10 questions to define your ARR
Accurately reporting on ARR has always been deceptively hard. Until now.
We’ve worked with dozens of customers to build and automate their ARR reporting.
From that experience, we've learned that while many solutions can get you most of the way there, the key to successfully adopting off-the-shelf ARR reporting is solving for that last mile of accuracy, which inevitably comes down to the idiosyncratic nature of how you run your business.
Some people may want their Annual Recurring Revenue (ARR) to adhere to specific rules such as - “Only count ARR for a customer after they have had a successful first payment.”
Others may know that their Stripe instance is not the cleanest and want to adjust the logic accordingly - “These invoices are marked as non-recurring in Stripe but they should be tied to a subscription”.
That's why we built the ARR Build Blueprint for Stripe. It gives you the tools to solve for every edge case, down to every individual customer and invoice.
No more need to to manually track corrections in another place.
You'll never need to question if your ARR is "right." Again.
Just answer a few simple questions, and Equals will give you the most flexible and the most accurate view of your ARR—guaranteed.
Let’s run through the questions it uses to tailor your ARR reports, including writing all the complex SQL for you.
We’ll start with six specific rules.
1. New ARR Event
When you sign a new customer, when do you want to start tracking their ARR?
You could either:
Count them immediately;
Delay until they’ve paid
If you’re a self-serve B2C company, perhaps you want to delay counting ARR until the customer has had a successful payment. That will lower your overall ARR but also prevent your churn number from being inflated with customers who never activate.
If you’re more B2B, like Equals, we recommend counting those customers immediately. We also recommend building analytics to monitor customers who have yet to pay on an active subscription or invoice using our Stripe connector.
2. Churned ARR Event
When a customer cancels (or requests to), when do you want to stop tracking their ARR?
Consider the scenario where a customer requests to cancel their subscription on October 10th but will still be active on the platform through the end of their billing period on Dec 31st.
If you stopped counting ARR on October 10th, that might enable a more accurate view of customer retention and a better reflection of future ARR.
If you stopped counting ARR on December 31st, your numbers would better align with your revenue recognition.
We typically see a ~50/50 split on how companies prefer to view their ARR. Internally, we default to the latter scenario to align with revenue and compensation plans for go-to-market teams.
3. Restarted ARR cut-off window
How do you treat a previously active customer who churned and returns to use your product?
This will always be a smaller bucket as a percentage of your overall ARR, but it’s a request that we’ve heard from several companies of varying sizes.
You could:
Always count them as Restart ARR. This is what we do internally today.
Count them as Restart ARR unless it’s been more than x months.
4. Paid trials
Should you include paid trials in ARR?
Most companies we work with don’t have paid trial options. But, if you do, you may want to decide whether or not to include those in your ARR totals. We exclude free trials from ARR by default because they are $0.
Including paid trials could impact the start date for counting that ARR and the respective amounts. Depending on your trial conversion rates, it might also impact churn and retention metrics.
5. Discounts
If you provide discounts, do you want those to factor into ARR?
Although there are many different types of discounts, we’ve seen these generally treated in one of two ways:
You want to ignore discounts in your ARR;
You want to subtract discounts from your ARR.
We recommend subtracting discounts from your ARR. This will give you a more accurate representation of the revenue you collect.
6. Timezone
How do you want to display your timezone?
Your Stripe dashboard is localized to a set timezone. We ask you this one so that your invoice dates in Equals match what you see in Stripe.
We’ve only worked with a handful of customers who say their Stripe instance is error-free. For the majority of instances where errors exist, correcting them within Stripe can be nearly impossible.
That’s why we designed the ARR Build Blueprint to make it easy to review and override key ARR inputs: Start Date, End Date, and Total ARR.
7. Start Date override
When may you want to override an invoice’s Start Date?
There are a few reasons why:
Pull forward scenario
You want to recognize revenue for a customer based on when they signed a contract vs. based on their first invoice Start Date. You could change the invoice Start Date to a different month.Push back scenarios
Maybe you issued a credit note for an invoice, but you don’t want to count the ARR immediately. You could shift the Start Date back two weeks.
8. End Date override
When may you want to override an invoice’s End Date?
We most often see this happen for invoices that were marked as non-recurring but were, in fact, recurring. You can adjust the End Date for a specific invoice to help your ARR smoothly transition to the next billing cycle.
Here’s an example scenario:
Invoice #1 (one-time)
2024-01-01 →2024-01-012024-01-31 to show ARR for each day that month.Invoice #2 (recurring)
2024-02-01 → 2024-02-28.Invoice #3 (recurring)
2024-03-01 → 2024-03-31.
9. ARR Amount override
When may you want to override Amount?
There are many reasons why you may want to override the amount, and we’ve tried to account for that flexibility. Depending on your use case, you could change an amount ($100 → $150), zero out an amount ($100 → $0), or start counting ARR for a non-recurring line item ($0 → $125).
10. Do you need more customization?
Of course, there are many more considerations you may want to factor into reporting on Annual Recurring Revenue (ARR). How should you think about Credit Notes? Refunds? Have you transitioned billing systems at some point and want to union historicals? Do you want to treat different types of discounts differently?
Easy done. Chat with us, and we’ll figure it out together.
The ARR Build Blueprint for Stripe is available today and is included with all Equals subscriptions with a Stripe connection.