What is Deferred Revenue?
Definition
Payment received for subscription services that have not yet been delivered, recorded as a liability until the service is provided.
Understanding Deferred Revenue
Deferred revenue is created when subscribers pay upfront for future service periods. If you pay $120 for an annual plan in January, the company has $110 in deferred revenue (11 months of undelivered service). As each month passes, $10 moves from deferred revenue to recognized revenue.
High deferred revenue is generally positive — it means strong future revenue locked in. For investors evaluating subscription companies, deferred revenue growth is a leading indicator of future revenue. For consumers, deferred revenue represents your unused prepaid subscription value.
Related Terms
Revenue Recognition
The accounting principle determining when subscription revenue should be recorded on financial statements.
Annual Subscription
A subscription plan billed once per year, typically offering a discount compared to the equivalent monthly pricing.
Recurring Revenue
Income that a business can reliably expect to receive at regular intervals from active subscriptions.