Revenue Recognition for Hardware Integrated with SaaS and Installation.

Simple answer; assuming you have all the elements of (evidence) a sale for the hardware, you can (will) recognize upon proof of delivery of hardware. All professional fees recognized upon delivery and SaaS element(s) ratably upon the life of the subscription/contract.

J.D. Floyd

Agree with answer above. With EITF 08-1 (ASU 2009-13), you are required to separate the elements for SaaS contracts and recognize the elements separately as long as they each have standalone value (basically defined by whether it is available from other vendors). So the hardware would be recognized up front, and the SaaS fees ratably. Note that this new guidance also impacts implementation services, which would previously have been spread over the SaaS period but now can (and must) be recognized separately/earlier.

Thanks for your input!

Hello Konrad, thank you for a very interesting question!
My input will be quite different from others though: we are vendors of an integrated software solution for the hospitality industry that requires hardware, but in our situation, we prefer (c) for many different reasons:

1) We decided from the start that we'd remain conservative and show the steady increase in our revenue corresponding to the steady increase in the number of our contracts over the years, not the peaks and valleys that would come inevitably with the recognition of the hardware and implementation fee upfront.

2) Our contracts are usually high-value 3-year agreements and each project may span up to 6 months prior to deployment, with the hardware (if any) being purchased at any time during those 6 months and representing up to 1/2 the value of the contract.

3) Depending on the customer situation, we might have to lease the hardware to them, or retain ownership at all times, or purchase as agents... But not all of our customers ask us to buy the hardware for them either, and actually more of them are buying it themselves nowadays.

4) Hardware cost has been slashed by 4 in the past 3 years, as we've moved from $1,600 touch-screen computers to $400 tablets... and the new Android tablets will soon be available for half that amount!... Recognizing the hardware revenue upfront would have brought a fictitious decrease in overall revenue these past 3 years!

5) Our pricing and payment terms include both SaaS, Capex and Opex models, with any blend in-between to best adapt to any type of customer!

So really, for us, amortizing hardware revenue (if any) over the length of the contract is the only way to treat all contracts the same way. Furthermore, it shows consistency across the board and allows for the least amount of dependency over hardware fluctuations (in prices and volumes), not to mention more accurate financial projections.

I would love to hear more comments from the rest of the Proformative community!

You will need to analyze for VSOE (verified specific objective evidence) or establish a ESP (estimated selling price) for each of the "elements" in order to separate the amounts for each (...you cannot just rely on the the PO/invoice amounts alone).