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Revenue �(GAAP)

Revenue is recognized when the service is actually provided.

This is the GAAP metric which companies report in their filings. It is the top line of the income statement and what margins are calculated based on.

ARR

Annualized Recurring Revenue. The annualized rate which you are charging your customers for service who are on recurring contracts. It is calculated as MRR x 12.

This is the “velocity” or run rate of revenue. As in, if you were to stop all new customer acquisition, upsell, etc. and keep all of your customers, this would be the recognized revenue over the next year. The key is recurring contracts. For a growing business ARR leads Revenue.

MRR

The monthly rate which are charging your customers OR monthly recognized revenue.

MRR is usually approximately the same as recognized revenue in a given month (MRR>Monthly Revenue if the business is growing). MRR is a more relevant leading metric for some businesses because of the monthly nature of their customer contracts.

Bookings

The commitment of a customer to spend money with your company in exchange for services delivered (usually at contract signing before or coincident with delivery or collection).

This is the value on the contracts your sign, either annual (ACV) or total (TCV). It provides a view into the future of what you will deliver, recognize and collect. New ACV Bookings will roughly be the same as New ARR. TCV can include multi-year deals and/or associated services or hardware in a contract.

Billings

The value of invoices you send to customers.

Billings comes before collections and represents the value of all current outstanding and paid invoices to your customers. Billings leads revenue for pre-paid contracts.

Collections

When you actually receive cash from your customers after delivering invoices.

Collections is just cash in. It can be very favorable, especially if annual contracts are paid upfront, but does not displace the importance of ARR as the key economic metric.

Backlog

The sales you have made but cannot invoice/bill because the inventory is not in stock or the customer is not ready for delivery. Usually for future services/products booked in advance. .

An example: you have an agreement with a customer for software at 1,000 sites, but they have not built them yet. Or you have an agreement for 1,000 sites but do not yourself have the capacity to install at all those sites yet. This is both an asset (to collect) and a liability (to deliver). See Boeing’s backlog.

Deferred Revenue �(GAAP)

Money you’ve already billed & collected, but not yet recognized because the service has not been delivered (i.e. annual contracts paid up front). This is a free loan from your customers.

Sits on the balance sheet as a liability because you have billed customers, but not yet delivered to them; they are effectively providing you with a loan in exchange for future services. The balance goes up as you sign longer contracts and collect up front.

Re-occurring Revenue

Revenue that is not contractually recurring but is consistent and associated with a recurring customer. Add-ons, Overages, and transaction revenue are all examples.

For example, Shopify’s transaction revenue which is associated with their platform recurring revenue customers. It is not as valuable as contractually recurring revenue, but is certainly much more valuable than one-time revenue.