Should I include annual “premium support” into ARR as a SaaS company, or is it a part of service revenues?

It is revenue, it’s real GAAP revenue, but it’s not software revenue.

So break your revenue out into two components: software (ARR) + services. Then, sum them up into revenue.

You generally shouldn’t include support and services in ARR. It’s not recurring and it’s not software revenue. However, if services and other non-software revenues are < 10% of your total revenue (i.e., relatively immaterial), many start-ups just roll it all up into ARR anyway. Probably not the end of the world for a non-GAAP metric.

At a minimum, don’t roll it all up if services, support, and “other” are > 10% of your revenue.

Finally, language matters, and talk to your finance professionals. Sometimes, “premium support” — although not one-off services — can be deemed software revenue if it’s part of the delivery of the service.

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Published on September 12, 2018

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