Tyler Barr’s Post

Don't just book recurring revenue any old way. There's a right and wrong way to do it. Many think ARR and annual run rate are interchangeable. But that's not how the best do it. Instead, proper revenue recognition is critical for valuation. Here are 7 steps that will help you get it right: 1. Understand the difference between booking and recognizing revenue. 2. Calculate ARR based on subscription term, not billings. 3. Don't confuse ARR with annual run rate. 4. Recognize revenue evenly over the subscription term. 5. Ensure your recognition method can withstand due diligence. 6. Train your team on compliant recognition practices. 7. Monitor revenue recognition accuracy every accounting period. You'll know you're doing it right when your SaaS valuation soars. Remember — you're not just booking recurring revenue. You're building a highly valuable SaaS business.

If you're valuing SaaS companies like traditional ones, think again. You're probably missing key metrics. Here are the essentials you should focus on: - ARR (Annual Recurring Revenue): The lifeblood of SaaS, showing predictable income. - Churn Rate: High churn can sink future revenues. - Customer Acquisition Cost (CAC): Knowing this helps balance spending and growth. - Lifetime Value (LTV): This tells you how much revenue a customer will bring over time. Traditional businesses don't operate on these dynamics. SaaS companies scale fast and pivot quickly. By ignoring these metrics, you risk undervaluing potential gems. So, update your valuation toolkit. Agree or disagree? #BrainDumps | BrainDump #107

Growth is 2.4x more impactful than profitability, but public SaaS companies excelling in both earn the highest multiples: I could not find any reliable data on this, but I could imagine that this also holds true in the private market. A 2.4% increase in profits might be worth more than 1% higher growth though. The number of possible exit channels (and therefore demand) is much greater if you can demonstrate profitable growth.

Growth has more impact on valuation than profitability. Revenue Growth is 2.4x more impactful than Free Cash Flow margin on valuation metric Next 12 Months Enterprise Value-to-Revenue Multiple (EV/R). For SaaS companies, 45% of the variation in this valuation metric can be explained by these two factors: revenue growth (37.6 coefficient) and FCF margin (15.6 coefficient). Based on above 2 factors, we can see the distribution of companies into four quadrants and the median value of the valuation metric for each quadrant in (): ▪ High-Value Companies (12.7x) : Monday.com, Crowdstrike, and Datadog are positioned in the most valuable quadrant (high growth, high profitability) ▪ Growth-Focused Companies(9.5x): Companies like GitLab, Confluent, and Shopify prioritize growth over immediate profitability ▪ Lower Multiple Companies: Traditional tech companies like Microsoft and Adobe fall into the low-growth, high-profitability quadrant (6.2x) ▪ Companies with both lower growth and lower profitability receive the lowest multiples (3.7x) So valuation metric for both high growth and profitability is 12.7x , which is: ▪ 2x higher than highly profitable but slow-growing companies (6.2x) ▪ 1.3x higher than low profit but high growth companies (9.5x) This concludes growth has more impact on valuation than profitability. #Wie #SpeakUp #ConvertXWie #SaaS #Valuation #Growth

The Six Possible Revenue Categories on Your SaaS P&L✅ Let's start with #1...subscription revenue. Arguably at the top of the SaaS valuation pyramid. 💡 The Primary SaaS Revenue Categories - Subscription Revenue - fixed MRR or ARR contracts - Variable Revenue: usage-based, processing, transaction, and more - Professional Services: one-time revenue from the setup, onboarding, and training of your customers - Managed Services: subscription-based, human-powered services - Hardware Revenue: sales of physical products - Other Revenue: miscellaneous income streams like conferences and accounting adjustments. I'm also parking one-time software sales (the old model) here. ⚠️ Don't comingle your revenue streams! This is disastrous for your FP&A process, calculating your SaaS metrics, and understanding general business performance. And don't mix people-powered revenue and product-powered revenue. Your SaaS valuation relies on product-powered revenue. But a quick shout out to my Professional Services teams out there! You are 🥇🥇🥇! Are these the only 6 major revenue streams? Maybe not. But they cover the majority of SaaS companies. If you'd like the templates that I showed in this video, please comment "templates" below. I'll send 'em your way. #SaaS

Average Contract Values for net new purchases jumped 35% from Q4 2023 to Q1 2024. So, what does that mean for SaaS? Tracking ACV helps us identify shifts in pricing and purchasing strategies. It’s important to keep in mind that when ACVs rise, another metric typically worsens. In Q1, net new buying cycles grew 17% longer, due to additional scrutiny from CFOs. If your team is analyzing software purchases more than ever, our SaaS Trends Report is a great way to understand what’s happening in SaaS and where teams are investing. Check out the full report here:  https://lnkd.in/gNnAAb-K

I've seen many SaaS companies with low churn rates in their client base and ARR, but their monthly revenue still shows high churn. How is this possible? Revenue from monthly subscriptions changes because it’s not recorded correctly. It’s often not matched to the right subscription period or renewals. When revenue isn't matched correctly, duplicate revenue happens. Also, invoices might not be sent on time, making monthly revenue look like it has churn. Another issue is not separating income from subscriptions, training, or customisation. These monthly changes cause big problems for a SaaS company's financials. Investors will ask questions if your monthly revenue keeps going up and down. These fluctuations can hurt your chances of getting more funding.

Great Insight

If you're valuing SaaS companies like traditional ones, think again. You're probably missing key metrics. Here are the essentials you should focus on: - ARR (Annual Recurring Revenue): The lifeblood of SaaS, showing predictable income. - Churn Rate: High churn can sink future revenues. - Customer Acquisition Cost (CAC): Knowing this helps balance spending and growth. - Lifetime Value (LTV): This tells you how much revenue a customer will bring over time.

Navigate the complexities of SaaS financial metrics with our expert insights. Discover how incorporating ARR and ACV metrics can redefine your growth strategy. Explore the details in our blog! https://lnkd.in/ex7yBTKw #saasmetrics #peaksalesrecruiting