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Can services be ARR?
ARR is a SaaS metric used in business valuation (among other things). SaaS Capital has an answer to this question in their white paper titled “How to Value a SaaS Company.” If your company’s revenue mix is 80\% subscription revenue (or higher) to 20\% service revenue (or lower), include all of your revenue in ARR.
What are SaaS professional services?
a software sign-up that can be used immediately without any human intervention. Examples of professional services that fit into B2B SaaS companies include: IT and infrastructure consulting, detailed integration work, high-touch troubleshooting and diagnostics, and strategy guidance.
What are examples of professional services?
Some examples of professional services include:
- Legal services.
- Logistics.
- Accounting and bookkeeping.
- Project management.
- Marketing consultancy, including:
- Digital marketing.
- Content marketing.
- Event management.
What is a professional service business?
Professional services firms exist in many different industries. They include lawyers, advertising professionals, architects, accountants, financial advisers, engineers, and consultants, among others. Basically, they can be any organization or profession that offers customized, knowledge-based services to clients.
What is included in ARR?
ARR only includes fixed contract fees, not one time charges. Rather, single charges (or, variable revenue) should be accounted for separately. If any extra, non-subscription charges are lumped into ARR, accuracy is lost in your calculations.
What is Arr (annual recurring revenue) for SaaS?
ARR is an acronym for Annual Recurring Revenue, a metric for SaaS or subscription businesses with term subscriptions. ARR is equal to the value of your term subscription’s contracted recurring revenue components, normalized to a one-year period.
What is the point of a SaaS business without professional services?
The point of a SaaS business is to maxmize enterprise value and that value is a function of ARR. If you could maximize ARR without a professional services team then you wouldn’t have one at all (and some SaaS firms don’t). But if you’re going to have a professional services team, then they — like everybody else — should be there to maximize ARR.
How much should you cap your SaaS revenues?
It’s a generally accepted best practice for SaaS publishers to cap services revenues at 20\% – the old 80/20 rule comes into play here. Generating more than 20\% of revenue from services weighs negatively on a SaaS company’s valuation as it’s more expensive and difficult to scale.
What is a typical SaaS vendor’s gross margin on services?
A typical SaaS vendors have negative 20\% to negative 10\% gross margins on services (and sometimes a lot more negative than that). That’s because some vendors subsidize their ARR with free or heavily discounted services because ARR recurs whereas services revenue does not.