Remaining performance obligations
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The total value of contracted revenue not yet recognized. Includes deferred revenue plus unbilled contracted amounts. A measure of future revenue visibility.
RPO is the total contracted revenue that has not yet been recognized. It includes deferred revenue (billed but not recognized) plus the unbilled portion of multi-year contracts. If a customer signed a 3-year, $300k contract and you have recognized $50k so far, the remaining $250k is RPO.
RPO became a required disclosure under ASC 606. Before that, deferred revenue was the best proxy for future revenue visibility. RPO is more complete because it captures the full remaining value of multi-year contracts, including portions not yet invoiced.
Public SaaS companies report both total RPO and current RPO (the portion expected to be recognized in the next 12 months). Current RPO is the better predictor of near-term revenue. Total RPO shows the full backlog of contracted business.
Examples
A public company reports RPO.
Snowflake reports $5.2B in RPO, with $3.0B as current RPO (expected in the next 12 months). This tells investors that Snowflake has $5.2B in contracted revenue still to be delivered, and $3.0B of that will flow through the income statement in the next year.
RPO growth versus revenue growth.
A company's revenue grew 30% year-over-year. RPO grew 50% year-over-year. This divergence means the company is signing longer-term contracts and building a bigger backlog. Revenue growth will likely accelerate as RPO converts. This is a bullish signal.
Short RPO raises questions.
A SaaS company has $20M in ARR but only $15M in total RPO. This means much of their revenue comes from month-to-month or short-term contracts that are not in the RPO calculation. The revenue is less predictable than a competitor with $60M RPO on $20M ARR, who has 3 years of contracted business.
In practice
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Frequently asked questions
What is the difference between RPO and deferred revenue?
Deferred revenue only includes amounts already billed. RPO includes deferred revenue PLUS the unbilled portion of existing contracts. A 3-year deal billed annually has one year in deferred revenue and two years in unbilled RPO. Total RPO captures the full picture.
Does RPO include month-to-month customers?
No. RPO only includes contracted obligations. Month-to-month customers can cancel anytime, so there is no performance obligation. This is why companies with mostly annual or multi-year contracts have higher RPO relative to revenue than companies with monthly billing.
Related terms
Cash collected for services not yet delivered. A liability on the balance sheet that converts to revenue as you fulfill the contract.
The total amount invoiced to customers in a period. Revenue plus the change in deferred revenue. A leading indicator of future recognized revenue.
The accounting rules for when you can count revenue as earned. Not when you sign the deal or collect the cash, but when you deliver the service.
The annualized value of your active subscription contracts. The heartbeat metric of every SaaS business.
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