🔄
Open Core Ventures Handbook/🔄Recurring Revenue

Recurring Revenue

Recurring revenue is the portion of revenue that is expected to be ongoing and renew for a defined temporal period of a year (Annual Recurring Revenue/ ARR) or month (Monthly Recurring Revenue/ MRR).
The form of recurring revenue that is appropriate to reference should be determined based on the billing associated with that revenue. Monthly determination of customer churn isn’t possible to determine when the software is billed yearly.
The amount of recurring revenue changes from one period to the next such that:
  • Period 2 End ARR =
    • Period 1 End ARR (same as Period 2 Beginning ARR) +
    • ARR Added from New Customers in Period 2 +
    • ARR Grown from Period 1 Customers in Period 2 -
    • ARR Shrunk from Period 1 Customers in Period 2 -
    • ARR Lost from Period 1 Customers in Period 2
  • Net ARR Period 2 =
    • Period 2 End ARR -
    • Period 1 End ARR (same as Period 2 Beginning ARR)
    • =
    • ARR Added from New Customers in Period 2 +
    • ARR Grown from Period 1 Customers in Period 2 -
    • ARR Shrunk from Period 1 Customers in Period 2 -
    • ARR Lost from Period 1 Customers in Period 2
      • The Net ARR is the net change from one period to the next accounting for new ARR, lost ARR, grown ARR, and shrunk ARR.
       

Reporting Revenue

Reported ARRs must be substantiated by executed customer contracts with reliable implementation start dates
  1. Management team can report “pipeline deals” separately based on ongoing customer conservations, but these are not reported ARR numbers
  1. Reported ARRs will be reviewed during the monthly finance review meeting with the Finance Team.
    1. Discrepancies with realized revenue (including implementation timing) must be documented. If revenue realization has been delayed by >6 weeks, contract will be removed from reported total ARR.
    2. Formation Financial will invoice customers based on contract terms and monitor delayed billings
Document retention policy
  1. All customer contracts must be uploaded to the company’s Google drive (Accounting Folder) in real time
  1. Management team is responsible to keep Customer CRM and Investor CRM up to date on a weekly basis