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Speak revenue, earn a seat at the table.
In an earlier issue, I talked about the importance of revenue fluency for product managers. In short, product managers who connect features to money drive strategy. Those who don’t get stuck in tactics.
In that same article, I did a deep-dive on ARR, ACV, TCV, and bookings — what they are and how PMs can use them for product decisions, stakeholder buy-in, and elevating their own credibility and impact.
Today, I’m going to teach you about about:
GAAP Revenue (it ain’t ARR)
Gross Merchandise Value (GMV — for platforms and marketplaces)
Deferred Revenue (least understood, but strategically important)
Remaining Performance Obligations (RPO)
Accounts Receivable (A/R)
Why? Because you need to know how to connect the dots from your product work to revenue for the business you’re in.
Remember: not all revenue is created equal. Understanding how revenue works affects everything you do — from feature requests, roadmap priorities, trade-offs, to your entire product strategy.
And like that earlier article, I’ve packed this one with additional learning materials, frameworks, and templates so you can apply the lessons immediately to your work (for paid subscribers and Inner Circle Members).
What You’ll Learn Today:
The different types of revenue across businesses
Why they matter for product strategy
How revenue types influence retention, renewals, and churn
How to use revenue types for product decision-making
Connecting product work to revenue outcomes
How to understanding these revenue concepts elevates your product impact
I get some PMs work on non-revenue items — digital initiatives, “internal products,” reducing operational costs, to name a few. I’ll get to those in future articles. (Spoiler: they’re all tied to revenue or P&L in some form too.)
1. GAAP Revenue (or equivalent in your country)
What it is:
In the US, GAAP is the official common set of accounting rules and standards for financial reporting. GAAP stands for “Generally Accepted Accounting Principles.”
If you’re outside the US, your country has a similar set of official standards. For example, it’s IFRS in the UK and EU, Ind AS in India, and AAS in Australia.
GAAP revenue is the one your CFO sweats. It’s the official revenue a company recognizes on its income statement — the number that investors, boards, and finance teams care about the most. Look up the income statement for any publicly listed company. That revenue is GAAP.
Why it matters:
GAAP governs when you can recognize revenue. What does “recognize revenue” mean? It means when you’re allowed to actually record the revenue in the accounting books and, as a result, the financial statements.
This means you can’t record the revenue whenever you feel like it — for example, when you bill or invoice the customer or when you close a sale.
By setting a standard, this makes revenue reporting uniform across all businesses so investors can compare apples to apples and to reduce fraud.
GAAP dictates that revenue may be recognized only when the product or service has been delivered to the customer.
Examples:
Enterprise SaaS:
If a customer signs a $120,000 annual contract in January, you don’t get to recognize $120,000 in January as GAAP revenue. Under GAAP, that revenue is recognized monthly, as you deliver the service — $10,000 per month over 12 months.
So while the deal was won in January, the revenue shows up gradually across the year. (The $120K may be reported internally as “bookings.”)
Retail:
Revenue is recognized at the point of sale when the customer takes possession of the goods and payment is reasonably assured.
A store sells a $50 jacket. The moment the customer walks out with it, the store recognizes $50 as revenue. This is because delivery and transfer of control are complete, and there’s no ongoing obligation.
E-commerce:
Similar to retail. For physical goods, usually upon shipping or delivery depending on shipping terms; for digital goods, upon download or access.
A customer buys a $100 gadget online with 2-day shipping. Revenue is recognized when it’s shipped or upon delivery, depending on the shipping terms.
Payments Platform / Marketplace:
Only the platform’s net take (fees, commissions) is recognized, not the gross amount flowing through the platform. Revenue is recognized once the service is provided.
A payments processor charges 2% per transaction. Customer A pays $1,000; $1,000 is the merchant’s revenue, $20 is the platform’s revenue — it’s recognized when the transaction clears.
Contract Services / Professional Services:
Revenue is typically recognized over time as the service obligations under contract are delivered over the life of the contract. GAAP uses methods like:
Percentage-of-completion (over time): Recognize revenue as work is performed.
Milestone-based recognition: Recognize revenue when specific deliverables are accepted.
Example: A $120K, 6-month consulting contract. Work is billed monthly or in stages. GAAP revenue is recognized each month as work is completed — $20K per month if evenly spread.
