# Is Professional Services Recurring Revenue (ARR) By [Steve Keifer](https://ordwaylabs.com/author/ordwaylabsstg/ "Posts by Steve Keifer") January 15, 2023 November 4th, 2025 [ARR](https://ordwaylabs.com/category/blog/arr-blog/), [Blog](https://ordwaylabs.com/category/blog/) ## **Summary** The question of whether professional services (PS) should be included in Annual Recurring Revenue (ARR) is a complex but critical one for SaaS companies. While many exclude them, an analysis of 150 publicly traded SaaS companies reveals that selected professional services, particularly those with recurring contractual terms, are indeed factored into ARR by some. Understanding how to define and categorize these services is essential for accurate financial reporting and strategic decision-making. This guide explores the factors influencing this decision, provides real-world examples, and helps you define a clear policy for your business. ## **Key Takeaways** - Some publicly traded SaaS companies strategically include certain professional services in their ARR calculations, especially if they are recurring and contractually defined. - The decision to include or exclude professional services from ARR depends on factors like their revenue mix, overall contribution to total revenue, and the company’s existing ARR calculation policy. - Professional services are not an all-or-nothing proposition; companies can define specific criteria to classify certain service types as recurring while others remain non-recurring. - Typical short-term, one-time projects like initial implementations are generally excluded from ARR, whereas long-term managed services or premium support often qualify. - Transparently defining your company’s policy for including professional services in ARR is crucial for consistent financial metrics and stakeholder communication. ## **Professional Services Revenue at SaaS Companies** Yes, some SaaS companies include selected professional services contracts in their definition of recurring revenue. The Ordway research team analyzed the SEC filings of approximately 150 publicly traded SaaS companies and found several examples of professional services being a component of ARR. Some include only certain categories such as premium customer support or managed services. Others include a broader mix of professional services engagements. ### **Types of SaaS Professional Services Engagements** Professional Services engagements can be either short-term, one-time projects or longer-term, ongoing engagements. Short-term projects could last a few days, a few weeks, or a few months. Longer-term engagements might last one or more years and are often co-terminus with the subscription agreement. Implementation services are the most common type of one-time offering. SaaS companies with more complex products want their customers to adopt the product quickly to reduce the risk of the customer changing their mind. These accounts might want a fixed number of hours per month (or year) for on-demand support and prioritized access to engineers as required. ### **Examples of SaaS Professional Services Engagements** - **Business Process** – Business case development, future state design - **Technical Architecture** – Network, hardware, and software architecture design - **Implementation** – Installation, setup, and configuration of product - **Deployment** – Data migration, end-user testing, parallel run and cutover - **Customization** – Building extended functionality, reporting setup - **Integration** – Mapping of data fields and configuration of file transfers - **Optimization** – Performance tuning and best practices consultation - **Risk** – Assessments of business processes and audits of IT controls - **Training** – End users, system administrators, and developers ## **Defining a Policy for Your SaaS Business** ### **Is Professional Services Recurring Revenue?** **Four Factors to Consider** Each SaaS company needs to evaluate whether professional services should be considered recurring revenue in the context of its revenue mix, contribution, margins, and [ARR policy](https://ordwaylabs.com/resources/webinar-replay/saas-triple-play-cash-flow-profitability-growth/): ### **1) Professional Services as part of the Revenue Mix** What percentage of engagements are long-term versus short-term? If the majority of engagements at a SaaS company are three-week implementation projects for new accounts, then it is hard to argue that the revenue is recurring. However, if 80% of professional services revenue comes from monthly retainer fees bundled with co-terminus subscription contracts, then there is a case to be made that it should be treated as recurring revenue. ### **2) Revenue Contribution from Professional Services** What percentage of total revenue comes from professional services engagements? If it is a relatively small percentage (e.g., 1-2%), then the decision to include or exclude these fees from ARR probably will not have much impact on your metrics. If professional services make up a larger percentage of revenue (e.g., 20-30%), then the decision will have a material impact and should be discussed with a broader group of stakeholders. ### **3) ARR Policy** How do you calculate ARR? With traditional subscription pricing models, ARR is typically calculated by adding up the monthly recurring fees from all of the customer contracts. Professional services revenue would need to be added to the equation, which will require additional work from the finance team each month. However, with usage-based pricing models, ARR is typically calculated by annualizing the prior month’s GAAP revenue. In this case, professional services is already included in the ARR calculations. Removing professional services will create additional work for the finance team each month. ### **4) It’s Not All or Nothing** Professional services do not have to be either all recurring or all non-recurring. The revenue can be split into two baskets – one that is included in ARR and another that is not. For example, suppose you had 100 engagements – 80 are short-term, one-time projects and another 20 are long-term, monthly retainers tied to the core subscription offering. The revenue from the 20 long-term engagements could be included in ARR and the other 80 could be excluded. ## **SaaS Companies that include Professional Services in Recurring Revenue (ARR)** Below are four real-world examples of publicly traded SaaS and cloud companies that do include some professional services fees in their Annual Recurring Revenue (ARR). Note that none of the companies include ALL professional services. They only include a subset that they have identified as "recurring" in nature with long-term engagements or subscription-like contracts. - **Amplitude** - **Braze** - **BigCommerce** - **Q2 Holdings** ### **1) Amplitude** "We define ARR as the annual recurring revenue of subscription agreements, **including certain premium professional services that are subject to contractual subscription terms**, at a point in time based on the terms of customers’ contracts." ### **2) Braze** "We define ARR as the annualized value of customer subscription contracts, **including certain premium professional services that are subject to contractual subscription terms**, as of the measurement date." ### **3) BigCommerce** "We calculate annual revenue run-rate ("ARR") at the end of each month as the sum of: (1) contractual monthly recurring revenue at the end of the period, which includes platform subscription fees, invoiced growth adjustments, product feed management subscription fees, **recurring professional services revenue**, and other recurring revenue." ### **4) Q2 Holdings** "We calculate ARR as the annualized value of all recurring revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. **Our ARR also includes** the contracted minimums associated with all contracts in place at the end of the quarter that have not yet commenced, **and revenue generated from Premier Services.**" ## **Conclusion** Accurately defining which professional services contribute to your Annual Recurring Revenue is a nuanced yet vital decision for any SaaS business. While many companies strictly limit ARR to core software subscriptions, a significant portion strategically integrates specific, recurring service offerings into this key metric. The crucial distinction lies in the contractual nature and long-term recurrence of these services, not merely their initial scope. By carefully evaluating your service mix and revenue streams, you can establish a transparent and robust ARR policy that accurately reflects your business’s true recurring value and aligns with industry best practices. ## **Frequently Asked Questions** **Do professional services count as ARR?** Generally no—one-time or project-based services are excluded. Only services sold as recurring subscriptions (e.g., premium support) may count. **When can services be included in ARR?** If they’re contracted, recurring, and co-terminus (e.g., monthly managed services or recurring success packages), they’re often included in ARR. **What types of services are typically excluded?** One-time implementation, setup, training, custom projects, and time-and-materials without a recurring commitment are usually excluded. **How should ARR policies treat support and managed services?** Premium support, managed success, or advisory hours on a recurring retainer can be included; document criteria and contract terms clearly. **How do services impact GAAP revenue vs. ARR?** ARR is a go-to-market metric; GAAP revenue recognition depends on performance obligations and timing. Keep ARR definitions separate but consistent with policy.