As a B2B SaaS business, you’re likely thinking about your revenue in two different ways:
- GAAP revenue, which follows a uniform set of rules from the Financial Accounting Standards Board (FASB), measures recognized revenue for the amount of time that the service has been delivered.
- ARR, on the other hand, measures your recurring revenue.
These metrics represent fundamentally different ways of thinking about revenue, and they serve different purposes.
Unfortunately, these two numbers often don’t match up, leaving finance leaders and executives wondering whether it’s necessary—or worthwhile—to try to reconcile them. How close should the two metrics be to each other? Does it even matter?
Good news! Your GAAP revenue and ARR don’t need to match.
While both metrics are dealing with your revenue, they should be thought of as completely different measurements that have different functions.
GAAP revenue is used by the finance team for taxes, audits, and SEC filings.
ARR is used by the leadership team (including the finance team) for analytics and business strategy.
It’s normal and perfectly fine for the two metrics to be different, as long as they’re on the same order of magnitude. While you could try to reconcile the numbers, it’s not necessarily the best use of time and won’t give you any meaningful insights. Instead, it’s best to treat your revenue metrics as separate methods for separate purposes.
What you should do instead of reconciling your GAAP revenue and ARR
Even though you don’t need to reconcile your GAAP revenue and ARR, there are a few things you can do to set yourself up for success.
- Ensure you’re using the same sources of data (and that those sources are accurate) when calculating your GAAP revenue and ARR.
- Consider getting out of the spreadsheet. If you’re basing your calculations on a complicated Excel file, then you're introducing opportunities for errors, and your data will nearly always be out of date. That’s why it’s helpful to upgrade from the spreadsheet to a more powerful source of truth for your B2B SaaS metrics like Subscript.