SaaS Bookings vs Billings vs Revenue: Everything You Should Know (Easy to Understand Guide)

What are Bookings in SaaS?

Bookings in a SaaS (Software as a Service) biz is basically the total cash value of all the customer contracts we’ve signed up or orders we get in a certain period, no matter when we’ll actually see the revenue from those deals.

SaaS Bookings example

Imagine a SaaS company lands a 3-year deal with a customer at $1,000 a month. That means the total bookings from this contract come out to $36,000 (that’s three years, 12 months each, at $1,000 every month).

3 * 12 * 1000 = 36 000

This $36,000 in bookings is basically the total deal value the SaaS company has locked in, though they’ll only count a bit of that revenue each month as they deliver the service over the next three years.

How are bookings calculated?

Bookings usually involve doing some math: just multiply the number of new customers, customer expansions, or renewals by the value of those contracts.

So, let’s say a SaaS company lands 50 new customers, each bringing in an average of $10,000 a year. That means the total bookings hit $500,000.

And if one of those existing customers decides to level up their plan to $15,000 a year from their previous $10,000, what extra bookings will we get from that upgrade? That’s a cool $5,000 ($15,000 – $10,000).

What are the types of booking?

There are a few key types of bookings in SaaS:

1. New Bookings: This is when brand new customers sign up with the SaaS company during a certain period.
2. Expansion Bookings: This is when our current customers decide to level up their subscriptions or grab some extra services.
3. Renewal Bookings: These bookings come from customers who are sticking with their current subscriptions, usually at the same price or even a bit more.

Keeping an eye on different kinds of bookings can really tell you a lot about how a SaaS business is doing.

New bookings mean we’re nailing it with getting new customers. Expansion bookings are a good sign that we’re doing great at growing our relationships with current customers. And renewal bookings? They’re proof that our customers love sticking with us.

Why are Bookings Important in SaaS?

Bookings are important for SaaS companies since they offer a sneak peek into how well the business is doing and its growth potential. They’re all about the total value of new deals or orders the company has managed to lock in, no matter when the cash from those deals will actually hit the bank. This helps SaaS leaders get a glimpse into their future revenue, giving them something to look forward to.

By keeping an eye on bookings, SaaS companies can:

1. Predict Revenue – Knowing your bookings helps you predict future cash flow better since you’ll earn this revenue as the customer sticks around.
2. Check How Well Sales are Doing – Watching how bookings go up or down lets you figure out if your sales and marketing tactics are really bringing in new folks and keeping the current ones happy.
3. Guide Growth Strategies – What you learn from your bookings can really shape big moves like hiring more people, where to invest, what new products to develop, or where to expand.
4. Chat with Stakeholders – SaaS companies like to share their bookings info in financial reports and updates to show investors, analysts, and everyone else how the company is growing.

What are Billings in SaaS?

Billings Meaning

In a SaaS business, billings are all about the total amount the company has charged its customers over a certain period, no matter when they’ll actually recognize the billed revenue from those charges.

Gross billings are the total cash you bill clients before taking out any fees or costs.

Billings Example

Taking our previous example, let’s say a SaaS company nails a 3-year deal with a customer at $1,000 a month. So, for the first year, they’re raking in $12,000 (that’s 12 months at $1,000 each).

Here’s the thing – billings and bookings aren’t the same. Billings are about the cash the company will actually get from customers, while bookings are all about the total value of the contract they’ve locked down.

Why are Billings Important in SaaS?

Billings are important for SaaS companies because they give us a real look at the cash flow coming into the business. Unlike revenue, which gets recognized bit by bit as services are delivered, billings show us the full amount customers are being charged and are gonna pay. This cash flow is key for keeping the company running and fueling its growth plans.

By keeping an eye on their billings, SaaS companies can:

1. Manage Cash Flow – Knowing what’s coming in helps the company plan its finances better.
2. Make Informed Decisions – Insights from billing data can help decide where to invest, who to hire, and how to grow, all the while keeping the cash flow in mind.
3. Communicate Financial Health – Sharing billing info gives a heads-up to investors and analysts about how the company is doing money-wise in the near term.

How to Increase Billings?

SaaS companies have a few cool tricks up their sleeves to boost their billings:

1. Lock in Annual or Multi-Year Deals – Who doesn’t love a good deal? Offer customers a discount for paying upfront for a longer contract. It’s a win-win that ramps up your total billings.
2. Upsell and Cross-Sell – Get your current customers to level up their plans or snag some extra products and services. It’s an easy way to pump up those billings.
3. Keep Your Customers Happy – A happy customer sticks around, which means you keep a consistent flow of billings over time. So, cut down on churn and keep them engaged.
4. SaaS companies have a few cool tricks up their sleeves to boost their billings:
5. Lock in Annual or Multi-Year Deals – Who doesn’t love a good deal? Offer customers a discount for paying upfront for a longer contract. It’s a win-win that ramps up your total billings.
6. Upsell and Cross-Sell – Get your current customers to level up their plans or snag some extra products and services. It’s an easy way to pump up those billings.
7. Keep Your Customers Happy – A happy customer sticks around, which means you keep a consistent flow of billings over time. So, cut down on churn and keep them engaged.
8. Nudge Up Your Prices – If you can bump up your prices without scaring off customers, you’ll see a nice uptick in billings.
9. Mix and match these strategies, and you’ll not only see your billings grow but also solidify your financial footing.
10. – If you can bump up your prices without scaring off customers, you’ll see a nice uptick in billings.

Mix and match these strategies, and you’ll not only see your billings grow but also solidify your financial footing.

What is Revenue in SaaS?

