What Is Remaining Performance Obligation (RPO)?

Remaining performance obligation (RPO) is a simple concept that helps businesses and investors understand future revenue. Think of RPO as the total amount of money a company expects to earn from its existing contracts with customers.

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Revenue

Revenue is a business’s gross income or the amount of money it brings in from regular operations before costs are considered.

This includes revenue that has already been invoiced but not yet earned, as well as future amounts that will be invoiced for services or goods not yet delivered. Essentially, RPO provides a clear picture of a company's pipeline of future earnings, providing great insights into its financial health and growth potential.

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Person uses a rope to rein in the currency sign. — Image source: Getty Images.

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Where remaining performance obligation (RPO) can be helpful to businesses.
Where RPO Can Be Helpful	How RPO Helps
Investor relations and transparency	RPO provides transparency into a company's future earnings. It helps assess the sustainability and growth of a company's revenue, offering a more detailed picture than traditional revenue reporting.
Forecasting and revenue planning	RPO offers insights into a company's future revenue streams. By understanding the total value of contracted but unfulfilled obligations, companies can make informed predictions about their future financial performance and revenue growth.
Contract management	RPO aids in contract management by tracking the remaining obligations under current contracts. This enables companies to be aware of their pending commitments and allocate resources accordingly.

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The customer pays $120,000 up front for the first year, which the company records as deferred revenue. The remaining $120,000 will be invoiced at the beginning of the second year. Let's break it down as simplistically as possible:

Deferred revenue: The $120,000 received up front is recorded as deferred revenue, reflecting the company's obligation to provide services over the first year.
Future invoicing: The additional $120,000 to be invoiced at the start of the second year is included in the RPO, representing the revenue expected to be billed in the future.

By combining deferred revenue and future invoicing, the RPO for this contract would be $240,000, providing a clear view of the total revenue the company expects to earn from this contract over the two-year period.

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