# Deferred revenue: when prepaid lessons are earned

> A deferred revenue example: prepaid money is a liability until the lesson happens, then recognition as lessons are delivered or a subscription runs, and what to do with lessons nobody takes.

- Course: [Finance for Product People: From Unit Economics to Business Cases](https://productovi.com/courses/finance-for-product.md)
- Module: Are we actually profitable?
- Lesson 7/32, ~29 min
- Source: https://productovi.com/courses/finance-for-product/when-revenue-is-earned

## Money in March, lessons until September

**Alex Tutor:** Back at Klasna's product team: the March report has left Leo puzzled.

**Leo:** In March we sold 530 packages for 6,279,600 UAH. Our best month ever. Why doesn't the P&L for March show it?

**Hanna:** It was our best month for cash. But on the day a family pays, we haven't given them anything yet. We owe them lessons.

**Alex Tutor:** That's the rule of **revenue recognition**: money becomes revenue when the promised service is delivered, not when it's paid. Until then the prepayment is **deferred revenue**, or **unearned revenue**, a liability: Klasna owes the family lessons, or the money back.

**Alex Tutor:** Take one English 32-pack: 18,560 UAH, 580 a lesson. The family uses 6 lessons in March. 6 × 580 = 3,480 leaves the liability: Klasna earns its commission, 6 × 190 = 1,140, and owes the tutors 2,340. 15,080 is still owed.

**Hanna:** Strictly, only our commission in that balance will ever be our revenue. But all of it is what we owe families until the lessons happen, so I track it at the full price.

> **Exercise:** A family buys a 16-lesson maths package (10,720 UAH) in March and uses 5 lessons that month. How much **deferred revenue** does Klasna still hold for this package at the end of March?

## Deferred revenue example: what one lesson moves

**Sofia:** So when a lesson happens, no money moves at all?

**Alex Tutor:** Not into Klasna: that happened in March. The lesson moves numbers on paper. The liability shrinks by the price, revenue grows by the commission, and Klasna now owes the tutor a payout, paid on the next payout date.

**Alex Tutor:** Here are all 530 March packages, with the lessons used month by month until they expire at the end of September.

**Dataset (CSV):** [Packages sold in March 2026 and how they were used](https://productovi.com/datasets/finance-for-product/when-revenue-is-earned/klasna-march-2026-packages.csv)

One row per subject and package size. From March 2026 a package is valid for six months: the March packages expired on 30 September. Prices in UAH.

- `subject`: english, maths or programming
- `lessons_per_package`: 8, 16 or 32 lessons
- `packages_sold`: Packages of this kind sold in March
- `package_price_uah`: Price of one package
- `tutor_payout_per_lesson_uah`: Tutor's payout for each delivered lesson
- `used_mar`: Lessons from these packages delivered in March (used_apr … used_sep: the following months)
- `expired`: Lessons never used before the packages expired

> **Exercise:** In June a learner takes one lesson from an English 16-pack bought in March (620 UAH a lesson, tutor 390). What happens that day? Select all that apply.

**Alex Tutor:** Now answer Leo's puzzle for March itself: how much of the record month was revenue?

> **Exercise:** Use the March packages dataset. Klasna's revenue from a delivered 1:1 lesson is its commission: price per lesson minus the tutor's payout. How much **revenue** did the March packages bring Klasna **in March**, from the lessons used that month?

## Lessons nobody takes

**Sofia:** The last column: 440 lessons were never used. What happens to the money for them?

**Alex Tutor:** That's **breakage**: prepaid lessons customers never use. When the packages expired, Klasna stopped owing those lessons. No tutor will be paid for them, so their full price becomes Klasna's revenue on the day they expire.

**Hanna:** Why only at expiry? This is the first time packages expired at all. Once we have a few cohorts of history, we can expect breakage reliably and recognize it bit by bit as the other lessons are used. Until then we wait.

$$
\text{Breakage} = \sum_{\text{rows}} \text{expired} \times \frac{\text{package price}}{\text{lessons per package}}
$$

*Revenue from expired lessons, UAH: the full price of every lesson nobody used*

> **Exercise:** Use the March packages dataset. How much **breakage revenue** does Klasna recognize when the March packages expire at the end of September?

