Annual Recurring Revenue (ARR) Assumptions Miss Key Weaknesses.

The assumption behind ARR is you have stable revenue each month, so you multiply last month by 12, and you’re done…
Or not. The operational risks in relying on this metric really can’t be overstated!

Here’s what I’ve run into:
1.    Accounting has been accruing revenue on a contract that isn’t truly agreed to.
2.    Revenue isn’t booked because the bill didn’t go out.
3.    Revenue isn’t booked because the client is disputing something (maybe we screwed something up, maybe they just want to slow walk their expenses because they are having a bad month).
4.    The client just lost a client, or lost AUM, or closed a fund … so this recent bill is not reflective of what we’ll see next month.

So, here’s some ideas. Really get to know your billing team! Dive into the journals. Reward your relationship management team for bringing revenue issues (and opportunities) to the forefront. And don’t just rely on 30 days’ revenue in your forecast…