GAAP Revenue vs. ARR and Bookings:
ARR and bookings help you measure growth potential. GAAP revenue measures the actual business performance.
In other words, GAAP revenue is historical, while ARR and bookings are forward-looking.
Bookings are the total value of contracts you’ve signed — regardless of when the revenue is recognized. Example: You sign a $120K deal today → $120K in bookings today.
ARR (Annual Recurring Revenue) measures the recurring portion of your business — the predictable revenue that repeats every year. Example: That same $120K annual contract adds $120K to ARR.
In contrast, GAAP revenue is what’s actually recognized on your P&L — the portion of those bookings that’s been “earned” according to accounting rules. In our example, you’ll only show $10K of that deal in this month’s revenue.
In addition, GAAP revenue includes ALL earned revenue, both recurring and non-recurring. ARR only includes predictable, recurring revenue.
Bookings and ARR are NOT official accounting units and are NOT reported in the company’s official financials. However, many companies like to track them internally as an indicator of market traction.
Takeaway for you, the Product Manager:
I generally advise PMs to primarily focus on growth metrics, like ARR and bookings, or GMV for a marketplace or transaction platform. (More on GMV in a bit.)
However, there are times GAAP revenue considerations become a focus for PM. These initiatives are often championed by the CFO or COO. Examples:
Accelerating enterprise client SaaS deployments. Because the sooner the customer can start using the product, sooner revenue can be recognized.
In retail and e-commerce, the faster the product can be shipped to the customer, the faster revenue can be recognized.
Improving the invoicing and collections system, because the sooner customers can be billed, the sooner they’ll pay, the quicker your can recognize the revenue.
2. Gross Merchandise Value (GMV)
What it is:
If you run a platform or marketplace, GMV is the total transaction volume of all goods or services sold through your platform in a given period before deducting feeds, refunds, or costs.
It’s not the company’s actual revenue — it’s the “big number.” The company only keeps a percentage (the take rate).
For example, if customers buy $10M worth of products through your e-commerce marketplace in Q3 and your platform takes a 10% fee:
Your GMV for Q3 is $10M
Your actual revenue is $1M
Why it matters:
GMV tells you the size, growth, and health of your ecosystem — how much economic activity you’re enabling. It’s useful because it:
Shows demand at scale. A fast-growing GMV signals strong product-market fit and transaction velocity.
Indicates platform traction. For marketplaces or payment networks, GMV is a proxy for how much your users trust and rely on you.
Feeds into monetization models. GMV helps forecast revenue since your platform’s take rate (e.g., 2%, 10%) applies directly to it.
Drives investor and leadership confidence. Early-stage platforms often use GMV to prove scale before revenue fully ramps.
Businesses where GMV is most relevant:
GMV matters most for transaction-based or platform businesses where value flows between buyers and sellers.
Examples:
E-commerce marketplaces — eBay, Etsy, Amazon Marketplace
Ride-sharing platforms — Uber, Lyft, where GMV = total fares before driver payouts
Food delivery apps — DoorDash, Uber Eats, where GMV = total order value
Travel platforms — Airbnb, Expedia, where GMV = total booking value
Payments platforms — Stripe, PayPal, where GMV = total payment volume processed
B2B marketplaces — Faire, Alibaba, industry-specific exchanges
Important: GMV is NOT actual revenue
GMV shows gross activity, but it’s not what the company is actually earning.
GMV is an indication of how much economic value your platform moves.
Revenue shows how much of that value you capture.
As a Product Manager working on a marketplace or platform, you need to know both. One tells you if users are transacting (GMV). The other if the business is thriving (revenue).
How to use GMV in Product Strategy:
1. You don’t own the revenue — you drive the volume.
As a PM, your goal is to increase the total value of transactions flowing through your platform or marketplace. So, most product strategies revolve around increasing the pie or making the platform frictionless.
Faster onboarding, better matching, higher conversion — you grow GMV and revenue follows.
2. Every product decision affects one side of the marketplace.
GMV lives at the intersection of supply and demand. So ask yourself:
Does this feature help buyers transact more (increase demand)?
Does it help sellers list more, fulfill better, or earn more (increase supply)?
