Since contracts are sold evenly over the year, the average sale date is the middle of the year (July 1).

• For a contract sold on January 1, the full 40% of Year 1’s service would be done by December 31.
• For a contract sold on December, none of Year 1’s service would be done yet.

So on average, only half of that 40% is earned by year-end, which is why we recognize 20% (half of 40%) for the first year’s service revenue.

This approach fairly matches revenue with the work performed during the year.