Software and SaaS
Recurring revenue reported the way it is actually earned
Subscription businesses are easy to describe and awkward to account for: cash, bookings and revenue all move at different times. We keep those separate and reconciled, so growth is reported rather than implied.
Bookings, billings, cash, revenue.
Four numbers describing one contract
At a glance
Annual contracts are recognised on invoicing, so revenue arrives in one month and the cost of serving it in twelve.
Revenue you can defend
Annual recurring revenue bridge with each movement explained.
The economics
Why the numbers are harder here
A subscription business collects in advance and earns over time, so cash received, revenue recognised and annual recurring revenue are three different numbers describing the same contract. Conflating them is the single most common reporting error in the sector, and it flatters the business until someone examines it.
Underneath sits a cost base with its own peculiarities: cloud cost that scales with usage rather than with customers, acquisition cost incurred long before the revenue it buys, and engineering spend whose treatment is a judgement call. Unit economics depend on getting each of those attributed properly.
The problem
Where visibility breaks down
- Annual contracts are recognised on invoicing, so revenue arrives in one month and the cost of serving it in twelve.
- Deferred revenue is not tracked, leaving the obligation to the customer invisible on the balance sheet.
- Annual recurring revenue is quoted but not reconciled to recognised revenue, so the two drift.
- Cloud and infrastructure cost is one line, not attributable to product or customer.
- Customer acquisition cost is measured against bookings rather than against retained revenue.
Where we concentrate
How we focus the engagement
Revenue you can defend
- Subscription revenue recognised over the service period on a stated basis.
- Deferred revenue tracked and reconciled every close.
- An annual recurring revenue bridge: opening, new, expansion, contraction, churn, closing.
- Multi-currency and export-of-service documentation handled properly.
- Bookings, billings, cash and revenue reported as four distinct numbers.
Unit economics and runway
- Gross margin with cloud and support cost attributed to revenue.
- Acquisition cost measured against retained revenue, not bookings.
- Cohort retention and expansion tracked over time.
- Burn and runway computed from reconciled actuals.
- A reporting pack that keeps its shape, so investors can compare periods.
Reporting
Reports worth receiving
- Annual recurring revenue bridge with each movement explained.
- Deferred revenue and the recognition schedule.
- Gross margin by product, with cost of revenue built up.
- Cohort retention and net revenue retention.
- Burn, runway and the cash bridge.
Common questions
Questions we hear in this sector
Why does deferred revenue matter if the cash is already in?
Because the cash is not yet yours in an accounting sense — it is an obligation to deliver service. A business that treats collections as revenue overstates performance and understates its liabilities, and a diligence process finds that immediately.
Is engineering spend capitalised or expensed?
It depends on the nature of the work and the stage it is at, and it is a judgement with real consequences for reported profit. What matters as much as the answer is that the basis is stated and applied consistently, so the treatment can be examined rather than argued about later.
Can you produce investor reporting?
Yes. A pack that keeps the same shape period to period, built from reconciled actuals rather than assembled fresh each quarter — which is what makes the numbers comparable and therefore credible.
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