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Software terms are confusing right?!
I'll try my best to explain these concepts:
- Bookings
- Billings
- Revenue
- ARR
- DBNER
- DBGRR
- DBNRR
- Deferred Revenue
- RPO
[THREAD]
I'll try my best to explain these concepts:
- Bookings
- Billings
- Revenue
- ARR
- DBNER
- DBGRR
- DBNRR
- Deferred Revenue
- RPO
[THREAD]
1/ Bookings
This is usually synonymous with total contract value (TCV).
Let's say a customer commits to an annual contract of $24,000 at the beginning of the year. Boom, that's $24k in bookings.
This is usually synonymous with total contract value (TCV).
Let's say a customer commits to an annual contract of $24,000 at the beginning of the year. Boom, that's $24k in bookings.
2/ Billings
The difference between billings & bookings is payment terms.
Using the same example, if the customer couldn't pay everything upfront, your sales rep allows them to pay half upfront, then the other half 6 months later.
January billings: $12k
July billings: $12k
The difference between billings & bookings is payment terms.
Using the same example, if the customer couldn't pay everything upfront, your sales rep allows them to pay half upfront, then the other half 6 months later.
January billings: $12k
July billings: $12k
3/ Revenue
Revenue can only be recognized when a service is performed.
In our example, even if the customer pays all $24k upfront, that doesn't all go to sales.
For a normal SaaS business, revenue is typically recognized ratably. So quarterly revenue would be $6k (24/12 * 3)
Revenue can only be recognized when a service is performed.
In our example, even if the customer pays all $24k upfront, that doesn't all go to sales.
For a normal SaaS business, revenue is typically recognized ratably. So quarterly revenue would be $6k (24/12 * 3)
4/ More on revenue
For on-premise software, accounting standard 606 may require companies to recognize revenue differently.
Here is a prime example: https://twitter.com/investing_city/status/1291808755160453121?s=20
For on-premise software, accounting standard 606 may require companies to recognize revenue differently.
Here is a prime example: https://twitter.com/investing_city/status/1291808755160453121?s=20
5/ More details on first 3
The difference between revenue & billings is contract length.
If the customer pays for one month at a time ($2k), billings & revenue would be the same.
Also, if the customer paid all $24k upfront, bookings and billings in January would be the same.
The difference between revenue & billings is contract length.
If the customer pays for one month at a time ($2k), billings & revenue would be the same.
Also, if the customer paid all $24k upfront, bookings and billings in January would be the same.
6/ Annual Recurring Revenue (ARR)
ARR can be different from revenue. It's usually based on MRR (monthly recurring revenue) then multiplied by 12.
If a customer upgrades mid-month, revenue will be different from MRR though...
ARR can be different from revenue. It's usually based on MRR (monthly recurring revenue) then multiplied by 12.
If a customer upgrades mid-month, revenue will be different from MRR though...
7/ ARR continued...
Jan 1: $2k MRR = revenue
Jan 15: upgrades to $5k monthly plan
January MRR = $5k
January revenue = $1k (half month) + $2.5k (half month) = $3.5k
This is one type of discrepancy between ARR and revenue, another being the Alteryx example.
Jan 1: $2k MRR = revenue
Jan 15: upgrades to $5k monthly plan
January MRR = $5k
January revenue = $1k (half month) + $2.5k (half month) = $3.5k
This is one type of discrepancy between ARR and revenue, another being the Alteryx example.
8/ Dollar-based net expansion rate (DBNER)
This measures how much a cohort of customers increases their spend year-over-year.
Below is an example of how Agora defines it. It is helpful to always read the detail b/c some companies do it differently.
I've seen it based on ARR.
This measures how much a cohort of customers increases their spend year-over-year.
Below is an example of how Agora defines it. It is helpful to always read the detail b/c some companies do it differently.
I've seen it based on ARR.
9/ Dollar-Based Gross Retention Rate (DBGRR)
The highest this can be is 100%.
Typically, it's the percentage of ARR (or revenue) that is not lost to churn. It doesn't include expansions (upgrades).
The highest this can be is 100%.
Typically, it's the percentage of ARR (or revenue) that is not lost to churn. It doesn't include expansions (upgrades).
10/ Dollar-Based Net Retention Rate (DBNRR)
This is similar to DBGRR but includes expansions. You can also think of it as the DBNER but inclusive of churn.
I think this is the most important of the three since it includes everything.
This is similar to DBGRR but includes expansions. You can also think of it as the DBNER but inclusive of churn.
I think this is the most important of the three since it includes everything.
11/ More detail on last 3
The expansion/retention stuff may be measured on a TTM (twelve month trailing) basis.
So the DBNER could be very high in one quarter which lifts the TTM number or the converse of this.
DBNER and DBNRR can be well over 100%.
The expansion/retention stuff may be measured on a TTM (twelve month trailing) basis.
So the DBNER could be very high in one quarter which lifts the TTM number or the converse of this.
DBNER and DBNRR can be well over 100%.
12/ Deferred Revenue
Deferred revenue is actually a liability b/c the company still has to perform a service on money that's been collected.
If a customer pays $24k for an annual contract upfront:
Billings: $24k
Q1 revenue: $6k
Deferred revenue: $18k (24-6)
Deferred revenue is actually a liability b/c the company still has to perform a service on money that's been collected.
If a customer pays $24k for an annual contract upfront:
Billings: $24k
Q1 revenue: $6k
Deferred revenue: $18k (24-6)
13/ Deferred Revenue continued....
We can now see that billings can actually be calculated as revenue + changes in deferred revenue.
This is a little more rare but unbilled receivables are when the company has provided the service but hasn't billed the customer.
We can now see that billings can actually be calculated as revenue + changes in deferred revenue.
This is a little more rare but unbilled receivables are when the company has provided the service but hasn't billed the customer.
14/ Deferred revenue continued 2...
In that case, billings would be calculated like this:
revenue + change in deferred revenue - change in unbilled receivables.
You can begin to see that there is potential for a lot of noise in this number depending on duration/payment terms.
In that case, billings would be calculated like this:
revenue + change in deferred revenue - change in unbilled receivables.
You can begin to see that there is potential for a lot of noise in this number depending on duration/payment terms.
15/ Remaining Performance Obligations (RPO)
This is another ASC 606 thing.
Officially, it's all the contracted revenue that has yet to be recognized.
Another way is: RPO = deferred revenue + backlog
This is another ASC 606 thing.
Officially, it's all the contracted revenue that has yet to be recognized.
Another way is: RPO = deferred revenue + backlog
16/ RPO continued...
You can sort of think of it like the sum of all bookings that haven't been recognized.
Another thing to mention is that deferred revenue and RPO can both be current (recognized within the year) or non-current (recognized more than a year later).
You can sort of think of it like the sum of all bookings that haven't been recognized.
Another thing to mention is that deferred revenue and RPO can both be current (recognized within the year) or non-current (recognized more than a year later).
End/
This can be super confusing! Hopefully this gives some more context.
One important thing is to read the footnotes! Some companies will report things a little differently and that can actually matter.
This can be super confusing! Hopefully this gives some more context.
One important thing is to read the footnotes! Some companies will report things a little differently and that can actually matter.
