Period Revenue = First Period Percent X Revenue
First Period Percent = First Period Days/Total Number of Days in Contract(11/365*100) = 3.01%
Second Period April, 2020 \$98.63 Second Period Revenue = Second Period Percent X Revenue
Second Period Percent = Second Period Days/Total Number of Days in Contract(30/365*100) = 8.22%
Third Period May, 2020 \$101.92 Third Period Revenue = Third Period Percent X Revenue
Third Period Percent = Third Period Days/Total Number of Days in Contract(31/365*100) = 8.49%
Fourth Period June, 2020 \$98.63 Fourth Period Revenue = Fourth Period Percent X Revenue
Fourth Period Percent = Fourth Period Days/Total Number of Days in Contract(30/365*100) =  8.22%
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Last Period March, 2021 \$65.76 Last Period Revenue = Last Period Percent X Revenue
Last Period Percent = Last Period Days/Total Number of Days in Contract(20/365*100) = 5.48%
Total 13 months \$ 1,200

### End Month Exclusive

Consider an annual contract of \$1,200 that starts on 3/21/20 and ends on 3/21/21, wherein the total number of days in a year is considered to be 365. The total number of months in the contract is taken as 12 by excluding the last month/period.

Period Month Revenue Calculation
First Period March, 2020 \$100 Revenue / Total number of months
Second Period April, 2020 \$100 Revenue / Total number of months
Third Period May, 2020 \$100 Revenue / Total number of months
Fourth Period June, 2020 \$100 Revenue / Total number of months
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Last Period March, 2021 \$0 Revenue / Total number of months
Total 13 months \$ 1,200 