![]() In most cases, it’s pretty much just your MRR. Whilst we like the metrics, the government doesn’t care. All our other terms just live in SaaS land. Revenue: ‘Revenue’ is the only top line item you have to report in accounting land.(Read: ARR Monthly Recurring Revenue explained for SaaS startups) We can calculate that by 12x MRR or just take the first year revenue. It’s just the total amount of money we get per year from our MRR. ARR: ARR is sort of the same concept as MRR. ![]() MRR is just recurring revenue so it excludes professional services. We get $1200 a year and there are 12 months. MRR: MRR is the recurring revenue we are getting monthly.We include professional services in the first month, so it is $100 + $1000 = $1100 We bill monthly so $1200 over 12 months is $100 per month in billings. So we are going to bill multiple times over the contract. Bookings is money you are going to have, it’s like cash flow. Billings: Billings is money in the bank.ACV doesn’t include the professional services So it’s basically just $1200, or the $3600 divided by three. ACV: The annual contract value is the annual equivalent.If you don’t have professional services, the calculations are a bit more simple. The TCV is different from the ACV in that it includes the ‘other stuff’. That’s the whole value of the contract, right. BUT, we also offer professional services, right? So we need to add $1000. 3 years at $1200 = $3600, that’s the main revenue. The sales guy is happy as his comp is based on that. ![]() Bookings: We are booking all the revenue from the sales contract.So how do we turn these into the metrics we are going to learn about? Let’s find out now: To make this a little more complicated, we are going to charge $1000 in professional services up front. You sign Google for a 3-year contract, they pay $1200 a year and you bill them monthly. To start with, I’m going to make the simplest example, whilst still accounting for some complexity. So at a new contract, if you ‘expand’ revenue, you are going to ‘book’ more revenue, since the contract is larger, right? That should be simple to understand, it’s just a balls to calculate (TIP: get some nerd to do it when you can afford )) In short though, you basically up/down bookings, billings, MRR, revenue etc by the increase (or decrease) in your revenue stuff when it happens. You basically need to use a full-on SaaS financial model like the one I sell to calculate the numbers, and even then you can’t follow the math without sending you into a Cinderella-like deep sleep. Every other guide on the net doesn’t include these and I don’t… for a reason. Nerd note: These calculations can get more complicated over time when you start factoring in for the ‘real world’ like churn, up/down sell, and expansion/contraction revenue. I get it… before you get into the weeds, you want to know what is happening. Download the SaaS revenue model and PDF of this blog If you want a full-on SaaS model, get the normal SaaS model or the crazy enterprise SaaS version. To be clear, the model I made is relatively complex actually, but I have stopped short of building a full-on model. Hopefully, if you can get the basics you can then understand when it gets a little more tricky. I’m going to start this off with a simple, one-company example, then I’m going to illustrate this with extracts from a model I have made for you which has 9 companies with all sorts of different terms in their contract (You can download it the normal way in the download box on the page). More accounting terms like the difference between EBITDA and FCF and what breakeven means.They are key points in SaaS and need their own articles What we are not going to cover (everything else SaaS): GMV (This is not SaaS but you need to get clear).So now we are going to go through key ‘top line’ revenue related SaaS terms and clear them up so you really get them. ![]() put everything in a shaker, drop everything in a deck and you confuse everyone □ You could post something to clear up the confusion given your experience? Run Rate, Recurring revenue, bookings, ACV etc. I wrote about the importance of asking dumb questions and one investor (who isn’t dumb) asked me to help explain key SaaS terms. You probably understand some SaaS terms, but I bet you don’t really understand them all, let alone how to calculate them.ĭon’t be bashful. It will be emailed to you with the model. Note: This is a long blog so if you want to download this in PDF I’ve included it with the model. As usual, I’ve also built an excel model to have a play with. Tl dr: We are going to cover key SaaS revenue terms like booking, billings, and revenue so you don’t have to pretend to understand them. ![]()
0 Comments
Leave a Reply. |