Comprehensive guide to bookings in SaaS: What they are, why they matter, and how to calculate them (with an example)

Understanding bookings and their importance for SaaS businesses

Bookings is a metric that represents the total dollar value of all newly signed contracts in a given time period. At a customer level, bookings is the amount the customer agrees to pay on a signed contract which contains all the pricing, terms and conditions (typically, a master services or subscription agreement, purchase agreement, or sales order). 

Bookings is critical in measuring, tracking, and managing financial health, with investors often preferring to review booking trends over other metrics. Unlike ARR and MRR, bookings captures both recurring and non-recurring revenue commitments.  

Tracking bookings is crucial for SaaS companies as it provides insight into sales performance and, in turn, marketing performance, future cash flow, and overall business health, such as:

• Revenue growth projection: Since bookings is an effective indicator of future revenue growth, it is vital for financial forecasting and strategic planning.
• ‍Sales effectiveness: By analyzing which prospects signed up for what plans/products or which sales rep won which customers, businesses can easily gauge the effectiveness of their sales strategies and sales personnel.‍
• Customer acquisition insights: Bookings data can reveal important trends in customer preferences and the success of different products, product tiers or bundles/packages.
• ‍Cash flow prediction: While it does not predict immediate cash, bookings can provide a reliable estimate of future cash inflows.

This enables more accurate revenue forecasting and strategic planning.

Bookings as a leading revenue metric

We recommend companies use the date of the signed contract as the bookings date. Other dates that companies may consider are the subscription start date, first invoice date, or contract start date. 

The date of the signed contract as the bookings date is the most effective as a predictive tool for revenue when based on the earliest possible date because it: 

• Provides sales trajectory insights: Using the signing date allows for more accurate month-over-month analysis, which can reveal seasonality trends and inform capacity, territory, and account planning.
• Ensures accuracy in metric calculations: Using the signing date allows for more precise calculation of SaaS metrics, especially those related to customer acquisition like customer acquisition cost (CAC), CAC payback period, and SaaS magic number. For example, in the CAC ratio, the date of the signed contract for bookings helps determine capacity planning, seasonality trends, etc., which is not possible with subscription date.

That being said, it is important to monitor the relationship between bookings and recognized revenue. For example, if bookings is high with low recognized revenue, it could indicate issues in the sales process or product delivery, warranting a closer look at end-to-end operations to identify the gaps in the process. 

Limitations of bookings

While bookings is an excellent forward-looking indicator of revenue, it does have a few limitations: 

• Timing discrepancies: Bookings doesn't always align with when revenue is actually recognized or when cash is received.
• Contract changes: Bookings data cannot account for potential changes in contracts post-signing, such as downgrades or cancellations.
• Cash flow misalignment: High bookings doesn't necessarily translate to immediate strong cash positions.
• Complexity in multi-year deals: For contracts spanning multiple years, bookings can sometimes overstate near-term financial performance.
• Lack of standardization: The absence of a universally accepted definition can make comparisons between companies challenging.

Different types of bookings

Understanding the different types of bookings is essential for SaaS companies to accurately assess their sales performance, predict future revenue, track customer behavior and growth patterns, and make informed strategic decisions. 

New bookings

New bookings includes new customers signing up for a product or service for the first time.

• Example: Customer A has been a customer of (let’s say) Acme SaaS, since 2020. Now, Acme SaaS has just introduced a new product, and Customer A wants to buy it. So, Customer A will need to sign a new agreement with Acme SaaS to gain access to the new product. 

Upgrades and expansion bookings

These bookings are typically categorized under new bookings and represent existing customers upgrading their plans or expanding their usage.

• Example: If Customer A wants to upgrade from its current Acme SaaS Growth Plan at $500 to the Enterprise Plan at $2000, a new contract needs to be signed. The new contract will restart the subscription, this time at $2,000 per month with an annualized value of $24,000. 

Renewal bookings

Renewal bookings includes existing customers renewing their contracts — either at the end of their current term or when the renewal request is received on another date as opposed to the end of the contract. 

• Example: Customer A’s contract with Acme SaaS is up for renewal in six months. However,  Customer A wants to renew it immediately. In this case, the renewal contract will count towards the renewal bookings for the current period. Instead, if Customer A waits until the end of the contract to renew, the value of the renewal contract would be counted during that period. 

Non-recurring bookings

These bookings are one-time charges or variable components not included in recurring bookings, such as set-up fees, training fees, or usage-based pricing. 

• Example: Let’s say the new product that Customer A wants to purchase from Acme SaaS includes both a minimum recurring subscription plus a usage-based component that will vary from month to month. The minimum recurring subscription revenue Customer A committed to would be counted as New Bookings. However, the estimated value of the usage-based component would be counted as non-recurring bookings for the same period.

How do SaaS companies report bookings?

Since there isn’t a standard accounting framework (like GAAP or IFRS) to account for and report bookings, SaaS companies can report bookings based on whatever approach works best for their specific business model. 