## Breakage is not a growth plan

**Leo:** 277,700 for doing nothing! What if packages expired after three months instead of six?

**Hanna:** Then families would notice. Look at maths 32-packs: 140 of 1,920 lessons, 7.29%, expired, because the exam was in June and nobody needed lessons after it.

**Alex Tutor:** Breakage is money for value the family didn't get. A growing breakage line is a warning: sell smaller packs before exams, or let them run until exam day. Report it, but don't plan on it.

**Alex Tutor:** Two answers Leo could give the board about breakage. Pick the one that holds up.

> **Exercise:** The March packages left 440 lessons unused, 277,700 UAH of breakage revenue. In maths 32-packs, 7.29% of lessons expired because the exam was in June. Leo suggests packages expire after three months instead of six. Which answer is better?

> **Exercise:** **True or false:** once Klasna knows that about 4% of lessons go unused, it can book that 4% of a package's price as revenue on the day the package is sold.

## Subscriptions: one month at a time

**Sofia:** Does Klasna Club work the same way? Some families pay for a whole year.

**Alex Tutor:** The promise there is access for a period, so revenue follows time. The monthly plan, 450 UAH, is revenue in its month. The annual plan, 4,320, is paid up front and recognized at 360 a month for twelve months.

**Hanna:** In September 420 families took the monthly plan and 60 the annual one. Cash: 448,200 UAH. Club revenue: 210,600. Then 25 more annual plans in October and 15 in November.

**Alex Tutor:** Count a plan's first month in the month it's bought. What does Klasna still owe the annual subscribers at the end of November?

> **Exercise:** Annual Club plans cost 4,320 UAH and are recognized at 360 a month, counting the month of purchase. Klasna sold 60 in September, 25 in October and 15 in November. How much **deferred revenue** for annual plans does Klasna hold at the end of November?

**Alex Tutor:** And the other side of the same plans: what do they add to November revenue?

> **Exercise:** Annual Club plans cost 4,320 UAH and are recognized at 360 UAH a month for twelve months, counting the month of purchase. Klasna sold 60 in September, 25 in October and 15 in November. How much **revenue** do annual plans bring in **November**?

## Your turn: explain March to Leo

**Leo:** Explain it to me once more, so I can explain it to the board: why was March a record in the bank but not in revenue, and can we count on breakage?

**Alex Tutor:** Follow the March packages from the payment to the last expired lesson, with the numbers.

**Sofia:** From 6.28 million in the bank to what Klasna actually earned.

> **Exercise:** Leo asks: "Why was March a record in the bank but not in revenue, and can we count on breakage?" Answer in 3–5 sentences with numbers from the March packages.

> **Key ideas**
>
> - Revenue is recognized when the promised service is delivered, not when it's paid. A prepayment is **deferred revenue**: a liability until the lesson happens.
> - A delivered lesson moves no cash: the liability falls by the price, revenue grows by the commission, a payout to the tutor becomes due.
> - **Breakage**: unused prepaid lessons. Klasna recognizes their full price when they expire (277,700 UAH for the March packages), until its history lets it expect breakage reliably.
> - Subscriptions are recognized over the period: an annual Club plan of 4,320 UAH is 360 a month.
> - Of the 6,279,600 UAH families paid in March, Klasna's revenue over seven months was 2,408,600: 2,130,900 of commission and 277,700 of breakage.

**Alex Tutor:** Next is the module's case: the new board member asks what the quarter really says. You have everything you need.

- Previous lesson: [Take rate: what a marketplace really earns](https://productovi.com/courses/finance-for-product/gmv-vs-revenue.md)
- Next lesson: [Case: a board report for a new board member](https://productovi.com/courses/finance-for-product/quarter-for-the-board-case.md)

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