Remaining performance obligation

Remaining performance obligation (RPO) in SaaS is a key metric that combines deferred and unbilled revenue, offering a clear picture of future earnings.

What is remaining performance obligation (RPO)?

Remaining performance obligation (RPO) is a relatively new financial metric in the SaaS world. It represents the total contracted revenue from products or services that haven’t yet been delivered—and therefore haven’t been recognized as revenue.

RPO includes both deferred and unbilled revenue that will be recognized in future periods. It offers valuable insight into upcoming earnings and helps finance teams plan more effectively.

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RPO includes two key components: unbilled revenue (contracted but not yet invoiced) and deferred revenue (invoiced but not yet recognized because the service hasn’t been delivered). Both reflect non-cancellable contractual commitments—giving you a forward-looking view of future revenue.

While RPO isn’t usually listed on the balance sheet or income statement, it’s often disclosed in the notes of financial statements or earnings reports. This added context helps stakeholders better understand the timing and predictability of future revenue.

As The SaaS CFO, Ben Murray, explains, “[RPO] originated from the new revenue standard in ASC 606. Public companies must disclose their RPO as per ACS 606-10-50-13 – Transaction Price Allocated to the Remaining Performance Obligations.”

While public companies are mandated to disclose RPO, private businesses can also benefit from monitoring this metric. Investors rely on RPO to assess a company’s revenue performance and future growth potential.

Origins of RPO

As mentioned earlier, RPO has two parts: deferred revenue and revenue backlog.

Deferred revenue refers to money that’s already been received but can’t yet be recognized as income because the product or service hasn’t been delivered. Until then, it’s treated as a liability on the balance sheet.

Revenue backlog, on the other hand, includes the unbilled portion of active, non-cancellable contracts—future revenue that’s contractually secured but hasn’t yet been invoiced.

Under generally accepted accounting principles (GAAP), companies are required to report deferred revenue. RPO goes a step further by including the unbilled portion of total contract value, giving finance teams and stakeholders a more complete view of future earnings.

The introduction of RPO under ASC 606 marked a meaningful shift in financial reporting. It enhances transparency into future revenue expectations and adds depth to traditional metrics—empowering investors, analysts, and internal stakeholders to make more informed, data-driven decisions.

RPO formula + how to calculate

To calculate RPO, you’ll need two key data points: your deferred revenue balance and the unbilled portion of multi-year contracts.

Deferred revenue appears in the liabilities section of your balance sheet and is updated regularly as you deliver on your contractual obligations.

Unbilled revenue, meanwhile, refers to contracted revenue that hasn’t yet been invoiced. It’s typically tracked on a contract-by-contract basis and often logged by the sales team as bookings within your CRM.

Together, these figures provide a full picture of remaining performance obligations—and give finance teams clearer insight into future revenue streams.

In SaaS, multi-year contracts are common—whether customers pay upfront or in installments. But because the service is delivered over time, revenue is recognized gradually across the contract’s duration, not when payment is received.

This highlights a key distinction between deferred revenue and backlog. The difference comes down to billing structure: deferred revenue applies when a customer is charged upfront, while backlog refers to the portion of the contract that hasn’t yet been invoiced, even though it’s contractually committed.

An example of RPO

Let’s look at two example customer scenarios to illustrate how RPO is calculated across different contract structures.

Customer A has a three-year contract worth $36,000, billed annually at $12,000 per year. After completing the first year, the next $12,000—already invoiced—is treated as deferred revenue for the upcoming year. The final $12,000, which hasn’t been invoiced yet, is considered backlog.

Customer B has a two-year contract valued at $24,000, billed monthly at $1,000. Six months in, there’s no deferred revenue because billing happens as service is delivered. However, the remaining $18,000 (for the next 18 months) is categorized as backlog.

In this case, the total RPO would be:

• RPO = Deferred Revenue ($12,000 from Customer A) + Backlog ($12,000 from A + $18,000 from B) = $42,000

Of course, in practice, RPO can vary depending on contract structure, payment terms, discounts, and any contract changes. That’s why it’s important to track RPO in context—and update it regularly as your customer relationships evolve.

