Counting sales as revenue doesn't work in GAAP but do VC's care that sales and revenue are different and do they use revenue and sales interchangeably?
In my experience, VC's always want to know GAAP revenue because it's a way to compare apples to apples. We both know it's not perfect in that regard, and that cash is king, and they know that too, but that's the primary, standard metric.
The good ones want to see both, so they really understand the mechanics of the business.
Actually this is an accounting issue commonly referred to as "revenue recognition". How you recognize and record sales is dictated by both the tax regulations and corporate policy.
Go to the website of your national government tax agency and input "revenue recognition".
As long as you comply with generally accepted accounting principles (GAAP) most likely be fine. But FYI, we recommend our portfolio companies track revenue as money in the bank and sales as part of the sales funnel.
I see Sales and Revenue as the same thing. I think when you say Sales you are referring to Bookings? We track bookings (signed contracts) and GAAP revenue by customer. I think it is important to track both and you will be asked for your average ARR or MRR per customer and even a waterfall of GAAP revenue by customer.
I will go with the first option that you have provided.
In a recurring revenue business model, customers will pay for the product/service over a given period, known as the customer lifetime. The two key success factors for recurring revenue companies are customer acquisition and customer retention. In a recurring revenue business model, your company’s customer acquisition and service delivery expenses will outstrip the revenue earned in the previous period. For a recurring revenue business, all the investment is upfront, so the business being built needs to be sustainable. Furthermore, your customers will be paying monthly subscriptions, which are much smaller amounts of money than they would otherwise pay to a normal software business. That is why tracking MRR is important when building a sustainable business – it is the amount of revenue you expect to receive every month.
You can read more here: https://conseroglobal.com/the-guide-to-key-metrics-for-saas-and-recurring-revenue-models/
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
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