Money, pricing & model

Do I need to understand accrual accounting and things like deferred revenue, or is cash-basis enough for a SaaS just starting out?

The short answer

Cash-basis is simpler and fine for very early days, but the moment you sell annual SaaS plans, cash-basis lies to you: a year of prepaid revenue looks like one giant month, hiding your real monthly run-rate. Learn deferred revenue and accrual basics so you can see true MRR and margins, which is also how investors and any future auditor will read your numbers. You don't need to master it yourself, but you do need to know why your CA is spreading that annual payment across twelve months.

Go deeper, your way

2 hand-picked resources, 2 link-checked. Pick how you want to dig in.

📄 Article
✓ Link checked Free Beginner

Why we picked it This is written by a working SaaS CFO (Ben Murray, CPA), so it explains deferred revenue and accrual recognition in the exact terms your future accountant and investors will use. It walks through a $12,000 annual contract becoming $1,000 of recognized revenue per month, the clearest way to see why cash in the bank is not the same as revenue earned. Treat it as a starting point, then decide with your accountant when you actually need to switch your books over.

Guide to SaaS Revenue Recognition and Deferred Revenue in SaaS

From The SaaS CFO by Ben Murray ~15 min read

  • A prepaid annual subscription sits on the balance sheet as deferred revenue (a liability) and gets recognized month by month as you deliver the service.
  • Cash received and recognized revenue can look very different, which is why the distinction matters once you report numbers to anyone.
  • ASC 606 and IFRS 15 give a five-step framework, but the intuition (recognize as you deliver) is what a starting SaaS founder needs first.
Open thesaascfo.com →
✍️ Essay
✓ Link checked Free Intermediate

Why we picked it This is the piece nearly every other CAC explainer is quoting from, so go to the source. Skok walks through how CAC, lifetime value, and the payback period actually relate, and gives you concrete targets (aim for LTV at least 3x CAC, and try to recover CAC within 5 to 12 months) so you can set a number before you have any real data. It is dense, but it is the honest founder-level breakdown, not a hype piece.

SaaS Metrics 2.0: A Guide to Measuring and Improving What Matters

From For Entrepreneurs by David Skok

  • Your target is a ratio, not a single figure: lifetime value should be roughly 3x or more of what it costs to acquire a customer.
  • Watch the payback period separately from the ratio: recovering CAC in under a year keeps you from bleeding cash while you grow.
  • Before a single sale you can back into a target CAC from your expected margin and how long a customer is likely to stay.
Open forentrepreneurs.com →

Terms in this answer

Accrual Accounting Deferred Revenue

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