Complex Systems with Patrick McKenzie (patio11) Cash received is not revenue earned
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Apr 16, 2026 A clear dive into why cash received is not always revenue. Short explanations cover SaaS subscription timing, deferred revenue, and MRR pitfalls. Playable virtual goods get treated differently than consumables, with creative accounting for swords, potions, and in‑game banks. The same timing issues appear in AI lab billing, prepaid balances, and minimum commits.
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Selling A SaaS Business Revealed Deferred Revenue Risks
- When Patrick sold a SaaS business, buyers discounted annual contracts because the buyer must service those contracts immediately though payment is deferred.
- He explains that annual contract dollars carry lower near-term value due to deferred revenue liability.
Virtual Currency Carries A Service Obligation
- Virtual currency sales are not automatically revenue because customers buy access to future services, not gems themselves.
- Patrick frames virtual goods recognition around whether the item is consumable (potion) or durable (sword).
Book Consumables At Use Not Sale
- Recognize revenue for consumable virtual goods when consumed, not when sold.
- Patrick uses potions as the example: revenue is booked when the player uses the potion (often within a day).