What are SaaS bookings? Bookings vs. billings vs. revenue

In SaaS, bookings represent the total value of new customer contracts and signal future revenue potential, while billings are the actual invoiced amounts sent to customers based on agreed payment terms. Revenue, on the other hand, refers to the money you can officially recognize once your service has been delivered, following specific accounting principles.

Each metric offers unique insights, but together, they paint a clear picture of your business’s performance.

SaaS companies — especially those in the B2B space— should start looking at their SaaS bookings data to understand the future health of their business and make strategic decisions that lead to growth and revenue.

Here’s what we’ll cover:

• What are SaaS bookings?
• Why SaaS bookings are important
• SaaS bookings vs. billings
• SaaS bookings vs. revenue
• Challenges in managing SaaS bookings
• Some best practices for tracking and leveraging SaaS bookings

Let’s get started by looking at a quick comparison chart to save you time.

SaaS bookings vs. billings vs. revenue: Head-to-head comparison

What are SaaS bookings?

Simply put, SaaS bookings represent the total value of new customer contracts.

Think of it as the commitment your customers make to pay for your service over a set period. This value is recorded in full, even if the contract covers months or years and payments are spread out.

Bookings are key indicators of future revenue potential. They give you a sneak peek into how your business is likely to grow, allowing you to make informed decisions about resource allocation, hiring, and more.

Real-life example

Imagine a SaaS company that offers cloud storage solutions. They might sign a new contract with a large enterprise for a three-year subscription valued at $180,000.

Although the enterprise will pay $60,000 per year, the SaaS company records the full $180,000 as a booking at the time of contract signing, reflecting the total future revenue potential of that customer, even though the payments are scheduled annually.

Types of SaaS bookings

Not all bookings are created equal. Here's a look at the main types you'll encounter:

• New business bookings: These come from brand-new customers signing up for your service.
• Renewal bookings: These represent existing customers choosing to continue their subscriptions.
• Upsell or expansion bookings: These occur when existing customers upgrade to a higher-tier plan or purchase additional features.

Timing and conditions

In a SaaS agreement, a booking is typically made when the contract is signed. This signifies the start of a formal business relationship, even if the actual service delivery and payments are scheduled for later.

Formula to calculate bookings

To calculate the Total Contract Value (TCV) of bookings, sum the value of all customer contracts signed during a given period. The formula looks like this:

Total bookings = ∑ value of committed customer contracts

For instance, if a SaaS company signs a 2-year contract for $200,000 and another 3-year contract for $150,000, the total bookings for that period would be $350,000.​

Why SaaS bookings are important

Bookings offer unique windows into the future health of your SaaS business. They provide strategic insights beyond just figures, allowing you to make informed decisions.

Here's why bookings hold such a significant place in the world of SaaS:

• Decoding sales performance: Bookings shed light on how well your sales team is doing. Are they consistently landing new deals? Are existing customers staying engaged and upgrading? Analyzing these trends helps you identify areas of strength and spots where your sales strategy might need a tune-up.
• Understanding customer commitment: Bookings show the level of commitment your customers are willing to make. This is especially valuable when you break down bookings by type. High renewal bookings mean happy customers, while a steady inflow of new business points to a healthy sales pipeline.
• Forecasting and financial planning: Bookings are the foundation of accurate revenue forecasting. Since they represent future incoming revenue, you can project how your business will perform in the coming months and years. This is crucial for making informed decisions about budgeting, resource allocation, and expansion plans.
• Smarter decision-making: Bookings data isn't just for the finance team. It guides decision-making across the organization. For instance, your product team can use it to understand which features drive upsells.
  
  Marketing can tailor campaigns based on successful customer segments. The insights gained from bookings help everyone in your company work towards a common goal — sustainable growth.

Pro tip: Bookings are powerful metrics, but they are best used in combination with other SaaS indicators. Consider them alongside revenue, churn, and customer acquisition costs for a holistic picture of your business's health and potential.

