Technology · Software
RPO and cRPO in Software
ASC 606 requires disclosure of contracted revenue not yet recognised. Current RPO is the next twelve months; contract length moves RPO without changing demand.
Selborne Research · Software coverage: 11 guides, 6 company profiles, a primer and Excel model
Educational analysis. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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RPO Is Contracted Revenue Not Yet Recognised
Under ASC 606, US filers disclose remaining performance obligations: the transaction price allocated to promises in contracts with customers that are still unsatisfied (or partially unsatisfied). IFRS 15 produces the same idea for filers such as SAP. In software this is mostly subscription, cloud and support contracts signed but not yet taken through revenue recognition.
Current RPO (cRPO) is the slice expected within twelve months. The rest sits further out. Neither figure is a bookings print, and neither is a demand survey. They are accounting stocks of contracted revenue.
Filed RPO Across Five Software Companies
Constellation Software does not publish an RPO split in the materials used here. The other five do.
| Company | Fiscal year | Total RPO | Current portion |
|---|---|---|---|
| Microsoft | FY2026 (to 30 Jun 2026) | $684B (from $375B) | about 30% in the next twelve months |
| Salesforce | FY2026 (to 31 Jan 2026) | $72.4B | $35.1B current (+16%) |
| SAP | FY2025 | €90.5B | about 39% in twelve months |
| ServiceNow | FY2025 | $28.2B | about 46% current |
| Snowflake | FY2026 (to 31 Jan 2026) | $9.8B (from $6.9B, +42%) | about 46% in twelve months |
Salesforce gives current RPO in dollars: $35.1B of $72.4B. The current-share ladder ranks that arithmetic beside the “about” percentages.
Microsoft’s commercial RPO was $678B of the $684B total. Scale matters for reading the absolute dollars; the method lesson sits in the current share and in what moves the stock.
Contract Length Moves RPO Without Moving Demand
A customer who signs a three-year subscription at the same annual run-rate as a one-year subscription triples the RPO contribution from that renewal, all else equal. Multi-year commitments pull revenue into RPO before recognition, whether the customer prepays or is billed each year. Monthly pay-as-you-go terms do the opposite: less sits in RPO because less is contracted ahead.
Usage-priced platforms illustrate the wedge clearly. Capacity commitments can build RPO while recognised revenue still waits on consumption. A rising RPO line is then partly a contracting story and only partly a usage story.
Licence-to-cloud transitions change the mix inside RPO as well: ratable cloud contracts replace upfront licence recognition, so more of the economics sits in remaining performance obligations rather than in a same-period licence line. The licence-to-cloud guide works that through SAP’s filed cloud share and backlog.
How to Use RPO in a Model
- Separate current RPO from total RPO before linking either to next-year revenue.
- Footnote whether the current share is a filer “about” figure or an exact dollar split.
- Adjust for known changes in contract length before treating year-on-year RPO growth as a demand proxy.
- For consumption businesses, keep a drawdown assumption between current RPO and recognised product revenue.
- For cloud transitions, watch cloud backlog and licence decline together rather than RPO alone.
RPO answers how much revenue is already under contract. Retention and new business still decide how that stock replenishes.
RPO and current RPO feed the near-term revenue schedule in a software model; the primer ties contracted backlog to the recurring-revenue roll-forward.
- 17 sections, from the recurring-revenue roll-forward and retention disclosure to stock pay, the Rule of 40, usage pricing, the licence-to-cloud transition and serial acquirers
- 42 pages
- a seat SaaS grower, a usage-priced platform, a licence-to-cloud platform and a vertical-software acquirer, all fictional
- 4 worked valuations
- listed software companies on filed margins, stock pay, free cash flow and backlog, each with its fiscal year
- 6-company screen
The Excel model is the primer's recurring-revenue DCF live across 13 sheets: a seat SaaS grower, a usage-priced platform, a licence-to-cloud platform and a vertical-software acquirer, all fictional, plus a column for a company of your own in any of the four business models. Revenue rolls forward from gross and net retention and new-customer revenue, fading to terminal levels that set perpetual growth. Margins move in a straight line to year 10, and stock pay is charged as a cost or counted through dilution. A licence base migrates to the cloud at a conversion ratio you set, and an acquirer's deals earn their own margin. A reverse DCF reads the growth a price requires, and the sensitivity grids re-run the model in every cell.
See what's in the Software Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Technology industries
Frequently Asked Questions
- What is remaining performance obligation (RPO) in software?
- RPO is contracted revenue that has not yet been recognised under ASC 606 (or IFRS 15). It is a stock of future revenue under existing contracts, not a forecast of new bookings. Current RPO (cRPO) is the portion expected to be recognised within twelve months.
- What is cRPO?
- Current remaining performance obligations: the part of total RPO due to be recognised as revenue in the next twelve months. Filers often describe it as "about" a percentage of total RPO when they round.
- Can RPO rise without demand rising?
- Yes. Longer contract durations and larger multi-year commitments increase RPO even if the underlying run-rate of customer demand is unchanged. Shorter contracts and pay-as-you-go terms do the reverse. Billing frequency does not: unbilled amounts under a non-cancellable contract are already in RPO.
- How does RPO relate to next-year revenue?
- Current RPO is the contracted revenue already in hand for the next twelve months. Revenue normally comes in above it, because new bookings, renewals not yet signed and usage outside committed contracts add to it. Total RPO beyond twelve months supports later years.
Read next
Current Share of RPO by Software Company
The share of RPO due within a year is a read on contract duration. Ranked across five filers; Constellation discloses no split.
Licence-to-Cloud Transitions and the Revenue Dip
Upfront licence revenue becomes ratable cloud revenue, so reported revenue and margin can dip before recovering. SAP as the worked case.
Usage-Based Pricing and Net Retention
Under consumption pricing, revenue moves with customer use, so net retention reflects optimisation as well as seats. Snowflake as the worked case.
See it applied
These company profiles apply the concepts from this guide to real public companies.
Also in Software
- Net Revenue Retention: How Filers Define It
- Gross vs Net Revenue Retention
- Usage-Based Pricing and Net Retention
- Rule of 40: Which Margin Goes In
- Stock Pay as a Share of Revenue in Software
- Software FCF Before vs After Stock Pay
- RPO and cRPO in Software
- Current Share of RPO by Software Company
- Licence-to-Cloud Transitions and the Revenue Dip
- Reverse DCF for Software Stocks
- Vertical Software Acquirers: Return on Acquired Capital