SaaS implementation fee
A SaaS implementation fee is a charge for set-up, configuration, data migration or training at the start of a subscription. If the activity transfers a distinct service, it is a separate performance obligation. If it is a set-up activity or not distinct, the fee is added to the subscription consideration and recognised over the service period.
Standard references
- ASC 606606-10-25-17 (set-up activities)
- ASC 606606-10-55-50 to 55-53 (non-refundable upfront fees)
- IFRS 15paragraphs 25 and B48–B51
Worked example
Illustrative: a $60,000 annual subscription with a $12,000 upfront implementation fee.
- Not distinct (set-up only): recognise ($60,000 + $12,000) / 12 = $6,000 a month. If the customer can renew without paying the fee again, assess whether the fee gives a material right that extends the recognition period.
- Distinct (standard configuration others also sell): SSPs are $66,000 (subscription) and $9,000 (implementation), total $75,000.
- Allocate $72,000: subscription $72,000 × 66/75 = $63,360; implementation $72,000 × 9/75 = $8,640.
Result: Either $6,000 a month, or $63,360 ratably plus $8,640 as the implementation is delivered.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Recognising the fee when invoiced.
- Ignoring the material right created when renewals do not repeat the fee.
- Treating internal set-up tasks as a performance obligation.