Unlike typical SaaS where revenue from a monthly subscription is recognized ratably over the month, revenue from pay-as-you-go AI APIs is much simpler. Because the service—token consumption and inference—is delivered almost instantly, the revenue can be recognized as soon as the API call is complete.

Headlines about massive government contracts are misleading. Anduril's $20B deal is not obligated money but a pre-approved spending ceiling. It acts as a 'fast track' by removing initial procurement friction, but revenue is only recognized as individual orders are placed and products are actually delivered.

Enterprise deals with 'minimum commits' complicate revenue recognition. The base commitment amount is recognized ratably over the contract period (e.g., quarterly). Any usage-based revenue exceeding that minimum is only recognized as it's incurred, requiring a more complex, dual-track accounting process.

Entrepreneurs often celebrate high revenue as a key success metric, but without diligent expense tracking, they can actually be losing money. This focus on a vanity metric obscures the true financial health of the business.

Money received upfront for services not yet rendered, like annual SaaS plans, is classified as 'deferred revenue.' This is a liability on the balance sheet because it represents an obligation the company owes to its customers—either by providing the service over the agreed term or by returning the money.

Escape the trap of chasing top-line revenue. Instead, make contribution margin (revenue minus COGS, ad spend, and discounts) your primary success metric. This provides a truer picture of business health and aligns the entire organization around profitable, sustainable growth rather than vanity metrics.

Beyond outright fraud, startups often misrepresent financial health in subtle ways. Common examples include classifying trial revenue as ARR or recognizing contracts that have "out for convenience" clauses. These gray-area distinctions can drastically inflate a company's perceived stability and mislead investors.

A profitable P&L can mask imminent death. A big contract booked as revenue makes you feel rich on paper, while you're actually one payroll cycle from insolvency. The only true survival metric is a rolling 13-week cash flow document, updated weekly, showing actual cash in and cash out.

Revenue from virtual goods depends on whether they are consumable ('potions') or durable ('swords'). Consumable revenue is recognized upon use. Durable item revenue must be recognized ratably over the item's 'economically useful life,' which is often simplified to the player's expected lifetime with the game.