Accounting for multi-element sales has quickly become one of the most complex areas of revenue recognition, a topic that affects most technology companies.  A multi-element sale occurs when two or more related product components are sold together at the same time.

The classic example of the multi-element sale is software plus maintenance. These are normally sold as two separate line items, but are inextricably related to each other, so they constitute a multi-element sale.  Beyond this relatively simple example of a multi-element sale, think of all of the everyday consumer products that we use where software is embedded, such as a mobile device.  Or think of an online subscription that includes setup as well as ongoing service.  In accounting terms, a mobile device is hardware, software and service. These multiple elements need to be treated separately in order to properly determine revenue.

The other day I saw an advertisement that said: “60% of the new products introduced in North America this year are ‘smart’ products – products with some sort of ‘smart’ or intelligent feature associated with them.”  As technology becomes more pervasive, more products become subject to the rules governing multi-element sales.  At what point do technology revenue recognition rules become the norm instead of the exception? 

  Tensoft’s High Tech Dashboard (HTD) is one of our newer products, but customers who’ve been using it already swear by it. One of the keys to its value is its ability to look at booking/billing/backlog information on a daily basis. With HTD, company executives simply check their mobile device every morning, and get an up-to-date reading of this key performance indicator.

Booking/billing/backlog reports are common for many tech companies, but may not be as familiar to those outside of that industry.  A booking is a new order.  It’s not revenue yet, because it hasn’t shipped, but this data is a leading indicator of where revenue is heading, and whether or not a company is going to make its numbers for the quarter. Backlog numbers indicate how much the company is going to ship, a number which can be time phased to see when it should turn into revenue. Together, these provide a quick indicator of health.

I’m always amazed at the effort companies will put into tracking bookings/billing/backlog manually. Often, we’ll go into a company and discover that one person’s entire job is to maintain a monster booking/billing/backlog spreadsheet. This huge spreadsheet gets passed around the company, but by the time the updates are done and it reaches all key personnel, it’s already out of date.  (Not to mention, highly suspect, due to the high incidence of error inherent to spreadsheets.)

Tensoft HTD both automates this process and provides options to do a lot more with that data.  ERP systems generate a huge amount of data, but this needs to be turned into actionable information to help execs make informed decisions. Tensoft HTD makes use of the data that’s already there in your ERP system, including historic sales data, tactical operations data for execution and forward-looking data used, for example, to see whether there’s enough material to meet supply.

Let’s look at a real world example. One of our long-time HTD customers uses the product to send an email to its CEO every day – before he even gets to the office. This email tells him whether the company is on track or not, by looking at performance indicators such as bookings/billings/backlog against forecast.   And, every salesperson in the company also gets a daily email that says: “Here are your bookings, quarter-to-date, and here’s where you are compared to your quota.” So every day, both the company executives and field salespeople get actionable, behavior-driving information that they can drill-down to a very detailed level.  Now that’s technology-driven motivation!