Revenue is the amount of money generated from customers. While ARR and MRR measure the amount of predictable and recurring revenue a company can expect in the future, revenue is assigned to the period that the software or services were rendered in. ARR and MRR are the sum of recurring fees in a subscription, while total revenue is the sum of recurring and one-time fees from customers.

‍

How is Revenue calculated?

Revenue is a GAAP metric and adheres to ASC 606 principles for recognizing revenue. Revenue is recognized via a five step model outlined in ASC 606:

‍

1.  Identify the Contract:
Determine if a valid contract exists between your organization and the customer.

2.  Identify Performance Obligations:
Determine deliverables in the contract; this can be access to software, user seats, technical support, and professional services. For each of these items, there may be a schedule of revenue recognition with distinct start and end dates.

3.  Determine Transaction Price:
Determine the total sum of all performance obligations. The payment schedule can be one-time or monthly, and the amount can be fixed or variable. For variable or usage products, an estimate must be included in the transaction price.

4.  Allocate the Transaction Price:
Determine the Standalone Sale Price for each performance obligation and determine what fraction of the total each product contributes. Total discounts will be allocated to each product based on the standalone sale price, with each product receiving a proportional discount based on its contribution to the total transaction price.

5.  Recognize Revenue:
Recognize the revenue based on the revenue recognition schedule. For recurring software fees, this may be monthly or annually recognized, whereas one-time customer support fees would be recognized over the service term.

‍

We can calculate the recognized revenue for a set of products that were purchased from a customer and calculate the total revenue. Let’s look at the following products that were purchased by a customer in January:

‍

‍

Every product will contribute to the revenue, but revenue in each month will look different, as each product amount is amortized over a particular period.

‍

‍

Note that annual fees are amortized on a monthly basis throughout the service term based on the start and end date of each product, and that the total of each line is equal to the total amount for the product.

‍

How much Revenue should I have?

While Revenue benchmarks vary by industry and company age, there are some general targets for revenue and growth rates to consider. The table below details some benchmarks for revenue (trailing 23 month period), YoY (Year over Year) Growth, and CMGR (Compound Monthly Growth Rate):

‍

‍

SaaSGrid calculates your revenue by working directly with your data systems. Use SaaSGrid to discover what segments, products, and industries drive your sales growth and see where you're winning customers. Talk to us here and see how we can help you with insights into revenue and more!