How do treat one-off expansion revenue that doesn't recur?

Sylvia Yin

Hi all -- I was wondering if anyone here have any best practices or insights to share about how to best treat one-off expansion revenue that doesn't recur. 

For context, we provide market intelligence to retail in the form of an external analytics dashboard (think SimilarWeb, AppAnnie). Sometimes we get customers who wants a one-off customised market report. 

Currently we are treating it as an upsell in the month the revenue is recognised but a churn in the following month? Is there a better way to do this? Anything we are not considering? 

Thank you!

Sylvia Yin

Oops pardon the the typo in the title! I meant to type "How to" versus "How do".

Jordan Silverman

@Sylvia Yin this is a great question and something I have wondered how others handle as well.

We do this in one of two ways:
1) Prorate over a period of time
- If we believe the client will have similar "one off" projects we will prorate the revenue over 6 or 12 months. So instead of $1k when it happens we would do $83.33 per month for 12 months
- This way it looks like an upsell and churn as you said but smaller on both. It also is more realistic in terms of the impact it has on our MRR business

2) Separate line for one off revenue
- We actually have a separate line in our numbers for one off revenue. We have minimal professional services so we combine it there
- This number is treated differently when it comes to upsell and churn

There are probably better ways to do this but these two have been good for us so far!

Sylvia Yin

Hi @Jordan Silverman! Thanks for sharing! 

We have similarly considered the two above but I'm wondering -- how do you decide when to prorate over time and when to include in a separate line for one-off revenue? Do you guys choose the first option when there is a likelihood of a repeat 6-12 months down the line and if it's really just a one-off you'll place it in the separate line? 

Sylvia Yin

SaaStr wrote a piece on Is it Really ARR? In 2021+, Yes. As Long As Your NRR is > 100%

Has anyone come across this and what are your thoughts if you have? 

Jordan Silverman

Exactly! Not perfect and I am sure others do it better but it has been simple and worked well for us!

Sylvia Yin

Thanks for sharing @Jordan Silverman! This has been helpful!