Services & One-time Charges

• By
• Chris Burgner

  Chris Burgner

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

  

Many companies have service-based offerings in their product suite. This includes things like implementation or priority support.

Similar to discounts, the nature and duration of the service impact whether this revenue category should be included in ARR.

How to handle fixed charges related to getting the customer onboarded through things like implementation and training?

We suggest not including these since they are non-recurring in nature. It also avoids a false signal of a Contraction once the implementation period ends.

How to handle recurring service charges?

Recurring service charges like priority support, or service-based charges that persist through the customer lifecycle, need to be considered. It’s safe to include this in ARR, but we strongly recommend having a way to differentiate between service-based and product-based ARR. This will help you understand what value is assigned to each component and decide where to invest resources in the business. It’s also likely that investors will apply different valuation multiples to product vs. service-based ARR if you go through a fundraising process. It’s better to know that upfront and be prepared.