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ASC 606 for Usage-Based Pricing 2025: Recognition Guide

ASC 606 compliance for usage-based pricing: variable consideration, recognition timing, and audit documentation. Handle UBP revenue recognition correctly.

Published: February 16, 2025Updated: December 28, 2025By Tom Brennan
Legal compliance and business regulations
TB

Tom Brennan

Revenue Operations Consultant

Tom is a revenue operations expert focused on helping SaaS companies optimize their billing, pricing, and subscription management strategies.

RevOps
Billing Systems
Payment Analytics
10+ years in Tech

Based on our analysis of hundreds of SaaS companies, usage-based pricing creates unique ASC 606 compliance challenges. Learn how to recognize revenue correctly.

ASC 606 Basics

ASC 606 requires recognizing revenue when performance obligations are satisfied. For usage-based pricing, this means when usage occurs.

Usage-Based Challenges

Variable consideration, usage caps, and true-up provisions complicate recognition. Each requires specific accounting treatment.

Recognition Timing

Recognize revenue as usage occurs if measurable. For estimates, use expected value or most likely amount methods with constraints.

Documentation Requirements

Document recognition policies, maintain usage records, and prepare for auditor questions. Clear policies reduce audit risk.

Frequently Asked Questions

When do I recognize usage-based revenue?

Generally when usage occurs and is measurable. If billed in arrears, accrue revenue for usage delivered but not yet billed.

How do I handle usage estimates?

Use expected value method with constraint for variable consideration. Be conservative and document your estimation approach.

Disclaimer

This content is for informational purposes only and does not constitute financial, accounting, or legal advice. Consult with qualified professionals before making business decisions. Metrics and benchmarks may vary by industry and company size.

Key Takeaways

ASC 606 compliance for usage-based pricing requires careful attention to timing and documentation. Establish clear policies early.

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