Remaining Performance Obligation (RPO) is an important financial metric every SaaS founder should track. It represents your contracted future revenue: services that you have sold but not yet delivered or recognized the revenue from. Born from ASC 606 standards, RPO combines deferred revenue (invoiced but unearned) with backlog (contracted but not invoiced) to provide a comprehensive overview of a company’s revenue pipeline.
While ARR shows your current run rate and bookings highlight sales momentum, RPO demonstrates concrete future revenue commitments. For investors seeking predictability and founders planning their company’s growth trajectory, RPO provides visibility into your financial future.
This guide breaks down how to calculate, interpret, and leverage RPO to strengthen your strategic planning and investor communications.
What is RPO? And Why Does It Matter in SaaS?
Remaining Performance Obligation (RPO) is the sum of two critical components: deferred revenue and backlog. Deferred revenue represents the services you've invoiced but haven't yet delivered—a liability on your balance sheet. Backlog captures contracted revenue that hasn't been invoiced or recognized. Together, they provide a comprehensive view of your future revenue commitments.
For example, if your SaaS company signs a three-year deal worth $120,000 with annual upfront payments, your deferred revenue might be $40,000 (the first year's payment), while your backlog would be $80,000 (years two and three). Your total RPO would be $120,000, representing your complete contractual obligation.
RPO matters for several compelling reasons:
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- Forward-Looking Visibility: Unlike backward-looking metrics, RPO shows revenue you're contractually guaranteed to recognize in future periods. This visibility is invaluable in providing leaders with certainty for financial planning, forecasting, and strategic decision-making.
- Investor Confidence: RPO demonstrates revenue stability. Private companies that actively measure RPO gain a competitive edge in fundraising environments by giving investors greater confidence in the company’s forecasts.
- Momentum Indicator: Rising RPO signals business acceleration, while declining RPO may reveal challenges before they impact current revenue. This early warning system allows leaders to make proactive interventions to capitalize on growth or address slowing performance.
- More Accurate than Bookings: While bookings capture sales activity, RPO provides a clearer picture of future revenue by accounting for service delivery timelines and excluding non-recurring elements.
As competition for investment intensifies, founders who adopt RPO as a central SaaS performance metric gain a significant advantage in communicating business health and growth potential. The metric provides a level of financial transparency that increasingly sophisticated investors and potential acquirers expect from well-managed companies.
How to Calculate RPO
Calculating RPO might seem complex, but the formula is straightforward:
RPO = Deferred Revenue + Backlog
Let's break down each component and walk through a practical example.
Deferred Revenue is the amount customers have paid for services you haven't yet delivered. It appears as a liability on your balance sheet until you fulfill your obligations. For SaaS companies, this typically represents prepaid subscription fees.
Backlog represents contracted revenue that hasn't been invoiced or recognized. Unlike deferred revenue, backlog doesn't appear on your financial statements but is crucial for understanding your complete revenue pipeline.
Consider the example of a SaaS company that signs two clients:
Customer A signs a 3-year contract at $100,000 annually, paying the first year upfront.
Customer B signs a 2-year contract at $50,000 annually, with quarterly payments at the end of each quarter of service.
At signing, the RPO calculation would be:
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- Deferred Revenue: $100,000 (Customer A's upfront payment)
- Backlog: $200,000 (Customer A's years 2-3) + $100,000 (Customer B's full contract)
- Total RPO: $400,000
Several common calculation challenges can complicate RPO tracking. Contract modifications require adjusting both deferred revenue and backlog when customers upgrade, downgrade, or cancel. Non-recurring elements like professional services, setup fees, and one-time charges should be carefully separated from recurring revenue components. Multi-year discounts must be accurately reflected in your backlog, showing actual contracted amounts rather than list prices. And consumption-based components require estimating future usage based on historical patterns and contractual minimums.
Together, these factors, especially when multiplied across dozens or hundreds of customers, can significantly complicate RPO tracking. For that reason, many SaaS companies implement specialized revenue recognition systems that automatically calculate and update RPO as contracts change and services are delivered.
RPO vs. Other Key SaaS Metrics
Understanding how RPO relates to other critical SaaS metrics helps you determine when to use each in financial planning and investor communications.
RPO vs. ARR
Annual Recurring Revenue (ARR) represents the normalized annual value of your active subscription contracts—a snapshot of your current revenue run rate. RPO differs from ARR in three key ways:
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- Timing Horizon: RPO includes all future contracted revenue, potentially spanning multiple years.
- Recognition Threshold: RPO includes all contracted obligations regardless of when service delivery begins.
- Contract Scope: RPO captures all performance obligations, including one-time elements.
For example, a three-year contract worth $300,000 would contribute $100,000 to ARR but $300,000 to RPO at signing.
RPO vs. Bookings
Bookings capture the total contract value of new sales within a specific period, measuring sales performance and market demand. RPO differs from bookings in that it:
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- Focuses on contracted future revenue rather than sales activity
- Has direct accounting relevance in financial reporting
- Builds more steadily over time, lacking the monthly fluctuations of bookings
When to Use Each Metric
Use ARR for communicating current business scale, calculating growth rates, and near-term planning.
Use RPO for demonstrating revenue stability, projecting future recognition, and supporting valuation discussions.
Use Bookings for evaluating sales performance, analyzing market response, and measuring initial traction.
The most sophisticated SaaS companies track all three metrics, recognizing that each tells an important part of the financial story.
Related: SaaS Benchmarks: 5 Performance Benchmarks for 2025
Best Practices and Strategies for Managing RPO
Effective RPO management requires a thoughtful blend of accounting discipline and strategic business initiatives. To maintain ASC 606 compliance, start by implementing consistent methodologies for calculating and reporting RPO, ensuring you properly identify performance obligations and allocate transaction prices according to GAAP standards. When communicating RPO externally, provide meaningful context by breaking down figures into current (next 12 months) and non-current components, helping investors understand your revenue recognition timeline.
Beyond reporting accuracy, you can actively strengthen your RPO through strategic business decisions. Prioritize multi-year contracts by offering appropriate incentives that extend customer commitments while still maintaining profitability. Complement this with robust renewal processes that begin conversations well before contract end dates, and charge your customer success function with actively pursuing expansions as these typically convert at higher rates and lower costs than new business.
These combined approaches not only ensure your RPO accurately reflects your business reality but also actively improve this critical indicator of financial health. A strong, growing RPO demonstrates the stability of your business while simultaneously enhancing your internal forecasting accuracy and financial planning capabilities.
Leverage SaaS Metrics for Improved Decision-Making with G-Squared Partners
RPO offers unmatched visibility into your SaaS company's financial future, revealing both revenue predictability and business momentum before they appear in current-period results. By mastering this metric alongside ARR and bookings, you gain a powerful tool for investor communications and strategic planning.
G-Squared Partners provides technology companies with specialized outsourced CFO and accounting services, including implementing robust revenue recognition practices and establishing accurate RPO tracking systems. Our fractional finance team translates complex metrics into actionable insights that drive growth and investor confidence.
Schedule a consultation with G-Squared Partners today to strengthen your financial strategy with proper RPO management.
