What is Backlog in a SaaS business?
How is Backlog different from deferred revenue?
How do you calculate Backlog?
Backlog is used in a wide variety of industries, including the software industry and companies employing a SaaS or subscription model.
Generally, backlog refers to something unfulfilled. In a traditional software company, this term is used largely within finance. Backlog might refer to the value of contracted orders that have not shipped. Backlog could refer to the value of contracted or committed revenue that is not yet recognizable due to acceptance criteria, delivery of professional services, or some accounting rule.
If your SaaS business is a multi-tenant, instant-on model, you likely will not have a backlog in the traditional sense. However, it is not uncommon for SaaS light companies to discuss backlog in the context of unrecognized future revenue from existing recognized contracts. In this context, backlog is really "revenue backlog" and is the total unrecognized revenue within your subscriptions. In SaaS models such as these, revenue backlog is typically the same as deferred revenue.
If your SaaS business is more of a traditional software company model with a subscription licensing mechanism , you are likely to be subjected to issues common to a traditional software company. Installation or provisioning replace “delivery” as revenue recognition issues. Customer acceptance might also come into play, depending on contract terms. In SaaS or subscription models such as these, revenue backlog is NOT typically the same as deferred revenue.