A One-Time Sale vs. Non-Recurring Subscription

One frequent question we receive: “What should we do for a one time sale?” The answer really depends on how the product or services will be delivered to your customer. From a payment perspective, the intent is to collect a single payment from the customer (which is quite simple). However, from a logistics and accounting perspective, three approaches demonstrate the variety to something that on the surface seems so simple:

• Record it as a one-time payment/sale.
• Record it as a subscription that does not recur (therefore only has one payment).
• Record it as a one-time prepaid payment.

Olive Garden Illustration

We’ll use the Olive Garden as the “Merchant” for our illustration, being perhaps the newest high-profile entrant to the subscription economy.

The Olive Garden is a chain of 800+ restaurants, recently ran a promotion for 7 weeks of unlimited pasta for $100. They offered 100 passes, and sold out within 45 minutes.

Example A: Customer purchases a meal from Olive Garden

This example is quite straightforward. The customer goes to Olive Garden, orders food. Consumes the food. And at the end of the meal, receives a bill. The customer pays for the meal. This is what we would call a one time sale.

Example B: Customer purchases 7 weeks of unlimited pasta for $100

On the surface, this may not seem like a subscription, because it does not recur. However, recurrence is not a required property of subscriptions. With this product, the customer may go to the restaurant, and order pasta (and some other items), at any time over a 49-day period. So, the main question is, when Olive Garden makes this “sale”, have they delivered the product or service? When will they incur the expenses related with the product delivery? The answer, it will be delivered over the course of the following 7 weeks.

Olive Garden shouldn’t record $100 in revenue, when they sold this offer on September 8, 2014. Instead, they should record about ($100/49) $2.04 of revenue per day for each of the next 49 days. Practically speaking, perhaps Olive Garden reports revenues on a monthly basis, in which case they would record almost $45 of the revenues in September, and the balance in October. However, this illustrates how something as simple as a one-time payment can be very complex to account for…

If Olive Garden was using Rebilly, it would configure a plan with a fee of $100, set to only 1 time occurrence.

Example C: Customer purchases a $100 gift card to Olive Garden

In this case, Olive Garden takes $100 from the customer in exchange for a gift card (could be physical or digital). At this point, the customer has not consumed any of that $100, and Olive Garden would record that as a liability (unearned revenue).

A quick glance at Olive Garden’s website reveals that the eGift cards do not expire, which means, they need to carry this liability forward until the customer uses the gift card. Let’s say, for our example, the customer visits Olive Garden, and purchases $30 of food, which leaves a balance of $70 on the gift card. At this point, Olive Garden reduces their unearned revenue by $30, and increases their earned revenue by $30. Similar to subscription, the gift card infuses cash to the company. The company must be diligent though, as they will need to deliver its products and services in the future.

Besides tax and other compliance obligations, why bother with all of this effort for $100? Definitely, example A is the easiest to understand, but by not exploring other opportunities, and reporting properly on them management can’t make informed decisions to help drive profitability and growth.

The Bottom Line

The product delivery schedule better dictates the approach to use. The reason to use a particular approach over another may be for better management reporting, tax, and/or compliance reasons.

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