Recognizing Discounts 

Overview 

Discounts are often used in sales orders to attract and retain customers. This article covers how RevRec handles discounts and coupons for revenue recognition, including:

• How the discount data from the source systems is captured.
• How discount is recognized as per ASC 606 and IFRS 15 requirements.

Capturing Discount Data 

Discount (or coupon) is typically captured in the following places:

• Billing systems, as part of the invoice information (for example, invoice data in Chargebee or Stripe)
• CRM systems, as part of the sales order information (for example, opportunity data in Salesforce or deal data in HubSpot).

RevRec's built-in integrations with various billing and CRM systems capture discounts automatically as part of its ETL output files(Billing Schedule tab for invoice data, and Sales Order Detail tab for sales order). Click here to read more detailed discussion.

Billing Schedule 

Billing Schedule tab is used to capture invoice information such as invoice date, invoice number, invoice amount, and so on.

In RevRec, the invoice amount in the Billing Schedule tab always reflects the adjusted amount after discount at line-item level for all source systems, which is the net amount that customer is expected to pay. The invoice amount affects the deferred revenue balance and does not impact recognition of discounts for revenue.

For example, let's consider an annual contract created with two products with the following price:

• Product 1: list price of $12,000, 10% discount($1,200), and net sales price is $10,800
• Product 2: list price of $300, 10% discount($30), and net sales price is $270.

The Billing Schedule in RevRec displays the following:

Sales Order Detail 

Sales Order Detail captures the sales order data. Depending on the configurations and the source systems, the discount can be captured either as a single or multiple separate discount line item(s) in the sales order; or reflected directly in the net sale price amount for each line item (similar to how the Billing Schedule is populated).

Note: The way discount is captured in Sales Order Details impacts how RevRec recognizes the discount.

Invoice as Contract Configuration

Invoice as contract is the approach to treat each invoice as a separate sales order therefore the invoice data is used to create the Sale Order Details.

Discounts from Chargebee

RevRec offers two configurable methods to capture Chargebee discounts in Sales Order Details:

• As a separate line item in sales order: RevRec aggregates all discounts within an invoice to a separate line item with a product id as discount. Subsequently, RevRec will allocate the total discount across all performance obligations within the contract for revenue recognition purposes. This is the Default configuration in RevRec.
• Adjusted in the sale price: Discount is applied directly at order line item level against the sale price.

For example, let's consider an annual Contract created with two products with the following prices:

• Product 1: list price of $12,000, 10% discount ($1,200), and net sales price is $10,800
• Product 2: list price of $300, 10% discount ($30), and net sales price is $270.

For discount configured as a separate line item, the sales order detail will look like the following. A separate line item is created for discount of -$1,230 which is the sum of two discounts.

For discount adjusted against the sale price, the discounts are directly reflected in the Sales Prices, instead of being displayed as a separate line item.

Discounts from Other Billing Systems

RevRec offers integration with other billing systems such as Stripe, Xero, QuickBooks Online, Oracle NetSuite, and Sage Intacct. For these systems, RevRec always treats discounts as a separate line item in the Sales Order Detail tab.

Contract Term Configuration (non-invoice as contract)

With this approach, RevRec creates sales order data from subscriptions, opportunities, or deals from the CRM systems. The invoice data is used only for billing purposes.

Discounts from Chargebee

When contract term is enabled, RevRec creates sales order data based on subscription and contract term data in Chargebee. RevRec always aggregates discounts and creates a separate line item.

For example, let's consider a subscription with two quarterly billings for a SaaS product that charges $1,000 per quarter, and $200 support fee per quarter. Both these plans have a 10% discount. A separate discount line item is created for $240, which is the total discount for the entire sales order.

The Sales Order Details in RevRec displays the following:

Discounts from Other CRM Systems

RevRec supports integration with HubSpot and Salesforce, and automatically reads the discount data from these source systems. For HubSpot and Salesforce, discount is applied to an individual line item of the relevant opportunity or deal.

RevRec creates separate discount line items for each product in an opportunity/deal with a separate order line item id.

For example, let's conside an example wherein a HubSpot deal is created with two products having price of $12,000 and $300 with 10% and 5% discount respectively. RevRec creates two separate discount line items, corresponding to the respective discount at product level.

The Sales Order Details in RevRec displays the following:

Manual Upload of Discounts

While using manual upload functionality, you can do either of the following options:

• Create a separate discount product that equals to the total discount in the contract.
• Create a separate discount product for discount at each line item in the sales order.
• Adjust the Sales Price for the line item directly to reflect the discount.

Recognizing Discounts 

When discount is a separate line item in Sales Order Detail input data, RevRec always allocates discount to all line items in sales order, as required by ASC 606 and IFRS 15. If discount is directly adjusted in the sales price in the Sales Order Detail Input, there is no discount allocation and RevRec will use the discount adjusted sales price for revenue recognition.

For example, let's consider an annual contract is created with two products:

• SaaS-Annual with a sale price of $800 plus a -$100 discount.
• Support for $700 with a -$30 discount.

The first input data shows discount as a separate line item and the second input data adjusts the sales price directly to reflect the discount. Assume that the SSP rule is to use the sale price.

Discount as a separate line item: The discount of -$130 is allocated to SaaS-Annual product and Support based their respective pre-discount sales price. The net effect is that the discount is applied evenly to all items based on the overall discount rate for the sales order for revenue recognition.

Discount adjusted with Sales Price: There is no sales order level discount allocation (no separate discount in the input data), and the revenue recognition at line item level is based on the respective discount applied directly for that line item.

Excluding Discounts from RevRec Calculations 

You can configure your RevRec settings to exclude certain discounts and promotional credits generated within the Chargebee billing system. To enable and utilize this configuration, contact your RevRec support team.

Once this feature is enabled, you can determine the exclusion of discounts - whether they are specific discounts or all discounts. Promotional credits generated in Chargebee are treated as discounts within the RevRec framework. Consequently, this configuration also enables you to opt for the exclusion of promotional credits from consideration in RevRec calculations as part of the discount category.

This configuration applies to both invoice equal contract and contract term treatments, allowing for effective management of discounts in various scenarios to align with your specific business needs.