Key takeaways

• Remaining performance obligation (RPO) in SaaS is a key metric that combines deferred and unbilled revenue, offering a clear picture of future earnings
• RPO provides valuable insights into a company’s revenue potential and aids in financial planning and reporting
• Understanding RPO helps SaaS companies enhance transparency and align their strategies with customer needs
• The implementation of Accounting Standards Update No. 2014-09 or ASC 606 has made RPO a mandatory disclosure for public companies, highlighting its importance in financial reporting

RPO vs. other key SaaS metrics

As The SaaS CFO points out, RPO adds important context that traditional financial metrics might miss. It’s a powerful tool for projecting future revenue and understanding how much income is expected from existing customer contracts.

But RPO goes beyond forecasting. It helps assess how well your offerings align with customer needs and underscores the value of multi-year contracts in driving financial stability. It also promotes consistency and transparency by standardizing how you track deferred revenue, bookings, and unbilled revenue.

To get the most out of RPO, though, it’s important to clearly understand how it differs from other key financial metrics—and how it fits into your broader revenue strategy.

Billings vs. RPO

SaaS bookings represent the total value of newly signed contracts at the time they’re signed—capturing the full contract amount, even before any payment is received. That means the total contract value (TCV) is recorded upfront, regardless of how long the service will be delivered.

RPO, on the other hand, offers a more nuanced view. It includes both deferred revenue (billed but not yet earned) and unbilled revenue (contracted but not yet invoiced). This makes RPO a more comprehensive metric for understanding future revenue that hasn’t yet been recognized in your financial statements.

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Annual recurring revenue vs. RPO

Annual recurring revenue (ARR) is the revenue you can expect to earn over a 12-month period from active, recurring customer contracts. It excludes one-time charges and variable fees, focusing solely on predictable, contract-based income. ARR combines both annual and shorter-term agreements—like monthly or quarterly subscriptions—by converting them into an annualized figure for consistency and comparison.

RPO, by contrast, captures the full value of all active contracts that haven’t yet been billed or recognized as revenue. It includes the total contracted amount still to be earned—regardless of whether the contract spans one, three, or even five years—offering a broader, forward-looking view of future earnings.

Deferred revenue vs. RPO

Deferred revenue refers to payments received for services that haven’t yet been delivered—so it’s considered a liability until that revenue is earned. For example, if a customer pays $1,200 upfront for a $100/month annual subscription, the full amount is recorded as deferred revenue and recognized monthly over the contract period.

RPO builds on this by including both deferred revenue and unbilled amounts from active contracts. It reflects the total future revenue a company expects to recognize from its current customer agreements, offering a more complete picture of what’s ahead.

Annual contract value vs. RPO

Annual contract value (ACV) represents the average yearly revenue from a customer contract. For example, if a customer signs a 10-year agreement worth $10 million, the ACV would be $1 million per year. It’s a helpful metric for understanding the annualized value of long-term deals and comparing contract performance across customers.

Unlike RPO, ACV offers a snapshot of annual earnings from subscriptions without considering the total contract duration or unbilled amounts.

Remaining performance obligation FAQs

What is RPO, and why is it important for SaaS companies?

Remaining performance obligation (RPO) includes both deferred revenue and backlog (unbilled contracted revenue). It’s especially valuable in SaaS because it highlights committed future revenue—offering better visibility into what’s ahead and enabling more informed strategic planning.

What brought about the need for RPO in financial reporting?

Remaining performance obligation (RPO) includes both deferred revenue and backlog (unbilled contracted revenue). It’s especially valuable in SaaS because it highlights committed future revenue—offering better visibility into what’s ahead and enabling more informed strategic planning.

Are there penalties for misreporting or miscalculating RPO under ASC 606?

Yes. Public companies are required to report RPO accurately under ASC 606. Inaccurate or incomplete reporting can lead to regulatory penalties, including potential action from the Securities and Exchange Commission (SEC). Beyond fines, companies may face reputational damage, increased audits, or legal challenges.