ARR – What SaaS Leaders and Investors Need to Know
LOS ANGELES – June 20, 2022 – Ordway’s Founder and CEO, Sameer Gulati, will jointly present with Dan Fletcher, CFO of Planful, at the 6th Recurring Revenue Conference in Los Angeles this Thursday, June 23rd. Gulati and Fletcher will discuss some of the challenges the SaaS industry faces with consistent approaches to calculating the venture capital industry’s most important valuation metric – Annual Recurring Revenue. The Recurring Revenue Conference draws 600+ tech industry leaders including CEOs, founders, executives, funders, and leading sales providers who discuss how recurring revenue is reshaping today’s businesses.
ARR is arguably the most important metric that SaaS and cloud companies track. It drives sales behavior. It drives executive compensation. It drives investor valuations. Despite its importance in the SaaS industry, there is no standardized definition of ARR. It’s not a GAAP metric. If you talk to finance leaders and investors you will find that there are a few different ways to calculate ARR as well as the associated metrics like expansions, contractions, and churn. As the industry continues to innovate with new business models, monetization strategies, and pricing structures, the definition is getting even blurrier. Consider usage-based pricing models where the revenue generated varies month-to-month as well as step-up subscription contracts where the pricing increases each year of the contract.
- How to gain consensus on the definition of ARR with all the key stakeholders on the executive team, board, and investor community.
- How to develop an ARR policy that provides governance around how the organization measures and reports on ARR.
- How to define a process for reviewing customer contracts then assigning and reporting on ARR in a system of record.