For any SaaS business, key revenue metrics can seem interchangeable when tasked with reviewing, reporting, analyzing and streamlining it all. We’ll take a look at how three specific metrics–bookings, billings, and revenue–are both independently important and interrelated.
How can we differentiate bookings vs. billings vs. revenue, and what role does each metric play when it comes to SaaS company growth?
What are bookings in a SaaS company?
Bookings are the total amount or value of all committed dollars in your new customer contracts. Rather than a recording of money already earned or collected, bookings represent commitment. It’s a future-focused metric that shows what customers plan to pay your business for the products and services you provide and outline in the contract.
To properly track your bookings for any given month, keep in mind variables like the contract’s total amount, payment structure, and duration. Let’s review two different customer contracts below.In this example, Customer A signed a contract in January that is monthly (and cancelable at the end of each month) and they will pay $1,000 per month. That means January’s booking for Customer/Contract A is $1,000.
Customer B signed an annual contract of $12,000 in January and paid up front. Therefore January’s booking for Customer/Contract B is $12,000 (and the booking will not be reflected in subsequent months, as opposed to the recurring booking from Customer A).
In this case, the total January bookings are $13,000.
Bookings variations by contract type
For SaaS companies, there are always variations in contracts. Bookings may include new customers, expansion revenue, upgrades or upsells, and multi-year contracts. Here are a couple of examples:
- Contract C is annual at $12,000 and the customer agrees to pay quarterly. The January booking is still $12,000 because the customer has committed for an annual term per their contract.
- Contract D is annual at $12,000 per year for five years. In this case, your January booking is $60,000 (accounting for all five years and due to the customer’s multi-year commitment).
If we roll these additional contracts into our example above, the new January bookings total would jump to $85,000. Note that in some accounting instances, bookings are restricted to the first year. If we apply that restriction, the January bookings total would be $37,000 (as Contract D’s booking would drop to just the first year’s $12,000 commitment).
Once a contract is signed and a booking is noted, the next step is invoicing the customer: billing.
What are billings in a SaaS company?
Billings are what you invoice your customers. It’s the money you collect from your customer, as opposed to the formal commitment when the contract was signed. This metric is closer to cash and cash flow than bookings (although not identical, as cash lags depending on payment terms and collections).
Let’s review billings in the context of our customer contracts from the bookings section, while also pulling in some additional variables like previous contract starts and payment plans.In this example, we see our original Customers A and B and how their billings differ from bookings based on contract type. In addition, Customers X and Y were booked in the previous year, so their billings are accounted for in January but their bookings were already tallied in the previous year.
In this case, the total January billings are $17,000.
While billings anticipate cash flow, it’s really the third metric–revenue–that indicates cash earned and coming into the business.
What is revenue in a SaaS company?
Revenue is the amount of income or money a SaaS business earns from the sale of its products and services. As opposed to a more traditional goods transaction (think purchasing an item at the grocery store), this revenue is only recognized once the software, product or service has been delivered to the customer (rather than when the contract is signed or the invoice sent, i.e. booking and billing).
Note per GAAP rules, revenue can only be recognized once it is “earned” (product delivered to the customer). SaaS companies have more revenue components to juggle than most, given they often provide multiple products and services, as well as offer pricing tiers, discounts, bundles and even individualized customer contracts.
Now that we understand what our Customer contracts entail and what our bookings and billings amount to for January, let’s review total revenue for those customers in the same month.And here’s a quick breakdown of how we calculated each customer’s January revenue based on their original contracts:
- Customer X signed their contract the previous year and pays quarterly. They have been using the software and January is their first quarterly payment of the year. Therefore, total January revenue for Customer X is $3,000.
- Customer Y also signed their contract the previous year, but they pay monthly. Therefore, the total January revenue is lower at $1,000.
- Customer A pays monthly and is cancelable at any time – since they have paid and are using the software, the January revenue matches up with their booking and billing in this instance ($1,000).
- Customer B’s contract is annual and cancelable at the end of the 12-month period. Despite this structure and their payment up front, the January revenue is still $1,000 as that is what the business will recognize over the course of the annual contract.
Note: For annual contract examples, any revenue that is “waiting” to be recognized (such as for Customer B’s contract) goes into deferred revenue. This is not considered “earned” and falls into a different category of reporting.
How Customer Success can leverage bookings, billings and revenue
Any SaaS company aims for growth when building its customer base. If properly measuring and assessing bookings, billings, and revenue from the start, then teams are able to stay agile and maintain a full picture of health for the business.
Customer Success teams should stay tapped into marketing, sales, and product strategies in order to holistically forecast and track for customer acquisition, renewals and expansion. What is the prospect pipeline to bookings ratio, and how can the marketing and sales teams keep Customer Success in the loop to plan and prep for new customers? How balanced are bookings to revenue, and what can sales and Customer Success do to build out the strongest contracts for future or current customers?
Specifically, bookings are an excellent indicator of success across teams. Tracking signed contracts, specific wins per salesperson, and details like plan tiers or product upgrades help Customer Success gauge onboarding strategy and expansion/upgrade opportunities.
On the flipside, following bookings vs billings vs revenue can also reveal red flags for the business:
- High discounts on initial or multi-year contracts (inflates initial bookings)
- Discounts for pre-paying an annual contract (inflates first year billing if customer renews)
- High initial booking but low revenue recognized (issues in sales process, product delivery)
Additional resources on Expansion Revenue and SaaS metrics
- Leveraging Customer Success to increase expansion opportunities
- Who owns customer renewals and expansions: Customer Success, sales or account management?
- SaaS retention benchmarks: How does your company compare?
- Champion scalable and sustainable growth through Customer Success
- Key SaaS and Customer Success metrics you should care about