If it doesn’t move one of those, it probably doesn’t move GMV, and shouldn’t be prioritized.
3. Friction kills GMV.
In GMV-based models, tiny friction points scale into huge losses.
Every extra step in checkout = millions in lost GMV (and, thus, revenue).
Every failed match = lost revenue potential.
Every delayed payout = fewer sellers staying active.
You need to obsess over conversion rates, liquidity, and throughput — the gears that move transactions.
4. Improving trust is the “growth hack.”
Because GMV based businesses rely on the confidence of buyers and sellers, improving trust is a a major growth engine.
Things like:
Better ratings and reviews
Dispute resolution
Reliable refunds and buyer protection
Transparent pricing
These capabilities increase users’ confidence to transact, and that’s what grows GMV sustainably.
5. Your metrics must ladder up to GMV.
Think in terms of GMV drivers. For example:
Activation rate of new sellers → impacts supply → GMV ↑
Buyer repeat rate → impacts retention → GMV ↑
Average order value → impacts monetization → GMV ↑
If your metric doesn’t ultimately connect to GMV, it’s probably not moving the business.
5. Take rate optimization is a business-level problem.
Yes, finance sets take rates — but product shapes how defensible they are.
That’s product strategy tied to monetization.
Certainly, you can increase revenue by increasing the take rate or adding fees. That’s typically a business-level decision involving your finance team that PM doesn’t own directly (though, may recommend).
Any price hike or added fees needs to be defensible. There are cases where if your product creates clear value — e.g., fraud protection, analytics, or automation — you could champion justifying a higher take rate without hurting GMV.
3. Deferred Revenue
What it is:
Deferred revenue is money your company has already received but hasn’t yet earned under GAAP rules.
When you eventually deliver the product or service over time, the revenue moves from “deferred” to “recognized.”
Remember we talked about GAAP? It’s the money that’s been earned. Let’s say a customer signs an annual $120K SaaS contract and pays upfront.
Day 1: You collect $120K cash.
But GAAP says you haven’t earned it yet — you owe 12 months of service.
So you book $120K in deferred revenue.
Each month, you recognize $10K as GAAP revenue.
Each month, you reduce $10K in deferred revenue.
In CFO-speak, it sits on the balance sheet as a liability, because, technically, you still owe the customer something (access, service, or deliverables). So anything you can do to reduce liabilities off the balance to revenue on the income statement will make your CFO like you very much.
Why it’s important:
Deferred revenue tells you three powerful things:
Revenue visibility & stability: It’s a leading indicator of future GAAP revenue. High deferred revenue means strong, predictable income coming down the line.
Cash flow vs. revenue timing: It shows the difference between when you get paid and when you earn revenue. SaaS and subscription models rely heavily on this dynamic.
Customer commitment: It’s evidence of trust. Customers are prepaying for future value. That’s a sign of product traction and stickiness.
Deferred revenue is a measure of how much trust customers are placing in your product’s future. It’s the financial reflection of your promise to deliver ongoing value.
Businesses where Deferred Revenue is most relevant:
Deferred revenue matters most in:
SaaS / subscription businesses (annual or multi-year contracts)
Professional services with prepaid milestones
Maintenance and support contracts
Education and training programs (where you deliver value over time)
It’s less relevant in transactional businesses like retail or e-commerce, where revenue is recognized immediately when goods are delivered.
How to use Deferred Revenue in Product Strategy:
1. Product roadmap obligations:
Let’s get the most obvious one out of the way. Customers may have prepaid based on promises — features, integrations, performance SLAs, etc. This isn’t uncommon with enterprise clients. Those commitments now represent part of your deferred revenue balance. If you delay or fail to deliver, customers may cancel.
So, this isn’t just about missing deadlines — you’re putting future recognized revenue at risk.
Think about allocating a portion of your roadmap capacity toward meeting these obligations.
2. Product quality, stability, reliability
Downtime, performance issues, bugs, or feature regressions can delay delivery or cause customer dissatisfaction. If a dissatisfied customer who had paid upfront for 12 months cancels after 3, you refund part of that payment. This means some deferred revenue never becomes real (recognized) revenue. Very bad.