Also, keep in mind that while aiming for strong bookings is crucial, it's equally important to maintain sustainable growth. According to SaaS Capital's 2024 Growth Benchmarks report, the median growth rate for private SaaS companies was 30% in 2023.

This indicates a healthy but moderating growth trend in the SaaS industry. By analyzing bookings in the context of overall growth, businesses can set realistic expectations, spot potential red flags, and make informed decisions about resource allocation and expansion.

Bookings vs. billings

It's easy to mix up bookings and billings, but understanding the difference is crucial for a clear picture of your SaaS finances. Let's break down what each represents and how they work together.

First, let’s define billings:

Billings are the amount you invoice your customers over a specific period. They are the actual request for payment based on your customer's subscription plan. You typically issue bills monthly, quarterly, or annually.

The key distinction between billings and bookings:

• Bookings represent future revenue potential when the contract is signed.
• Billings signify the immediate obligation of your customers to pay for services.

Bookings and billingsinfluence your cash flow in different ways. A high booking amount suggests a healthy pipeline, but those dollars might not get to your bank account immediately. Billings, however, show you the money expected to arrive soon.

Here’s a practical example:

Say you close a deal with a new customer for a two-year subscription at $12,000 per year.

• Bookings: You immediately record the full $24,000 as a booking, indicating future revenue.
• Billings: If the customer chooses an annual payment plan, you issue a $12,000 invoice. If they opt for a monthly plan, you send a $1,000 invoice each month.

Key point: Billings are often lower than bookings because they represent the invoiced amount for a single billing period, while bookings encompass the total contract commitment.

Formula to calculate billings

Billings are calculated based on the amount invoiced to the customer during a given period. For annual billing, it looks like this:

Annual billing = total contract value (TCV) / number of billing periods (years)​

For example, if a customer signs a 2-year contract for $240,000 and is billed annually, the billings will be $120,000 per year.

Bookings vs. revenue

Bookings are exciting, as they represent potential earnings for your business.

But when it comes to reporting your business's overall health,revenue is the key metric.

In SaaS, revenue refers to the money you earn as you deliver your service over time. Unlike traditional sales models where you get paid upfront, SaaS revenue follows a principle called "revenue recognition."

This means you only "recognize" a portion of the revenue from a contract as you fulfill your service obligations. Here, we need to make a distinction between booked revenue, recognized revenue, and what’s called deferred revenue:

• Booked revenue: Often used to describe the total value of signed contracts, booked revenue shows the revenue potential but does not immediately impact income statements.
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• Recognized revenue: This is the money you can officially record on your income statement for a given period because you've delivered the service.
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• Deferred revenue: This is the part of the payment you've received but can't recognize as revenue yet because the service is still pending. It sits on your balance sheet as a liability.

Think of bookings as the starting point. As you deliver the service promised in the contract, portions of your bookings gradually become recognized revenue.

For example, if a customer signs a one-year contract and pays upfront, you recognize one-twelfth of the booking amount as revenue each month.

Formula to calculate recognized revenue

Revenue is recognized on a monthly basis as services are delivered. If a customer signs a 12-month contract for $120,000 and pays upfront, you would recognize $10,000 of revenue each month. Here’s what the formula would look like:

Monthly revenue recognition = total contract value (TCV) / contract term (months)

For a $120,000 contract, you’d recognize $10,000 in revenue each month​

Why revenue recognition matters

Revenue recognition principles, like those outlined in GAAP (Generally Accepted Accounting Principles) and ASC 606 (Revenue from Contracts with Customers), guarantee that companies present an accurate picture of their financial performance.

This standardization is especially important for SaaS products, where long-term contracts are the norm.

Challenges in managing SaaS bookings

While bookings are powerful indicators, managing them within the SaaS model comes with its own set of challenges. Let's explore some of the common ones:

• The complexity of subscriptions: Different contract lengths, payment terms (monthly vs. annual), and custom add-ons for customers can make it tricky to track the precise impact of each booking on your revenue projections.
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• Systems and processes matter: Your CRM software needs to capture detailed contract data, which must flow seamlessly into your accounting system to ensure bookings translate correctly into billing and revenue recognition.
  
