Measuring your business results can get really confusing. These three metrics we’re about to discuss are extremely related to each other but mean totally different things.

For the sake of explaining, let’s consider this sample data set of customer subscriptions.

Customer Joined in Plan Interval Amount Contract Value
Customer A 06/2015 Gold Yearly \$100 \$1,200
Customer B 06/2015 Silver Monthly \$60 \$60
Customer C 07/2015 Silver Yearly \$60 \$720
Customer D 07/2015 Silver Yearly \$60 \$720
Customer E 08/2015 Gold Yearly \$100 \$1,200
Customer F 08/2015 Gold Monthly \$100 \$100
Customer G 09/2015 Silver Yearly \$60 \$720

To make things easier here, we’re considering that all customers are paying 12 months upfront for yearly plans – more on that here – which may or may not be true in your case. It’s common that companies offers customers the option to commit to a full year but still bill them monthly.

## Bookings

Bookings represent the commitment of a customer to spend money with your company. That’s usually tied to a contract in the moment of the signup/subscription, that can be both be signed physically or electronically in can of full self-service platforms. To make it easier, think of booking as the contract with your customer – he signed it, but didn’t used your service nor paid you yet.

Now here’s the thing: if a customer signup for a 12 month plan – in our \$100/mo example – they’re committing to spend \$1,200 dollars with your company, right? So that’s what you’ll consider as bookings. Your bookings for a specific month, is the sum of all the closed deals, with different prices and durations. Always consider the full duration of the contract.

Considering our sample data set, your bookings for each month would be the sum of all the contract you booked.

Metrics 06/2015 07/2015 08/2015 09/2015
Bookings \$1,260 \$1,440 \$1,300 \$720

## Revenue

Revenue happens when the service is actually provided. Is you recognizing that money coming in in exchange for your service or product. In the case of a subscription contract, such as software-as-a-service products, the revenue is recognized ratably over the life of the subscription. So if you’re managing things on a monthly basis, each month you’ll recognize a portion of the money as revenue, 1/12 in case of our yearly plans.

Considering our sample data set, your revenue would be the sum of the portion of revenue each customer is bringing in monthly. Keep in mind we’re not considering any kind of churn nor contraction here.

Metrics 06/2015 07/2015 08/2015 09/2015
Bookings \$1,260 \$1,440 \$1,300 \$720
Revenue \$160 \$280 \$480 \$540

## Billings

Billings is when you actually collect your customers money. That can happen at the time of booking in case they’re paying you months in advance, or at the time of revenue recognition in case they’re paying you monthly – even if committed to a full year.

Considering our sample data set, we’ll consider two things: if a customer subscribed to a yearly plan, we’ll considering his paying for 12 months upfront and bill for the total contract value – if subscribed to a monthly plan, we’ll consider the plan amount being billed every month.

Metrics 06/2015 07/2015 08/2015 09/2015
Bookings \$1,260 \$1,440 \$1,300 \$720
Revenue \$160 \$280 \$480 \$540
Billings \$1,260 \$1,500 \$1,360 \$880

## Deferred Revenue

You also want to pay attention to deferred revenue. That’s money you’re already billed – and it’s already on your bank account – but can’t yet be recognized as revenue, because the product/service hasn’t been served to the customer yet. If you usually close a lot of yearly billing deals, you tend to have a high deferred revenue.

Considering our sample data set, that’s simply billings – revenue.

Metrics 06/2015 07/2015 08/2015 09/2015
Bookings \$1,260 \$1,440 \$1,300 \$720
Revenue \$160 \$280 \$480 \$540
Billings \$1,260 \$1,500 \$1,360 \$880
Deferred Revenue \$1,100 \$1,220 \$880 \$340

## Conclusions

In SaaS, if you bill your customers upfront billings will be just like bookings, but if you bill monthly billings will be just like revenue. Of course it will all depends on your specific scenario, product/service and pricing schema. The important thing to notice here is how your – recurring – revenue grows over time, as you close more deals (book more revenue).

There are also other interesting relations between these metrics. One of them is the book to bill ratio. In some specific industries not all booked business can be delivered and turn into revenue, as in advertising for instance – it’s like you’re leaving cash on the table.

It’s important you keep track of all these metrics very carefully. You want to know how much revenue your company has booked, how much is your monthly revenues, and how much revenue you have actually billed. In fact, that’s even crucial to decide how to pay commissions and variable compensation to your sales reps, but that’s a topic for another post.

About the author: Leo Faria is a SaaS and analytics expert. CEO and founder of Saasmetrics, a subscription analytics platform that help companies to keep track of all the important metrics of their businesses. Get your free copy of my latest book “The essential SaaS metrics guide“.

Saasmetrics is a subscription analytics platform that helps you to keep track of all the important metrics of your business.
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• cdodge43

good article. When and where is “bookings” for customer B in month of July recorded, if at al?

• Hey! Glad you liked the article. If you look at the customers list you’ll see Customer B joined in June, not July. Thanks for your comment!

• cdodge43

i understand that it was June. My question is why Customer A’s \$100 in June counted as Bookings in June, but Customer A’s \$100 in July doesn’t count as Bookings in July. does that make sense?

• I’m sorry I didn’t understand the questions the first time. Bookings represents the act of closing the deal with a customer, and you only do that once. That’s why we account the value of the contract only once, in the month it was closed. After that, the money in exchange for the service being paid every month is accounted as Monthly Recurring Revenue (that is not included on this example’s table).

• Nigel Burns

Great article. I have a question: if a SaaS contract has a termination for convenience clause, do you still book the total contract value? Say a customer signs a 3-year contract; but, has the ability to terminate for convenience after the 1st year. Do you still book the entire 3-year contract value; or, only the first year?

• Hey Nigel, good question. In fact there’s no ground rule for that. The same thing happens when you offer a 60 day money-back guarantee, for instance. I’d say you should book the total contract value, and if the customer decides to cancel the subscription, you account that as churn. You could understand how often that happens (customers cancelling after the first year) to make a decision.

• Jim Atkinson

Really helpful. One follow up question related to Nigel’s below. Say I have a customer that signs up to a 3 year committed contract (can’t terminate without some sort of breach) that has an auto-renew language for one additional year at the same rate (no increase benefit) unless they provide 90 days notice to cancel. Do you recognize the 4 year booking value?

• Rich Alexander

Great article! Quick question — why wouldn’t the Deferred Revenue in July be \$2,320 (Customer A – \$1000 deferred, Customer C- \$660, and Customer D \$660)?

• Abhishek Krishnan

Good point, Rich. To me, it looks like Leo has taken the deferred revenue activity amounts for the periods as opposed to Balance amounts (which is what you are saying). I believe you are right since Deferred revenue is a Balance Sheet account.

• This Here Ninja

I believe you are right that he is obviously not carrying the Deferred revenue balance from one period to the next, but just looking at activity in the period, why wouldn’t deferred revenue:
– in July be \$1,320 instead of \$1,220, or
– in August be \$1,100 instead of \$880, or
– in September be \$660 instead of \$340?

• Abhishek Krishnan