Salesforce.com 2011 Annual Report Download - page 43

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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