In other words, churn before delivery = lost revenue.
This is how you can tie customer satisfaction and product quality initiatives to financial outcomes.
3. Features that affect cash flow and revenue timing.
If customers are willing to prepay annual subscriptions or multi-year contracts, that’s a sign that your product is perceived as valuable and reliable. So, features that enable this (e.g., better integrations, security, or compliance) can increase deferred revenue and stabilize future cash flow.
On the other hand, monthly subscriptions or billing may help improve customer acquisition even though it reduces deferred revenue, because the customers doesn’t have to pay upfront.
These are tradeoffs you need to understand.
4. Renewal risk shows up in deferred revenue health.
If deferred revenue is flat or declining while bookings stay constant, it can signal:
Shorter contract terms, or
Rising churn, or
Lower willingness to prepay.
All three may be product experience problems in disguise.
4. Remaining Performance Obligation (RPO)
What it is:
RPO represents the total contracted revenue that a company has promised to deliver but hasn’t yet recognized under GAAP.
It includes:
Deferred revenue: prepaid amounts the company has received but not yet delivered.
Unbilled revenue: future contract value that customers have committed to (e.g., in multi-year deals) but haven’t been invoiced for yet.
In simple terms, RPO = all the product work you still owe customers, whether they’ve paid you yet or not.
Why it matters:
RPO shows how much future revenue is “locked in” through customer commitments.
A high or growing RPO means:
Customers are signing longer-term deals.
Revenue is more predictable.
The business has de-risked part of its future topline.
A declining or shrinking RPO, on the other hand, can be an early signal that customers are losing confidence in the product’s long-term value or are hesitant to commit to multi-year terms.
Businesses where RPO is most relevant:
RPO primarily applies to:
SaaS companies with multi-year subscription contracts.
Usage- or consumption-based platforms where customers commit to future minimums.
Enterprise software vendors who sign multi-year deals.
It’s less relevant for transactional or short-term revenue models like e-commerce or ad-based businesses.
RPO vs. Deferred Revenue:
Deferred Revenue = “We already got the cash; now we need to deliver.”
RPO = “We’ve promised future value; we’ll get the cash and deliver it over time.”
Example:
Your SaaS company signs a 3-year enterprise contract:
Total contract value (TCV): $300,000
Annual recurring subscription: $90,000 per year
Upfront professional services fee: $30,000 (one-time) for 3-month deployment
Billing: upfront for services and annual for subscription
$120,000 in cash was received upfront ($30K for services + $90K for 1st year subscription). $7500 of the subscription is recognized per month (GAAP revenue) and the remaining $102,500 is deferred revenue for month 1. RPO is $282,500 after month 1 for the full $300K contract.
How to use RPO in Product Strategy:
Although there are important differences between Deferred Revenue and RPO from an accounting standpoint, both lend themselves to the same set of strategies from a product perspective.
Ultimately, it’s all about ensuring our product is meeting the obligations paid for by our customers, ensuring retention and renewal, and keeping churn and returns low.
5. Accounts Receivable (A/R)
What it is:
Accounts receivable represents money owed to the company by customers for products or services already delivered, but not yet paid for.
Think of it as sales you’ve earned but haven’t collected yet.
For your CFO, it’s a key part of working capital on the balance sheet.
Why it’s important:
Cash flow management: A/R tells you how much money is coming in soon. Delays in collection can hurt operations.
Revenue recognition vs. cash: You may have recognized GAAP revenue, but if A/R is high, cash hasn’t arrived yet.
Customer health signal: Late or missed payments can indicate churn risk or dissatisfaction.
Businesses where A/R is most relevant:
Pretty much every business has A/R. Some examples:
SaaS / subscription: A customer is invoiced $100K for annual software access, but hasn’t paid yet. That $100K sits in A/R.
Retail / e-commerce: A wholesaler ships $50K of goods to a retailer on net-30 terms. Until payment is received, $50K is A/R.
Payments platform: Funds temporarily due from merchants for processed transactions may appear in A/R before settlement.
Contract services / professional services: A consulting firm invoices $20K for a completed project; payment is pending → A/R.
How to use A/R in Product Strategy:
1. Faster payment collection:
For example, improvements in the invoicing, billing, collections, and payment systems. Improvements to enable faster settlement of merchant transactions. Automated payment reminders or integrations with finance systems.
