Many SaaS businesses mistakenly use the terms ‘bookings,’ ‘billings,’ and ‘revenue’ interchangeably, but this misunderstanding can lead to critical miscalculations in your business finances. 

For example, using ‘billings’ rather than ‘revenue’ in financial reports may mean you’re including money the business hasn’t yet earned. Although bookings, billings, and revenue all relate to the amount of income your business receives, they refer to specific situations, are calculated with different methods, and provide your business with different insights.

To help you correctly categorize, calculate, and implement SaaS bookings vs. revenue vs. billings, we’ve outlined the data that each of these metrics includes, how to use them, and the key differences.

Book a demo to see how Zeni puts accurate, up-to-date SaaS finance metrics at your fingertips.

What are SaaS bookings vs. billings vs. revenue?

Bookings

Bookings are the value of contracts that customers have signed and committed to pay, including contracts that have not yet been invoiced or paid. This category can include all closed deals: new bookings, expansion bookings, and renewal bookings. The amount you record for bookings each month is the total value of all contracts signed in that month. 

For example, a customer signs a contract in January to pay a total subscription fee of $1,200 for the next 12 months. Even if you haven’t yet invoiced this customer or started delivering the service, this is guaranteed revenue that the business will receive, so you would record this $1,200 as bookings for January. 

Because bookings reflect the number and value of new clients the company gains, this is a particularly helpful metric for sales teams representing subscription businesses. Bookings can indicate which customer acquisition strategies are effective, if the sales reps are reaching the business’ sales targets, and how the revenue and cash flow is likely to fluctuate in the coming months.

Billings

Billings are the amount of customers’ money you collect in payment for customer contracts. This includes both invoices that have been paid to you by customers and bills that have been invoiced but not yet paid. For SaaS businesses, most customers are billed either 12 months upfront as an annual fee or on a monthly basis throughout the duration of the contract.

For example, a customer pays the $1,200 fee for a 12-month contract in quarterly installments of $300 starting in February. Even if you haven’t yet provided the service to the customer, you can record this $300 as part of your February billings when you invoice the customer for this amount. 

It’s important to track billings alongside bookings in SaaS metrics to gain a full picture of the business’s financial health, including if you’re likely to run into cash flow problems. In fact, the billing schedule is crucial for cash planning and cash management purposes. For instance, if customers sign long-term contracts, this results in a high amount of monthly bookings, but if the payment terms for these contracts are to be billed gradually throughout the full duration of the contract, the cash you actually receive from billings each month may be low. 

Revenue

Revenue is the amount of money the business has earned from customer contracts. Because SaaS companies provide an ongoing service rather than selling a tangible product, revenue is earned throughout the duration of the contract as you deliver the promised service to the customer. The total contract value starts as deferred revenue balance (or, unearned revenue), which is then gradually earned and recognized as the contract progresses. Recognizing the right portion of revenue in the proper time period will reveal if the business is hitting KPIs and targets, including monthly recurring revenue (MRR) and annual recurring revenue (ARR)..

For example, if the customer receives the same level of service (no upgrades, downgrades, churn, or add-ons) throughout a 12-month contract, you earn and recognize 1/12 of the revenue each month. This means that at the end of the first month of service, your business can record $100 in revenue. 

In the world of SaaS, revenue recognition is a vital concept in accrual accounting and is subject to GAAP methods and pronouncements. 

See also: How To Manage SaaS Revenue Recognition For Your Startup 

SaaS Billings Vs. Bookings Vs. Revenue: Key Differences 

Read on to learn about three key differences between bookings, billings, and revenue for SaaS businesses to help you correctly account for them.

1. These SaaS metrics record different portions of income in each period.

For SaaS companies, there is often a period of time between the contract being signed, the invoice being issued, and the service being completely delivered. As a result, although SaaS bookings, billings, and revenue will total the same value by the end of the contract, they often record different amounts each month.

From the above-mentioned examples for bookings, billings, and revenue, you would record the following amounts each month:

See also: SaaS Deferred Revenue: How To Calculate It For Startups

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2. These SaaS metrics are recorded differently in financial statements.

There are three key financial statements: 

• The profit & loss statement (also known as the income statement or P&L) shows the business’s financial performance over a period of time. 
• The balance sheet shows a snapshot of the company’s finances at a particular point in time.
• The cash flow statement shows how much the company spends and from where that money is earned. 

SaaS bookings, billings, and revenue impact each of these statements in different ways:

3. These SaaS metrics play different roles in financial modeling.

Bookings and revenue form the basis of the revenue projection in a financial model. This section of the model shows the revenue you expect to recognize in each period based on your current bookings. Businesses also include revenue from contracts that are in the pipeline but haven’t yet been signed and use color coding to differentiate these contracts from bookings. By including both bookings and pipeline value of a contract, you can see how your revenue is likely to grow, and how much action you still need to take to guarantee this revenue. It is a best practice to include both bookings and pipeline in your financial model in order to understand the trend of growth of your revenue over a period of time; a normal model projects at least 2-3 years out, so if you’ve only included booked revenue in the model, it would show a decline of the business.

Billings do not play a role in the revenue projection, but they do form the basis of the cash flow projection. Based on your billing schedule, you can predict when you will receive payment for each of your bookings. This projection is particularly important for startups that aren’t yet generating enough revenue to be self-sustainable. The cash flow projection indicates when you will run out of money, allowing you to start the fundraising process in good time or adjust your budget accordingly. 

How Zeni Makes It Easier To Monitor Your SaaS Metrics

There are clear benefits to regularly tracking SaaS metrics for founders and CEOs alike: You can confidently predict your monthly revenues and identify and address any concerning trends before they become serious issues. 

With Zeni’s help, you’ll have accurate financial metrics at your fingertips whenever you need them. Zeni is a modern finance firm that combines AI and ML technology with human expertise to provide accounting, tax, CFO, and bookkeeping services for startups. 

The Zeni team works on your behalf to manage the complexities of your SaaS accounting, correctly tracking all your financial metrics, including billings, bookings, and deferred and recognized revenue (and maintaining compliance with conditions laid out by ASC 606, too). Plus, the Zeni Dashboard gives you 24/7 access to key SaaS metrics like your cash position, operating expenses, and net burn.

Learn how Zeni can expertly manage your SaaS finances: Click here to book a demo.