In the early 2010s, many SaaS companies adopted straightforward subscription models; due to their relative simplicity, finance teams could close the subscription revenue accounting books without breaking a sweat. But as customers demanded more flexibility, many companies started shifting to usage-based pricing.
Customers love usage-based pricing because it lets them “pay for what they use.” Vendors love how it fuels adoption through dynamic pricing tiers, overages, and hybrid models. Simply put, everyone feels it’s fair.
The exception often lies with the finance teams who manage the massive influx of data from the multiple revenue streams created by usage pricing on a monthly basis. Most finance teams still wrestle with manual reconciliation and numerous spreadsheets from the billing system, hoping their formulas and dependencies don’t break.
On top of that, maintaining ASC 606 compliance while operating a usage-based pricing model further raises the stakes for accurately recognizing revenue.
When mistakes happen, the review process is delayed, and teams lose confidence in closing books. Across the SaaS space, Controllers, CFOs, and revenue leaders feel the same pain: Spreadsheets can no longer keep pace with usage-based models.
Instead, RightRev enables teams to focus on strategic analysis by automating usage-based revenue recognition and transforming complex, variable revenue stream data into an accurate and compliant “single source of truth” for revenue.
The Rise of Usage-based Billing and Why it Complicates Revenue Recognition
SaaS companies now recognize the merits of a usage-based pricing model vs. a traditional subscription model. For instance, a 2023 OpenView survey showed that more than 60% of SaaS companies had already adopted usage-based models, while another 23% expected to begin experimenting with them that year.
These pricing models align revenue more closely with the products, services, or resources actually consumed by customer activity. Although model structures and consumption rates will vary, the overall goals remain constant: Providing flexibility for customers and ensuring fair invoicing that reflects the real value exchanged.
Some of the standard structures found within usage-based models include:
- Overage charges: Exceeding contract-stipulated limits leads to customers paying overage fees, such as charges for extra data storage or API calls on a monthly basis. This model typically generates SaaS revenue above its expected value.
- Tiered pricing or volume-based pricing: The more a customer uses, the less they pay per unit during the subscription period. This structure encourages growth and rewards customers for scaling up.
- Minimum commitments with drawdowns: This structure is widely used in enterprise contracts, ensuring baseline revenue while giving customers flexibility in how they consume it.
- Hybrid models: In hybrid models, a flat subscription is paired with consumption-based pricing, offering predictability alongside variable spend. A hybrid model also provides customers with a stable foundation while allowing them to scale their expected usage.
Billing systems can handle invoicing well, but they lack the accounting rigor required by ASC 606 or IFRS 15. This means finance teams are left to piece together actual usage data, allocate transaction price, identify performance obligations, and calculate variable consideration. If finance teams continue relying on manual methods, revenue leakage begins to emerge from the cracks.
How Revenue Recognition Works in a Subscription vs. Usage-Based Model
Under ASC 606 and IFRS 15, revenue must reflect performance obligations satisfied over time or upon consumption. In subscription arrangements, revenue is recognized ratably across the contract term. In usage-based models, revenue recognition aligns with actual consumption, requiring dynamic allocation of the transaction price and precise handling of variable consideration.
Estimations or manual accruals introduce compliance risk. Automated revenue systems eliminate these risks by continuously capturing metered usage events and aligning them with fulfillment timing, ensuring that recognized revenue faithfully reflects delivered value.
| Aspect | Traditional Subscription Model | Usage-Based Pricing Model |
| Revenue Pattern | Recognized ratably over time as service is delivered (e.g., monthly or annually). | Recognized as consumption occurs; can be daily, based on metered usage data. |
| Performance Obligations | Usually one continuous obligation (e.g., access to the platform over a fixed term). | Often involves multiple or variable obligations tied to usage metrics (API calls, data storage, seats, etc.). |
| Data Dependency | Based on contract terms and service period, revenue schedules are predictable. | Dependent on real-time consumption data; requires integration between billing, usage, and revenue systems. |
| Variable Consideration | Limited variability; pricing and usage are generally fixed and known upfront. | High variability; transaction price and allocation depend on actual usage levels and may change each period. |
| Operational Complexity | Easier to automate with static schedules, but complex with contract modifications, bundled products, and high volume of contracts. | Complex; requires dynamic, real-time tracking and allocation of revenue to stay compliant. |
Choosing between subscription and usage-based isn’t just a pricing decision; it’s an operating model choice. Subscriptions reward predictability; usage-based rewards precision and agility. Whichever path you take, the difference between friction and momentum is a unified, real-time revenue stack that turns messy data into compliant, auditable insights.
Why Spreadsheets Fail Finance Teams in Usage-based Scenarios
Most finance teams routinely start with a spreadsheet to track revenue recognition. They’ll pull raw data from their billing or metering service, open up Excel, and start building out formulas and tables to figure out how much revenue to recognize.
But even if you are thorough about it, this whole approach can quickly become too complex to feasibly manage, especially as your contract volume grows and your pricing becomes more complex.
Here’s a look at why it’s so easy for this approach to break:
- High likelihood for errors: A single formula slip or copy-paste mistake during manual data entry can cascade through your entire spreadsheet and lead to unintentional revenue errors.
- Slow closes: The time spent manually reconciling final usage data, billing exports, financial statements, and contract terms delays month-end reporting and prevents your team from engaging in more strategic tasks.
