Common but costly mistakes FP&A teams make with financial metrics

Based on years in FP&A, frequent mistakes when trying to measuring growth and efficiency

Financial metrics can become weapons of mass destruction when used inappropriately. As Uncle Ben says to Peter Parker in Spiderman:

“With great power, comes great responsibility.”

-Uncle Ben, Sr. FP&A Director at Marvel Studios

Here are some common, but costly, mistakes I’ve seen FP&A teams make (and have even fell victim to myself):

1/ Using nonstandard definitions for ARR (Annual Recurring Revenue)

Not all "revenue" is created equal. Multi-year contracts with deep first-year discounting or volume ramps in the out-years drive deltas between the first and last year's ARR.

Many companies will claim the larger, exit year’s Contracted ARR (CARR) as ARR. It makes you look bigger than you are on paper. But over time, CARR will not track to current period GAAP revenue or billings.

Mostly advice: Using a non-standard definition of ARR can lead to unexpected mark downs by investors during financing events.

2/ Putting ACV (Average Contract Value) on a pedestal