Salesforce.com 2010 Annual Report Download - page 38

Table of Contents
Subscription and support revenues are recognized ratably over the contract terms beginning on the commencement dates of each contract. The typical
subscription and support term is 12 to 24 months, although terms range from one to 60 months. Our subscription and support contracts are non-cancelable,
though customers typically have the right to terminate their contracts for cause if we materially fail to perform. We generally invoice our customers in
advance, in annual or quarterly installments, and typical payment terms provide that our customers pay us within 30 days of invoice. Amounts that have been
invoiced are recorded in accounts receivable and in deferred revenue, or in revenue depending on whether the revenue recognition criteria have been met. In
general, we collect our billings in advance of the subscription service period.
Professional services and other revenues consist of fees associated with consulting and implementation services and training. Our consulting and
implementation engagements are typically billed on a time and materials basis. We also offer a number of classes on implementing, using and administering
our service that are billed on a per person, per class basis. Our typical payment terms provide that our customers pay us within 30 days of invoice.
We generally recognize revenue ratably over the contract terms beginning on the commencement date of each contract. In determining whether
professional services can be accounted for separately from subscription and support revenues, we consider a number of factors, which are described in
"Critical Accounting Policies and Estimates—Revenue Recognition" below. As we introduce new service offerings, we may not be able to establish objective
and reliable evidence of fair value for these elements of our sales arrangements. As a result, when the professional services are sold together with subscription
services that do not have objective and reliable evidence of fair value, the professional services fees cannot be accounted for separately, and the entire
arrangement is accounted for as a single unit of accounting. In such situations, we recognize the entire arrangement fee ratably over the term of the
subscription contract. Approximately 6 percent of our total deferred revenue as of January 31, 2011 and 2010 respectively, related to deferred professional
services revenue. At the start of fiscal 2012 we will be adopting the provisions of ASU 2009-13. Adopting this provision will change our accounting for
multiple-element arrangements, see Recent Accounting Pronouncement.
Seasonal Nature of Deferred Revenue and Accounts Receivable
Deferred revenue primarily consists of billings to customers for our subscription service. Over 90 percent of the value of our billings to customers is for
our subscription and support service. We generally invoice our customers in either quarterly or annual cycles, with a disproportionate weighting towards
annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Additionally, our fourth quarter has historically been our
strongest quarter for new business. The year on year compounding effect of this seasonality in both billing patterns and overall new business is causing the
value of invoices that we generate in the fourth quarter for both new and existing customers to increase as a proportion of our total annual billings.
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