Accrued Revenue: The Hidden Growth Metric in Usage-Based SaaS

As adoption of the cloud is increasing, software businesses are replacing traditional licenses with subscription and usage-based plans. This approach has transformed the way a Software as a Service (SaaS) business generates revenue, measures growth, and reports financial performance.

When it comes to SaaS, there are some key factors that CFOs, founders, and investors track. This includes Customer Acquisition Cost (CAC), Monthly Recurring Revenue (MRR), and churn. Apart from these, there is one other important metric, “Accrued Revenue,” that often goes unnoticed.

What is Accrued Revenue?

Accrued revenue refers to the revenue a company earned for delivering goods or services before billing. These concepts are from accrual accounting, which recognizes income when it’s earned and not just when money is received.

In the SaaS context, accrued revenue typically occurs when:

• A customer uses services before they are billed.

• Usage is continuously measured. (e.g., API calls, data processed)

• Billing cycles don’t match actual usage timing.

This is mainly common for usage-based SaaS firms. For example, customers might use 1000 compute hours in the month of January but get billed in February. The value was delivered in January, so the revenue is accrued in January, even though the payment comes later.

The Rise of Usage-Based SaaS

The SaaS world has evolved dramatically over the past few years. Early subscription SaaS models charged the same recurring fee every month or year, regardless of usage levels.

However, modern SaaS increasingly uses usage-based pricing, where customers pay only for what they use.

Some common examples are:

• Cloud infrastructure

• API usage and data throughput

• Platform transactions

• Feature consumptions or user seats

Usage-based pricing aligns customer cost with actual value consumed. This makes it highly appealing for emerging technology platforms. However, this model also has difficulty in traditional revenue tracking & recognition. This is the reason why accrued revenue has become a critical metric for growth and financial accuracy.

Now, before diving deep into accrued revenue, let’s have a look at how revenue recognition works in SaaS businesses.

Explore Revenue Recognition in SaaS

Revenue recognition is an accounting principle that identifies when & how revenue should be recognized in financial statements. Under accrual accounting and U.S. revenue rules (ASC 606), revenue is recorded when:

A contract exists.

• Performance obligations are identified.

• The transaction price is identified.

• Revenue is allocated to performance obligations.

• Revenue is recognized as obligations are satisfied.

In usage-based SaaS, the service is delivered over time as customers use it. This indicates that revenue recognition can be continuous even if billing or invoicing happens later.

Next, let’s get into accrued revenue.

Why Accrued Revenue Matters for SaaS Businesses

Accrued revenue isn’t just an accounting thing; instead, it provides real strategic value.

Reflects True Business Health

Traditional billing numbers do not provide a complete picture. Accrued revenue shows the real value you’ve delivered, despite billing timing.

Signals Future Cash Flow

High accrued revenue often showcases upcoming invoices and cash inflows. Tracking this can help finance teams in predicting cash flow.

Improves Operational Alignment

Sales and finance teams often focus on booking and cash received. However, accrued revenue ensures operations pay attention to actual service usage.

Improves Investor Reporting

Investors see accrued revenue as a more accurate reflection of growth. This is mainly for usage-based models where payments come after performance.

How to Calculate Accrued Revenue

The mechanics of calculating accrued revenue can vary based on the billing system and product usage model. 

Here’s the generalized formula:

Accrued Revenue = Value Earned During Period – Billing During Period

Step-by-Step Example:

1. Customer used 2000 API calls in January.

2. Price per API call = $0.02

3. Earned value = 2000 x $0.02 = $40

4. Invoice sent on February 5 for January usage

5. Accrued revenue in January = $40 (though billing happens in February)

If you have multiple customers or usage tiers, add up all earned but unbilled usage to get the total accrued revenue for the period.

Accrued Revenue as a Growth Metric

Traditional SaaS growth metrics like MRR, ARR (Annual Recurring Revenue), and churn focus on subscriptions & cash flows. However, they can miss crucial factors in usage-based businesses. This is the scenario where accrued revenue becomes important. It captures the value delivered right now.

Here’s how accrued revenue is a key factor:

Real-Time Usage Adoption

Customers who are using your service more generate accrued revenue before they even receive the invoice. This shows growing adoption.

Demand Velocity

An increase in accrued revenue quarter over quarter highlights the increasing usage and growing customer commitment.

Future Billing Pipeline

High accrued revenue indicates that the next billing cycle will bring significant invoices. Thus, effectively acting as a forward-looking revenue indicator.

Operational Efficiency

If accrued revenue grows faster than billing, it might indicate the need for faster, more efficient invoicing to convert value into cash.

Challenges with Accrued Revenue in Usage-Based Models

Though accrued revenue is valuable, it comes with certain complexities. Some of the common challenges are:

Complex Usage Metrics

Different products track usage in different ways – API calls, data used, compute hours, etc. Thus, consistency is key.

Lag Between Usage and Billing

Usage often needs to be processed, verified, and validated before billing. This lag can delay recognition and cash realization.

System Integration

Accurate revenue reporting depends on linking several factors. This includes product usage, billing, & accounting usage. So, when they get disconnected, errors occur.

Internal Alignment

Sales teams may prioritize booking, while finance teams track cash. Accrued revenue requires alignment between these functions.

Audit and Compliance

For public companies or IPO candidates, revenue calculations must follow official rules like ASC 606 and IFRS 15.

Tools and Tech for Tracking Accrued Revenue

In the era of SaaS innovations, the right tools can make or break your ability to manage this revenue effectively.

Here are some categories of solutions that help:

Usage Analytics

Tools such as Datadog, Snowflake, and AWS CloudWatch collect real usage information for billing & analysis.

Billing Platforms

Modern platforms like Saaslogic manage metered billing and often have native support for capturing usage before invoicing.

Accounting & ERP Systems

ERP systems like SAP, NetSuite, or QuickBooks can create journal entries automatically when usage data is integrated.

Revenue Recognition Software

Platforms like RevRec or billing system modules help follow ASC 606 rules and automate revenue timing.

Automation here is not a luxury; it’s essential for accurate SaaS finance operations.

Final Thoughts

Accrued revenue may seem like difficult accounting, but in usage-based SaaS, it shows what your business is really doing. With this approach, SaaS leaders can see:

• How much value customers are receiving.

• How fast usage is growing.

• Which segments are using more over time.

• What future billing cycles might look like.

When cash flow drives success, accrued revenue should be a key metric in your SaaS dashboard.

So, as you build, scale, and optimize your SaaS business, always keep in mind that accrued revenue is not just a number. It’s a detailed view about customer adoption, product value, and future success.

FAQ

Q. How does accrued revenue provide more insights than Monthly Recurring Revenue (MRR)?

It shows actual customer usage before receiving the cash, while MRR only shows the contracted subscription income. This is why accrued revenue is considered as a clearer early sign of actual product use & growth.

Q. Can accrued revenue still grow even if the clients aren’t billed yet?

Yes! When customers use your service, value is earned and recorded as accrued revenue before sending an invoice. This shows the real usage trends even when billing cycles haven’t caught up.

Q. Why is accrued revenue mainly useful for usage-based SaaS businesses?

This is because usage-based models charge based on the customer usage. Thus, earned revenue can show up before sending the invoice. With this, you will get a more accurate view of business activity than just looking at cash receipts.

Q. Should startups track accrued revenue from the first day itself?

Yes! It helps founders understand real product usage and future cash flow. Additionally, it assists the team with accurate revenue recognition and financial planning as the company grows.