- No scalability: As transaction volumes grow, manual spreadsheets collapse under the load of high-volume usage data.
- Increased audit risks: Spreadsheets lack real version control and system checks. This lack of a clear, auditable trail exposes your company to significant compliance failures.
For finance leaders, spreadsheets often fall short at a time when boards, investors, and auditors demand clear and accurate revenue.
How Automated Revenue Recognition Transforms Usage-based Models
PwC’s 2024 Finance Effectiveness Benchmarking Study reported that finance teams spend a median of over 30% of their time manually performing tasks that could be automated, such as customer billing, management reporting, and general accounting.
Finance leaders are recognizing the need for a smarter foundation. They’re moving beyond the limitations of spreadsheets to adopt a modern revenue recognition system. This system adds a specialized automation layer designed to handle the usage complexities of modern revenue models.
Handling these calculations manually is nearly impossible at scale. Fortunately, automation changes the handling of the usage-based revenue recognition by:
- Assigning revenue to the right period, even when invoicing doesn’t align with when usage occurs.
- Handling contract changes and true-ups seamlessly, without back-and-forth spreadsheet edits.
- Ensuring ASC 606/IFRS 15 compliance, with structured allocation and auditable records.
Industries such as media, telecom, or gaming have usage-based royalties that require revenue to be shared with partners based on end-customer activity. Automation provides finance teams with real-time visibility into usage revenue streams, a capability that spreadsheets cannot deliver.
Revenue recognition systems help teams see recognized and deferred revenue as it happens, tied directly to customer contracts. This helps leaders see usage trends in real-time and enables them to forecast revenue accurately and respond to stakeholder questions with confidence.
Automated revenue recognition systems continuously connect metering, billing, and contract data to ensure revenue accuracy. For usage models where customer activity shifts quickly, having this live view is essential for compliance and strategic planning purposes.
Usage-Based Revenue Recognition With RightRev
RightRev’s API-based engine is uniquely equipped to interoperate with usage-based billing systems and directly integrates with billing platforms, metering services, Stripe, Sage Intacct, and Salesforce Revenue Cloud, among others.
With RightRev, you can:
- Support complex usage models, such as consumption-based pricing, prepaid credits, and hybrid structures.
- Automate revenue calculations, allocations, and report generation that eliminates the need for spreadsheets.
- Process high-volume transaction data, common in usage-based SaaS businesses scaling globally.
RightRev is a complementary tool for your usage billing system. It ensures every event, click, or credit used flows through accurately, while complying with revenue recognition principles.
Here’s how it looks in practice:
- Usage data flows into RightRev
- Revenue rules apply automatically to each performance obligation
- Revenue is recognized accordingly in the appropriate accounting period
- Revenue waterfalls are updated, and journal entries are processed without manual intervention
With this system, finance gets auditable, ASC 606-compliant treatment across subscriptions and consumption in one place.
For finance teams already using Salesforce Revenue Cloud, RightRev complements it by unifying order, billing, and revenue data all within Salesforce.
The net effect is fewer manual spreadsheets, faster closes, and clearer visibility into earned vs. deferred revenue, plus the flexibility to recognize future-dated invoices when needed.
Moreover, with Salesforce’s role-based access control (RBAC) capabilities for configuring account permissions, finance and accounting teams can keep their data separate from Sales’, minimizing risks to information integrity and compliance.
Turn Variable Revenue Streams into Demand Signals
Automated recognition provides finance and product teams with real-time visibility into variable revenue streams, enabling them to gauge customer demand through usage.
Dashboards that align usage with recognized vs. deferred revenue help teams with usage-based pricing learning (i.e., rapidly testing price ramps, true-ups, or hybrid bundles and seeing the impact on forecasts without manual spreadsheet work).
Compliance and Audit Confidence Without the Manual Grind
RightRev ensures compliance with ASC 606 by embedding controls, maintaining audit trails, and automatically producing transparent reports.
With automated systems, finance teams can:
- Significantly reduce close times
- Stay audit-ready, without scrambling at quarter-end
- Feel confident in the numbers they provide, thus gaining board and investor trust
- Produce auditable reports that pass external review
- Focus on strategic pricing strategies, customer acquisition, and growth rather than reconciling formulas
- Gain real-time visibility into annual recurring revenue and remaining performance obligations
In short, automation builds confidence from the inside out. It’s particularly powerful for companies using consumption pricing, where revenue can fluctuate dramatically month to month depending on customer usage.
Most importantly, Controllers and CFOs can regain confidence in the revenue recognition process, enabling their companies to experiment with new pricing tiers without fear of breaking compliance.
Scale Your Revenue, Not Your Risk
Spreadsheets may work for a handful of contracts, but as customer usage scales, manual revenue recognition work invites errors, slows down closings, and compliance failures. Usage-based revenue recognition is an accounting challenge that can impact growth.
With RightRev, you get automation designed for SaaS and usage-based revenue.
That means:
- Faster, cleaner closes
- Error-free and transparent allocations across complex usage models
- Continuous compliance and audit confidence
RightRev can help you leave spreadsheet battles behind and move forward with efficiency and confidence. Discover how automation simplifies usage-based revenue recognition, frees your team from manual tasks, enhances customer satisfaction, and unlocks new growth opportunities.
