Vareto Finance Glossary
Revenue backlog is the portion of contracted revenue that is not yet recognized within a SaaS company's subscription agreement. Simply put, it is the money that a company's customers have promised to pay for a future product/service delivery. Knowing the revenue backlog can help companies get an accurate picture of their current and future financial state.
Suppose, a customer has agreed to a $1,000 subscription to be paid monthly for one year's service. On January 1, the company bills $100 for the first month. Thus, its revenue backlog will be $900. On February 1, as the fresh billing happens, the revenue backlog reduces to $800.
Why it matters
Tracking revenue backlog is crucial for SaaS companies as it gives a clear picture of revenues. It can be used for the valuation of the company. Investors prefer a company with a robust revenue backlog as it is a reflection of the overall financial health of the company. It also allows companies to chalk out a fair budget estimate for the future.
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