Counting Customers

• By
• Chris Burgner

  Chris Burgner

  12+ years of experience, most recently as a Director of Finance at Intercom.

  

Depending on the buying process, there are several events to choose from as the point at which to start counting a customer for reporting purposes. Remember, this is especially important because it determines which cohort a customer belongs to and impacts operational elements like Sales compensation.

Here are a few things to keep in mind:

If you offer a trial, do you wait until the trial expires or start counting at signup?

To reduce noise in your reporting and align to the moment where a customer has skin in the game, we suggest recording the revenue once the trial expires and the paid portion of the subscription starts.

Is getting to trial end and subscription start date enough, or should you wait until an invoice has been paid?

The answer depends on your go-to-market motion.

For companies with a PLG or Self-serve motion, it’s better not to count a customer as Gross New until their first invoice is paid. This will mitigate inflating Gross New and reduce immediate Churn from customers where money was never exchanged. This is less relevant for companies with a Sales-led motion, as customers have clearly demonstrated intent to pay when a contract is signed.

If customers must sign a contract before they can use your product, should you start counting them as customers on the signature or contract start date? What if the two dates fall into different reporting periods?

It’s common for many deals to close on the last day of the quarter, but the contractual relationship begins in the following month.

You’ll hear many opinions on this topic, but we advise aligning the ARR recognition to the subscription start date. Doing so will inevitably create a dissonance between your Sales Bookings and ARR, but that can be solved by having a systematic way to bridge the two numbers. Just make it absolutely clear from leadership down to individual sales reps how the two differ. In cases where you want to drive better alignment, you can create incentives for sellers to pull forward contract start dates.