SaaS Talk™ with the Metrics Brothers - Strategies, Insights, & Metrics for B2B SaaS Executive Leaders

CARR, ARR, and the Impact of Usage-Based Pricing

Sep 25, 2024

Dive into the complexities of Contracted Annual Recurring Revenue (CARR) and Annual Recurring Revenue (ARR) as the hosts dissect their definitions and calculations. Discover how Usage-Based Pricing is reshaping revenue reporting in the SaaS industry. The conversation highlights the challenges of categorizing variable revenue, the transition from fixed licenses to more flexible pricing models, and the importance of implied ARR. Gain insights into revenue recognition practices and the evolving metrics crucial for navigating subscription-based businesses.

25:18

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Quick takeaways

Understanding the differences between CARR and ARR is crucial for accurately measuring a SaaS company's financial commitments and performance.

The rise of usage-based pricing introduces complexities in revenue reporting, often obscuring the sustainability of revenue streams in financial forecasts.

Deep dives

Defining ARR and CARR in SaaS

Annual Recurring Revenue (ARR) and its related term Contracted ARR (CARR) are crucial metrics for SaaS companies. ARR is defined as the sum of subscription recurring revenue calculated on an annual basis, excluding one-time fees or professional services fees. In contrast, CARR represents the revenue contracted for a specific period, regardless of whether the service is currently in production. This distinction helps in understanding a SaaS company’s financial commitments, particularly in situations where bookings occur months ahead of actual service activation.

Intro

3min

Navigating the Complexities of ARR Definitions

3min

Navigating Subscription Revenue Models

10min

Shifting Pricing Strategies in Software

9min

Understanding Implied ARR and Its Implications

3min

Contracted Annual Recurring Revenue (CARR) and Annual Recurring Revenue (ARR) are commonly used terms in the SaaS and Cloud Industry but are not standardized leading to inconsistent calculation. In fact, they were the first two metrics the SaaS Metrics Standards Board published standards upon.

Dave and Ray discuss the current definitions, calculations and how Usage-Based Pricing is impacting the historic ARR reporting model.

During today's episode CAC and Growth cover the following topics:

Contracted Annual Recurring Revenue (CARR) - Definition and Calculation
Annual Recurring Revenue (ARR) - Definition and Calculation
Usage-Based Pricing and impact on revenue reporting
Introduction of Recurring and Re-ocurring revenue
Reporting variable revenue from Usage-Based Pricing models

With ARR not being a FASB / GAAP Revenue reporting standard - the opportunity and challenges for having multiple calculation and reporting models is easy to identify - but hard to rectify.

If you are using, considering using or do not use Usage-Based Pricing this conversation and episode is a great listen.

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SaaS Talk™ with the Metrics Brothers - Strategies, Insights, & Metrics for B2B SaaS Executive Leaders

CARR, ARR, and the Impact of Usage-Based Pricing