Deferred revenue
Money you have been paid for work you have not delivered yet — cash in the bank that is still a liability.
Deferred revenue is money already in your account for work you have not yet done: an annual plan paid up front, a course sold before the last module exists, a six-month retainer collected in January. Accounting treats it as a liability, and accounting is right — you owe the work, and if you cannot deliver it, you owe the money back.
The practical danger is that it is the most flattering cash you will ever hold. A January that collects twelve months of prepayments looks like the best month in the company's history and has quietly mortgaged the eleven that follow. Spend it as though it were earned and you arrive at October with the delivery obligations intact and the funding for them gone.
The discipline is simple and unpopular: recognise it as you deliver, and hold the undelivered portion as though it belonged to someone else. Some operators keep it in a separate account for exactly this reason.
Worked: you sell 40 annual memberships at $600 in one launch — $24,000 collected. At the end of month one you have earned $2,000 and owe $22,000 of access. If churn or a refund request arrives in month three, the question is not whether you can afford the refund but whether you already spent it.
Also known as
- unearned revenue
- prepayments
Relevant for
- Creators
- A launch that collects a year up front is a year of obligations, not a year of profit — earn it month by month before you count it.
- Business owners
- Annual prepayments are the cheapest working capital available to a practice, and the easiest to spend twice; hold the undelivered portion separately.