Deferred Revenue

Model advance payments and recognize revenue over time.

Deferred revenue helps you model payments received before you’ve delivered the service or product—common for annual subscriptions, project deposits, and retainers.

Video Tutorial

Deferred Revenue Tutorial

What is Deferred Revenue?

Deferred revenue (also called unearned revenue) occurs when you receive payment before providing the service:

  • Annual subscriptions paid upfront
  • Project deposits before work begins
  • Retainer fees for ongoing services
  • Multi-year contracts with advance payment
Accounting treatment
Deferred revenue is a liability on your Balance Sheet. As you deliver the service, it moves to revenue on your Income Statement.

Creating a Deferred Revenue Stream

  1. Navigate to Building Blocks → Revenue Streams in the sidebar
  2. Click "+ Add Stream"
  3. Fill in the form:
Name: Annual Enterprise Plan
Description: 12-month subscription paid upfront
Stream Type: Deferred Revenue
Price: $12,000
Payment Frequency: Annual
  1. Click “Create Stream”
  2. Expand the stream to enter the recognition schedule

How It Works

Payment vs. Recognition

When a customer pays $12,000 upfront for an annual subscription:

Month Cash Received Revenue Recognized Deferred Balance
Jan $12,000 $1,000 $11,000
Feb $0 $1,000 $10,000
Mar $0 $1,000 $9,000
… … … …
Dec $0 $1,000 $0

Impact on Financial Statements

Balance Sheet:

  • Cash increases when payment received
  • Deferred Revenue (liability) increases
  • Liability decreases as revenue is recognized

Income Statement:

  • Revenue recognized monthly over the service period
  • Smooths revenue recognition vs. lumpy cash receipts

Cash Flow:

  • Full payment shows as operating cash inflow when received
  • No additional cash flow as revenue is recognized

Common Use Cases

SaaS Annual Plans

Customer pays: $1,200/year upfront
Recognition: $100/month over 12 months

Project Deposits

Customer pays: $10,000 deposit
Recognition: Spread over project duration

Retainer Agreements

Customer pays: $5,000/month retainer
Recognition: Monthly as services delivered

Best Practices

  1. Match recognition to delivery - Recognize revenue as you provide the service
  2. Track carefully - Deferred revenue is a liability you owe to customers
  3. Plan for renewals - Model when annual customers will renew
  4. Consider churn - Some customers may not renew
Cash vs. Revenue
Don’t confuse cash received with revenue earned. Spending deferred revenue before earning it can create cash flow problems.

Deferred Revenue vs. Regular Revenue

Factor Regular Revenue Deferred Revenue
Payment timing When service delivered Before service
Balance Sheet No liability Creates liability
Recognition Immediate Over time
Cash flow Matches revenue Precedes revenue