20 CHAPTER 2 FINANCIAL STATEMENTS AND REPORTING Pipeline reporting Pipeline reporting should closely follow the sales funnel to understand where the company is tracking in terms of revenue and ARR in the upcoming period. There are two ways to report the pipeline: on a weighted and unweighted basis. Metric Description Formula Unweighted Unweighted pipeline refers to the total value of all Total value of all contracts in pipeline contracts in the sales pipeline regardless what stage the sales funnel they are at. Weighted Weighted pipeline to the probability-weighted value of pipeline all contracts in the sales pipeline, where the probability is determined by the stage they are at in the funnel. E.g. if the tentative value of contract is €50,000 but the Probability − weighted value probability of close is only 50% then only €25,000 is of all contracts in the pipeline recognized in this metric. Weighted pipeline is more realistic estimate of the current pipeline over unweighted pipeline and as such should be favored. Pipeline Pipeline coverage refers to the amount of unweighted coverage pipeline needed to cover the target new ARR. Unweighted pipeline A pipeline coverage of 1x means that the company New ARR Required needs to close every deal in the pipeline to hit the quota for the period. WHAT GREAT LOOKS LIKE ▪ Usually a pipeline coverage of at least >3x is required Reporting of forward-looking revenues There are various forward-looking metrics used to understand future expected revenues. While not all of these metrics are within GAAP, they can still provide a representative picture of a company's future performance and are commonly reported by many software companies. Metric Description Bookings Bookings refers to the amount of revenue that is to be generated from contracts that have been signed with customers. Billings Billings refers to the amount of money that has been invoiced to customers. If the customer is paying in advance, billings can be made at the same time as bookings. ARR Annual Recurring Revenue (ARR) refers to the annualized recurring revenue the company generates from its customers on subscription contracts.