A common conversation with clients revolves around whether they should show revenues generated through channel partners as a gross number (end user sales value) or a net number (after discounts, incentives, commissions or royalties have been accounted for). Since our definition of channel partner is pretty broad here - channel partner may be a dealer, distributor, value-added developer (VAD), value-added reseller (VAR) or a consultancy that serves as prime contractor - we should answer in broad terms. I've laid out some guidance that should help so that your revenue recognition is justifiable and defensible with buyers. As we know, if a buyer is going to base a valuation on a revenue multiple, then a larger revenue number will always win.
Booking Gross Revenues is generally appropriate if:
Booking Net Revenues is generally appropriate if:
Generally, buyers take a conservative approach, and will recast revenue that is not booked in a fashion consistent with their own practices. Further, your financials should reflect your business practice and the practice should be outlined in the partner agreements. We want to avoid a situation where we are exaggerating revenue or being inconsistent in our revenue recognition, as it can raise a red flag during due diligence.