No, Free Pilots and Free Trials Aren’t Revenue. Keep it Simple — And Real.

Q:  Can SaaS free pilots and trials periods count towards gross revenue then deducted as a marketing expense?

No.

  • First, if you really want to do this — i.e., net a pilot against marketing expense — then you do have to still charge for it. Even if you provide the customer other services.
  • Second, it’s misleading. The only possible benefit here is to mislead early-stage investors. Just don’t do it.  If it’s truly free — it isn’t revenue.  Period.
  • Third, if you want credit for deals with future contracted revenue, but without immediate revenue — add a new metric “contracted revenue” and carefully explain it. cMRR / cARR shouldn’t include free deals, but it can include deals where revenue recognition hasn’t started yet.
  • Fourth, and most importantly — it won’t matter and is distracting. This is the most important. All these games to recognize a little more revenue than you really have — and there are plenty — just won’t matter later. It doesn’t really matter if you have $11k MRR today or $13k MRR. What matters is how you are getting to $2m, $10m, $100m+ ARR. None of these tiny games really work at scale, and all suck up a lot of energy and oxygen.

Report revenue simply, and easily, and in a way everyone understands, and your accountant is fine with.  Resist the temptation to play too many revenue games in the early days, even if you are stressed just finding any revenue at all.

Yes, there’s pressure to make every month and quarter. But if you cut too many corners here, you’ll be stuck in a spiral of half-truths in revenue that won’t help you in the long run. And will make your life more complicated with no real benefits now.

Now having said all of that, accounting and other issues aside, I’m a fan of deals where two vendors each buy each others’ software.  You can’t do too much of this for it to count as arms-length revenue — but that’s a different point.  If each of you buy each other’s product, and pay for it ,,, even if it nets to something like zero … well, worst case, it boxes your competitor out.  That’s worth it.

More on that here:

Roundtrip Revenue & Buying Your Customers’ Products: Probably, Just Do It

Published on March 1, 2021

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