I’m having trouble trust my company when they use ARR numbers and compare that to the costs when tracking profitability. I dug into the actual revenues and there’s a gap of almost 25% between actual revenue for the year and the ARR we have licensed currently. ARR paints an unrealistic rosy picture that’s leading the rest of the company to think we’re in good financial track, but the customer churn is just not being talked about at all. As PMs what do you trust to track for success? TC: 165k, (possibly getting fkkd by a lying startup, so assuming my equity is worthless) Yoe: 7
Annual Recurring Revenue- should be fine if they are doing updates based on cancellations. It should also be fine if you have annual subscriptions. If you have monthly subscriptions, you should be using MRR calculations. What it sounds like to me is your company is bad at forecasting and isn't updating their data based on the volatility of the business.
Actual revenue will always be behind ARR for growing startups since ARR is taking the highest (most recent) number and annualizing it. Not sure why you think that's misleading? Churn is important to look at as well. ARR captures past churn, not future one.
I think my issue is the future churn. The actual revenues just haven’t grown much even if the ARRs have. I think there’s just something systemic lack of sustained value in the product that leadership refuses to acknowledge
Sounds like a forecast vs actual. Each year, companies will forecast annualized revenue based on their MRR and assumptions. Once actual revenue numbers are reported, they are compared to the forecast to see how far apart the two numbers are. You won't know if ARR was accurate until year end is closed and reported which won't be until Q1 2024 (if year end is Dec). If actual comes in lower than forecast, its either an overly ambitious forecast or there is a competitor taking market share or the market is softening. There are companies that are missing their forecast right now due to the market softening.
Are you using GaaP to calculate revenue? Sometimes it takes a little bit more creativity when it comes to revenue calculation.
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Which startup is this ? Did they go public ?