  That’s why, without proper billing infrastructure like Orb's platform, you could end up with misaligned data and inaccurate reporting.
• The need for alignment: Sales teams need to understand how their deals influence the overall picture, and operations and implementation teams also need visibility into bookings to ensure they can deliver on customer promises.
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  Clear communication and a unified understanding of booking metrics across your organization prevent misunderstandings and ensure everyone's working toward shared goals.

Extra tip: As highlighted in Bessemer Venture Partners' State of the Cloud 2023 report, the focus in SaaS is shifting towards efficient growth.

Growth means not just acquiring customers but doing so in a way that optimizes profitability. Understanding the relationship between bookings, billings, and customer acquisition costs is vital for achieving this balance.

Best practices for tracking and leveraging SaaS bookings

Turning bookings into actionable insights requires a strategic approach. Here are some best practices to help you get the most out of your bookings data:

• Embrace technology: Invest in the right tools to automate and manage bookings effectively. A CRM integrated with your accounting software provides a centralized platform for contract tracking, streamlined billing, and accurate revenue recognition.
• Prioritize transparency and training: Train your sales, operations, and leadership on what bookings represent and how they contribute to the business's overall health. This creates a shared language and promotes greater accountability.
• Regular review and analysis: Incorporate bookings data into your regular financial reviews and strategic planning sessions. Track bookings over time to identify trends in sales performance, customer behavior, and potential areas for growth.

FAQs

Should bookings be higher than revenue?

Yes, bookings often reflect future revenue potential, so they should typically be higher than recognized revenue at any given time.

How do you convert bookings to revenue?

Bookings are converted to revenue as the service is delivered over time, with revenue recognized based on the contract terms.

Why are bookings important in SaaS?

Bookings offer a forward-looking view of growth, helping predict future revenue and assess the company’s sales performance.

What’s the difference between bookings and billings?

Bookings represent the total value of signed contracts, while billings refer to the actual invoiced amounts based on those contracts.

Can bookings predict cash flow?

Not directly — bookings show potential revenue, but billings and collections provide a clearer picture of immediate cash flow.

Next steps

Understanding SaaS bookings is a crucial step in managing yourbusiness's growth. But turning that knowledge into action can bring its own set of challenges.

Orb offers a complete suite of tools designed to transform usage data into actionable insights for your bookings and revenue.

Here's how Orb supports your overall billing strategy:

• Detailed usage tracking: Orb meticulously captures every billable event directly related to your contracts with usage tracking. This is essential for accurate bookings and revenue forecasting, especially when using complex subscription models.
• Adaptable to your business: Orb effortlessly accommodates a variety of pricing and packaging structures, from straightforward subscriptions to complex usage-based or hybrid models. This flexibility ensures your bookings data reflects your unique customer contracts, providing granular insights.
• Accurate invoicing and contract alignment: Orb generates precise invoices that align perfectly with your contract terms. This minimizes disputes, maximizes customer trust, and helps you track recognized revenue against invoiced amounts.
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• Seamless reporting with integrations: The platform integrates with key CRM and accounting systems, streamlining the flow of booking data into your broader financial analysis. This gives you an up-to-date, unified view of bookings, billings, and revenue.
• Customizable for evolving needs: Features like the Plan Builder and a custom SQL editor let you tailor how Orb captures and translates usage data into bookings, ensuring it aligns perfectly with your business model, even as your offerings evolve.
• Developer-friendly for rapid integration: Built with the developer experience in mind, Orb is quick to integrate and manage. This frees your technical teams to focus on core product development, not complex billing infrastructure.

Orb can help you with bookings, billings, and revenue. Check out our 30-day free trial and test drive Orb yourself. Make sure to also look at our flexible pricing options and find a plan that fits your budget and specific needs.