SaaStr, a leading SaaS community platform, clarified that free pilots and trial periods should not be counted as gross revenue, emphasizing this in a recent advisory. The platform advised SaaS companies against recognizing free trials as revenue, stating that only charged services can be considered revenue, and free offerings should be treated as marketing expenses instead, according to saastr.com.
The advisory explained that if companies want to account for future contracted revenue without immediate recognition, they should introduce a separate metric such as contracted monthly recurring revenue (cMRR) or contracted annual recurring revenue (cARR). However, free pilots that generate no immediate payment cannot be included in these metrics. The guidance also highlighted that attempting to count free pilots as revenue can mislead early-stage investors and complicate financial reporting.
This stance matters because SaaS startups often face pressure to show growth and revenue traction early on. The practice of counting free pilots as revenue can distort financial health and mislead stakeholders. SaaStr's advice aligns with broader accounting principles and aims to promote transparency and simplicity in revenue reporting. The platform noted that focusing on genuine revenue growth towards milestones like $2 million or $10 million ARR is more important than small revenue recognition games.
SaaStr concluded that companies should resist the temptation to play revenue recognition games in their early stages, as these efforts consume energy and distract from scaling. The advisory underscores that clear, straightforward revenue reporting is critical for sustainable SaaS growth, as stated on saastr.com.