Here is a nice SaaS metric to keep an eye on. Its Backlog and it will allow you to see how much of the contract is remaining to be realized on the income statement.
Rpo-Deferred Revenue = Backlog
RPO (remaining performance obligations) is a metric that SaaS companies must report due to ASC606. Deferred Revenue you will find on the Balance Sheet.
I had a side note about RPO on my ZM report but I think I should have made it more clear.
Revenue Backlog Defined
Revenue backlog is the value of contracted revenue that has yet to be recognized in your SaaS or subscription agreement. While Revenue backlog can occur in traditional and subscription businesses, the accrual nature of revenue recognition in subscription models results in almost all subscription companies having revenue backlog.
How do you calculate backlog?
Revenue Backlog is the sum of the unrecognized revenue in the schedule of revenue over term of a SaaS or subscription agreement. It can include revenue for both subscription and non-recurring services such as training and implementation.
Revenue backlog can and does include contracted or committed revenue that is not yet recognizable due to pending customer acceptance criteria, incomplete delivery of professional services, or other accounting rule. Revenue Backlog can include the future value of active subscriptions or pending subscriptions. In a manner consistent with standard revenue recognition practices, you should only include revenue in revenue backlog if there is a strong argument or evidence that both you and the customer will fulfill the obligations of the subscription or license agreement.
Is revenue backlog deferred revenue?
Revenue backlog is not deferred revenue. Revenue backlog is a non-GAAP reporting number, and thus does not appear on the balance sheet. Revenue backlog is a financial measure that many organizations manage and report to senior management and boards. It is a measure of total contract value that has yet to reach the income statement and provides a type of “income backlog”.
Since revenue backlog calculation is simply about revenue and does not consider invoicing, it can be significantly different from deferred revenue.
See Deferred Revenue vs Revenue Backlog for illustrations on both concepts.
Deferred Revenue is a current liability account used in financial reporting. Deferred Revenue appears on the balance sheet and is calculated as follows:
Deferred Revenue might be split into two accounts, “Current Deferred Revenue” for revenues within the next 12 months, and Long Term Deferred Revenue for revenues in excess of 12 months
Definition of RPO