Remaining Performance Obligation (RPO)

Remaining Performance Obligation (RPO) refers to the amount of Revenue that a company is contractually obligated to provide in the future for services or products that have not yet been delivered or completed. RPO is an important metric in financial reporting, particularly under the Revenue recognition standards (ASC 606/IFRS 15), as it helps investors and analysts assess the future Revenue potential of a company based on its existing contracts.

Examples:

• A software company has a contract to provide a subscription service for $120,000 over three years. If $40,000 has been recognized as Revenue in the first year, the RPO for the remaining two years would be $80,000.
• A construction firm has a contract worth $1,000,000 to build a bridge, with $300,000 recognized for completed work. The RPO for the remaining work would be $700,000.

Cases:

• Case 1: A telecommunications provider sells a two-year service plan. If the customer pays $1,200 upfront, after one year of service, the RPO would be $600, representing the obligation to provide service for the remaining year.
• Case 2: An educational institution offers a multi-year online course package. If students have paid $5,000 for a five-year program and $2,000 has been recognized as Revenue for completed courses, the RPO would be $3,000 for the remaining courses.