Revenue in a SaaS business is the amount of money the company has actually earned from offering its services, no matter when the customer gets billed. This revenue is counted based on the company’s own rules for recognizing revenue.

Revenue Example

So, taking our example of a 3-year, $1,000-a-month SaaS contract, let’s say the company counts revenue each month as they deliver the service. This means that in the first year, they’d recognize $12,000 in revenue (that’s 12 months at $1,000 each month).

The big difference between revenue and billings is basically this: revenue is the actual income the company has made, while billings are all about the total amount the customer has been billed (and not all of it may be counted as revenue just yet).

Why is Revenue Important in SaaS?

Revenue is important for a SaaS business because it shows the real money made from what they do. When revenue grows, it’s a big sign that the company is doing well, and you bet investors and everyone else keeping an eye on the company are looking out for this.

For SaaS companies, keeping an eye on revenue and aiming for growth is key. Here’s why:

1. Business Viability – When revenue keeps climbing, it’s a good sign the business model is not just working but actually thriving.
2. Operational Efficiency – If a company is boosting its revenue without upping costs too much, it shows things are running pretty smoothly.
3. Future Potential – An uptick in revenue usually means the company is doing a great job of pulling in more customers and expanding what it offers.

By keeping track of and digging into their revenue numbers, SaaS businesses get to make smarter choices about where to invest, how to price things, how to develop new products, and other big decisions.

What is Deferred Revenue?

Deferred revenue is what a SaaS company has billed but hasn’t counted as actual revenue yet. This is because SaaS companies don’t recognize all the revenue right when they bill a customer. Instead, they spread it out over the life of the customer contract. It’s a bit like saying, “We’ll count it as we go along, not all at once.”

On the balance sheet, deferred revenue shows up as a liability. That’s because it’s money the company has taken but for services it still needs to deliver. As the company delivers services over time, it can start recognizing this deferred revenue as real income on the income statement.

Keeping an eye on deferred revenue is super useful because it gives a sneak peek into the company’s future earnings.

How do aaS Businesses Report Bookings, Billings, and Revenue?

SaaS companies usually talk about bookings, billings, and revenue in their financial statements and earnings reports. This info gives investors and analysts a peek into the company’s sales performance, cash flow, and how they recognize revenue.

Improper Revenue Recognition

It’s worth mentioning that some SaaS companies have run into trouble, even legal problems, for not recognizing revenue the right way. This usually happens when a company counts the revenue before actually delivering the service or if they don’t follow the accounting rules about deferring revenue properly.

Revenue recognition right is important for SaaS businesses. It’s all about keeping things transparent and maintaining trust with everyone involved. Companies need to stay on top of the accounting guidelines to make sure their financial reports are a true snapshot of where the business stands.

Bookings versus Billings versus Revenue FAQs

What is the difference between bookings and backlog?

The terms bookings and backlog are kind of similar, but they actually mean different things.

Bookings are all about the value of new deals or orders we’ve bagged during a particular period. 

Backlog, meanwhile, is the sum of all the customer contracts still waiting in the queue to be completed or turned into recognized revenue.  Backlogs tell you about items that have been sold but can’t be billed just yet. This happens when something’s out of stock or not in the inventory or we just can’t ship it out right now. 

What is the difference between bookings and pipeline?

Bookings are all about the sales we’ve sealed and turned into contracts.

The pipeline, on the other hand, is all the potential sales still in the works but not yet closed. Think of the pipeline as a peek into future bookings – it’s where we see what sales opportunities we’re chasing after, while bookings are the deals we’ve already clinched and signed off on.

What is the difference between invoice and billings?

An invoice is basically the document a SaaS company sends out to ask a customer for payment.

Billings, though, are all about the total amount invoiced to customers over a certain period. 

Think of invoices as single billing moments, while billings lump all those moments together into a total for reporting stuff. The new billings software has really smoothed out the invoicing process, making it quicker and more on point.

Are orders the same as bookings?

Yes, when you’re talking about a SaaS business, the terms orders and bookings pretty much mean the same thing. They refer to the total value of new customer contracts or sales that got signed over a certain period. So, whether we say orders or bookings, we’re talking about the total value of new deals the company has locked in, no matter when they’ll actually record the revenue.

What is the difference between bookings and MRR?

Bookings are all about the total value of new deals we’ve closed, whereas MRR (Monthly Recurring Revenue) gives us a peek at the expected monthly cash flow from all the active subscriptions a SaaS company has. MRR is like taking a quick snapshot of where the company’s earnings stand now, and bookings give us a hint of how much we could grow our revenue as we start fulfilling those new contracts.

How do you convert bookings to revenue?

SaaS companies usually spread out revenue from bookings across the lifespan of a customer contract, following their own rules for recognizing revenue. This means setting aside a chunk of the bookings as deferred revenue and then gradually recognizing it as real revenue over time as they deliver the service. How they turn bookings into recognized revenue really depends on the company’s accounting style and what their customer contracts say.

How do you calculate book to bill ratio?

The book to bill ratio is all about comparing a company’s bookings with its billings over a certain period. If the ratio is over one, it means bookings are outpacing billings, hinting that the company’s snagging more business than it’s currently billing – a good sign for future revenue growth. On the flip side, a ratio under one shows billings are beating bookings, which could mean the company has a tough time landing new business. This ratio is a cool way to get a sneak peek into the company’s sales momentum and what might be coming revenue-wise.

What is booked but not billed?

Booked but not billed is when a company has done the work or delivered the goods but hasn’t sent out the invoices yet. This tends to happen a lot at the end of a financial period and can mess with both cash flow and how the books look.