2. Making cash flow more predictable:
Features that reduce A/R friction — flexible payment options, subscription management, or recurring invoicing — can help stabilize predictable revenue.
3. Customer segmentation:
High-value customers who consistently pay late may require different feature or support strategies, such as self-service billing dashboards or automated alerts.
4. Strategic trade-offs:
Debating a feature that increases revenue but also increases billing complexity. Understanding A/R impact highlights potential delays in cash collection.
Putting Them All Together: SaaS Example
Company sells a 3-year enterprise SaaS contract to a customer
Annual subscription = $120K/year
One-time setup fee = $60K, implemented over 2 months
Payment terms = $90K upfront ($60K setup fee + $30K year 1 subscription), quarterly payments through year 1, $120K at the start of Year 2, $120K at the start of Year 3
Here’s what month 1 looks like:
TCV | Total contract value | $420K = $120K per year for 3 years + 60K setup |
|---|---|---|
Bookings | Total value of the signed contract, including one-time and multi-year amounts | $420K |
ACV | Annualized revenue per customer contract | $120K per year |
ARR | Normalized annual recurring revenue | $120K (subscription portion only) |
Cash Paid | Amount customer actually paid | $90K upfront |
GAAP Revenue | Revenue recognized according to accounting rules for month 1 | $40K (1/2 of $60K 2-month setup + 1/12 of $120K year 1 subscription) |
Deferred Revenue (end of month 1) | Revenue collected but not yet recognized; liability for future service delivery | $140K ($30K remaining setup + $110K remaining Year 1 subscription) $120K is deferred revenue for year 2. $120K is deferred revenue for year 3 |
RPO | Contractually committed revenue for services not yet delivered | $380K ($30K remaining setup + $110K remaining Year 1 + $120K Year 2 + $120K Year 3) |
Accounts Receivable | Amount invoiced but not yet collected | $0 at end of month 1. Once 2nd half of setup fees are billed, A/R will be $30K. Once 2nd quarter subscription payment is billed, $30K will be added to A/R. |
Putting Them All Together: GMV Example
Marketplace collects a 10% commission on each transaction.
Month 1: 3 transactions — $1,000, $2,500, $500.
Platform bills customers immediately.
Gross Merchandise Value (GMV) | Total value of goods or services sold through the platform | $4,000 ($1,000 + $2,500 + $500) |
|---|---|---|
Cash Paid by Customer | Amount actually paid through the platform | $4,000 |
GAAP Revenue | Revenue recognized according to accounting rules (platform commission) | $400 (10% of GMV) |
Deferred Revenue | Revenue collected but not yet recognized (if applicable) | $0 (commissions recognized immediately) |
Accounts Receivable (A/R) | Amount invoiced but not yet collected | $0 (all transactions paid immediately) |
If the marketplace had subscription fees or multi-month commitments, deferred revenue and A/R would come into play, but for pure transaction-based GMV with immediate payment, recognition is simple.
Bottom Line Takeaway
Understanding how revenue works will help you:
Link product decisions to real business impact
Guide strategic decisions on product priorities
Gain insights into customer behavior and retention risks
Showcase your ability to be a strategic business partner.
When you understand revenue, you’ll shift your mindset:
Traditional Mindset | Strategic Mindset |
|---|---|
“We hit our usage targets this quarter.” | “We’re building the foundation for next quarter’s recognized revenue.” |
“What new feature should we build?” | “What do we already owe customers that will turn promised dollars into recognized revenue and long-term trust?” |
“Will this feature improve engagement?” | “Will this feature help us deliver the value we’ve already been paid for — faster, more reliably, or at a higher perceived quality?” |
This is how you shift from being seen as a backlog manager to being trusted as a business leader.
Because at the end of the day, great product management isn’t just about building features.
It’s about building revenue.
That’s all for today.
Have a joyful week, and, if you can, make it joyful for someone else too.
cheers,
shardul
Download These Additional Resources for Your Learning:
Revenue Fluency Cheat Sheet — so you can sound smart!
Here are 4 ways I can help you today:
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Shardul Mehta
I ❤️ product managers.