Salesforce.com 2011 Annual Report Download - page 76

• The service has been provided to the customer;
• The collection of the fees is reasonably assured; and
• The amount of fees to be paid by the customer is fixed or determinable.
The Company’s arrangements do not contain general rights of return.
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable and
in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
Professional services and other revenues, when sold with subscription and support offerings, are accounted
for separately when these services have value to the customer on a standalone basis and there is objective and
reliable evidence of fair value of each deliverable. When accounted for separately, revenues are recognized as the
services are rendered for time and material contracts, and when the milestones are achieved and accepted by the
customer for fixed price contracts. The majority of the Company’s consulting contracts are on a time and
materials basis. Training revenues are recognized after the services are performed. For revenue arrangements
with multiple deliverables, such as an arrangement that includes subscription, premium support and consulting or
training services, the Company allocates the total amount the customer will pay to the separate units of
accounting based on their relative fair values, as determined by the price of the undelivered items when sold
separately.
In determining whether the consulting services can be accounted for separately from subscription and
support revenues, the Company considers the following factors for each consulting agreement: availability of the
consulting services from other vendors, whether objective and reliable evidence for fair value exists for the
undelivered elements, the nature of the consulting services, the timing of when the consulting contract was
signed in comparison to the subscription service start date, and the contractual dependence of the subscription
service on the customer’s satisfaction with the consulting work. If a consulting arrangement does not qualify for
separate accounting, the Company recognizes the consulting revenue ratably over the remaining term of the
subscription contract. Additionally, in these situations, the Company defers only the direct costs of the consulting
arrangement and amortizes those costs over the same time period as the consulting revenue is recognized. As of
January 31, 2011 and 2010, the deferred cost on the accompanying consolidated balance sheet totaled $28.1
million and $19.1 million, respectively. These deferred costs are included in prepaid expenses and other current
assets and other assets.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition
from the Company’s subscription service described above and is recognized as the revenue recognition criteria
are met. The Company generally invoices its customers in annual or quarterly installments. Accordingly, the
deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable
subscription agreements. Deferred revenue also includes certain deferred professional services fees which are
recognized as revenue ratably over the subscription contract term. The Company defers the professional service
fees in situations where the professional services and subscription contracts are accounted for as a single unit of
accounting. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as
current deferred revenue and the remaining portion is recorded as noncurrent. Approximately 6 percent of total
deferred revenue as of both January 31, 2011 and 2010, related to deferred professional services revenue.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with non-cancelable
subscription contracts with customers and consist of sales commissions paid to the Company’s direct sales force.
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