Hey, SaaS founders and finance pros, have you heard of Remaining Performance Obligations (RPO)?
It's a required disclosure for public SaaS companies and provides forward-looking revenue visibility.
Quick thread. #saas #RPO
It's a required disclosure for public SaaS companies and provides forward-looking revenue visibility.
Quick thread. #saas #RPO
RPO is the value of contracted revenue that SaaS companies expect to recognize in the future from existing contracts with customers.
It's an important measure of a company's revenue visibility and backlog.
It's an important measure of a company's revenue visibility and backlog.
Salesforce's (CRM) definition:
The “contracted revenue that has not yet been recognized and includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.”
The “contracted revenue that has not yet been recognized and includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.”
How to Calculate:
The RPO calculation requires two inputs. We need our deferred revenue balance and the unbilled amounts from our multi-year contracts.
The RPO calculation requires two inputs. We need our deferred revenue balance and the unbilled amounts from our multi-year contracts.
HubSpot's RPO:
We can find the deferred revenue amount in the liabilities section of our balance sheet. Deferred revenue is updated every month when we compile our monthly financial statements.
Unbilled revenue will come from our CRM and/or subscription mgmt software.
We can find the deferred revenue amount in the liabilities section of our balance sheet. Deferred revenue is updated every month when we compile our monthly financial statements.
Unbilled revenue will come from our CRM and/or subscription mgmt software.
RPO Example:
Scenario: 3-year contract for a subscription product. $120K ARR per year. $360K total contract value (TCV).
At the time of the booking in January. No invoicing or revenue recognition yet. We booked a $360K TCV deal.
See this post for more: thesaascfo.com/understanding-…
Scenario: 3-year contract for a subscription product. $120K ARR per year. $360K total contract value (TCV).
At the time of the booking in January. No invoicing or revenue recognition yet. We booked a $360K TCV deal.
See this post for more: thesaascfo.com/understanding-…
Why RPO?
Any metric that provides forward-looking visibility into our business is a valuable metric for SaaS operators, investors, and our Board.
RPO's help with forward-looking visibility and provide insight into the stickiness of our product.
Any metric that provides forward-looking visibility into our business is a valuable metric for SaaS operators, investors, and our Board.
RPO's help with forward-looking visibility and provide insight into the stickiness of our product.
RPO and Private SaaS:
You don't see RPO's being used much in private SaaS yet, but I believe this will change. It will be tracked just like bookings.
You don't see RPO's being used much in private SaaS yet, but I believe this will change. It will be tracked just like bookings.
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