Multi-element arrangements are created when multiple inter-dependent items are sold to customers.  For SaaS companies, some examples of this include: setup fees, subscriptions, training, and professional services.  When multi-element arrangements occur, they’re subject to EITF 08-01.

Consumer businesses may try to eliminate the multi-element arrangements requirements of EITF 08-01 by offering only subscription licensing.   However, companies who are in the business-to-business space often don’t have that option.  Your market will dictate what mix of products and services that you need to offer your customers, not the hope to streamline the revenue recognition process.

A special scenario occurs when you offer product modifications – where there is a required delivery component tied to the subscription sale.  This scenario can require the use of SOP 81-1, along with EITF 08-01.  SOP 81-1 requires recognition of software revenue based on the delivery of the required modifications, often by percent complete methodology.

Often these product modification scenarios are something that happens early in a company’s history, when your product is still maturing.  If this is the case, the need to offer product modifications should disappear as your product matures and your installed base and reputation grow.  However, if offering product modifications is part of your long-term go-to-market strategy, then you may want to look at options such as isolating the customization layer in your product so that it becomes an implementation challenge rather than a product extension requirement.

Whenever possible, it’s reasonable and smart to try to simplify revenue recognition requirements.  A revenue recognition expert can help with planning for this, as well as providing tactical assistance with agreement negotiations, to make sure the agreement optimizes your revenue opportunities.