The TL;DR
- We are experimenting with a new series that dives into financial metrics and their importance
- Revenue is deceptively complicated and has numerous permutations that can give you insight into your business
- Recurring revenue is the best type of revenue and everyone wants it
Why bother to do this?
We are continuing our experiment that we are colloquially calling “Finance, but useful.” The first post was on cash conversion cycle.
Most financial knowledge resources online are written for those with long attention spans (not us) or for students looking to pass their Finance 101 class (also not us.) Very little financial writing exists for non-finance leaders. Our goal is to help you understand what the key metrics are and why they matter for your business.
People not grasping financial statements is a plague in today’s business environment. From WeWork’s infamous “community adjusted EBITDA” to Robinhood traders propping up Nikola’s stock price over that of Ford despite having 0 dollars in revenue, we are perhaps overdue for a re-education.
The series (if you folks like it enough!) will walk through various key financial metrics and contextualize them so you can operate, invest, or evaluate opportunities with a higher degree of skill.
Today we will discuss the thing we all love to either completely ignore or completely over-index on - revenue.
My Mind On My Money, And My Money On My Mind
Revenue is the money that your business creates in the normal course of conducting itself.
In its simplest form, it is the number of units multiplied by the sale price of those units. If I sell 20 units of Every t-shirt and each of them is sold for 5 dollars, I have a revenue of 100 bucks. That’s really all there is to the definition! Supposedly, nice and simple.
However, the role of revenue gets a lot murkier as the business world increasingly moves towards subscription models. This opacity generally manifests itself in the confusion between bookings, billings, collections, MRR, and revenue. Let’s walk through some definitions and numbers:
Bookings: The amount a customer has agreed to spend
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This was a great intro to revenue, thank you! Would love to see the next one in the series be about COGS, especially in SAAS or software, there seems to be a lot of variations on a theme on what costs companies include when it comes to producing & delivering a product
I’m unclear about the distinction you were drawing about cash on hand vs revenue (e.g. paying $200 upfront vs $20 per month).
Was this simply pointing to how you have to record it in your books? Like, you can spend that $200 ASAP, but you must log it as 12 monthly payments?
In the last two lines, shouldn't we have $50,000/12 instead of $52,000/12 ?
Need definitions . Saas , subscriptions , professional services . When they overlap and when they don’t
Unfortunately the writing in this post is slipshod, long winded, and ultimately full of connections that don’t make sense and other nonsense trying to use a hacky college-level Professional Writing 101 voice to disguise lack of real knowledge, not to mention lack of talent. For example, “Very little financial writing exists for non-finance leaders.” What is he talking about? And Wrapping It Up section is a joke. After droning on for at least 1000+ words without ever making any points of his own, the writer makes a rushed analogy about fortune telling and then adds a plug for the newsletter for good measure? I, for one, felt that my time had been wasted, that the article was trying to trick me into thinking it had a lot more going for it than it really did, and worse, I was bored. This “article” would have worked better as a handful of bullet points. Sorry to be a downer, but this writer isn’t cutting it for me.