You may choose to, however, to have a common unit of measurement in your bookings reports — that is, clearly define bookings (internally) for your SaaS business and ensure that you consistently apply it to ensure meaningful insights and comparisons over time.

Most SaaS companies include the total value of signed contracts in their bookings reports, i.e., both recurring and non-recurring elements. However, it’s a good practice to break down your bookings into various components such as recurring revenue, one-time charges, and usage-based fees. 

To ensure your bookings report is more comprehensive, you can also highlight new customer bookings and expansion bookings from existing customers, thereby providing a complete view of sales performance.

While the specific details may vary, the objective of bookings reporting is to provide your investors, potential investors, Board, CXOs, and the finance team with valuable insights into the company's sales performance and future revenue potential.

How to calculate bookings for your SaaS business

Calculating bookings simply involves summing up the total value of all customer contracts signed within a specific period. While this is pretty straightforward, the implementation can vary depending on your unique business model and the types of products/services you offer.

This formula covers various revenue streams, including subscription revenue, variable revenue, professional services, managed services, and even hardware sales, wherever applicable. 

While bookings value includes all these components, it is in the best interest of the company to track each revenue stream separately for more granular analysis and insights.

Let’s consider the following example:

Imagine your SaaS company, ABC CloudSolutions, signs three new contracts in Q2 2024:

Now, let's use this data to calculate the total bookings for each client.

Applying the bookings formula, that is, the sum value of all customer contracts signed during a defined period, we get a total bookings value of $459,000 for Q2 2024:

By tracking each of these components separately, you gain insights into the composition of your bookings — such as the ratio of subscription revenue to one-time fees or the average contract length — which can inform strategic decisions and sales strategies.

How does the bookings data impact your SaaS company’s revenue?

Bookings data lays the groundwork for shaping the revenue trajectory and operational efficiency of SaaS businesses. Since it is a forward-looking metric, it provides valuable insights that can influence various aspects of revenue management.

Revenue forecasting and planning

Bookings serves as a leading indicator of future revenue, enabling more accurate forecasting. 

For instance, if a SaaS company sees a 30% increase in Q1 bookings compared to the previous year, it can project a similar growth in recognized revenue over the coming months, allowing for more informed budgeting and resource allocation decisions.

Sales performance tracking and optimization

With bookings data, you get a clearer picture of sales personnel/team effectiveness. Bookings is particularly useful here because it's rarely possible for everyone on a sales team to fully meet their quotas. Most companies set the quota attainment rate as ~70-80%, to track sales rep efficiency and sales team performance.

For example, if team/executive A is consistently generating 50% more bookings than team/executive B, the management can review the strategies of team/executive A and implement them across the organization to boost overall performance.

Commission structure and incentives

Bookings directly informs commission plans, creating a performance-driven culture. Companies can decide what percentage of commission to offer for new, renewal, and expansion bookings. 

A typical structure ranges between 5% and 20%. This ensures that account executives focus on new businesses while encouraging customer success managers to nurture existing relationships for renewals and upsells. A word of caution here, this can get complicated when you have usage-based or hybrid models.

Revenue stream analysis

You can categorize revenue streams with bookings data, offering much-needed insights into business health. 

Let’s say that a company notices that 70% of its bookings comes from expansions rather than new customers — this might indicate strong product-market fit but it also means that the company needs to focus more on new customer acquisition for better long-term growth.

Operational efficiency indicators

The time between bookings and revenue recognition can result in operational issues. 

For instance, if the average time from booking to revenue recognition increases from 30 to 45 days, it might signal implementation or onboarding bottlenecks that need to be addressed.

Investor relations and funding

For SaaS startups, strong bookings growth can be a compelling narrative for investors. 

Product strategy and development

Analyzing bookings by product or feature can guide product roadmap development. 

Let’s say that enterprise-level features account for 80% of your new bookings, this might justify increased investment in that product tier.

Bookings vs. other SaaS metrics

While bookings data is crucial for calculating SaaS metrics such as LTV:CAC ratio and SaaS quick ratio, its relationship with revenue-specific metrics such as ACV, TCV, deferred revenue, and RPO is also important to understand. Let’s explore those now. 

Bookings vs. ACV

Bookings and annual contract value (ACV) are two essential metrics for SaaS companies, but they serve different purposes.

• Bookings offers a broad view of sales performance and future revenue potential. 
• ACV, on the other hand, focuses on the average annual revenue generated from a single customer contract, normalizing values to an annual figure without taking into account the actual duration.

While bookings provide a comprehensive snapshot of overall sales momentum, ACV offers insights into the quality and stability of the customer base. 

Bookings vs. TCV

Often used interchangeably, bookings and total contract value (TCV) aim to capture the total value of contracts signed within a specific period. 

However, some companies may adopt slightly different definitions for bookings. For instance, a company might define bookings as only the first-year value of a multi-year contract or include only subscription revenue, excluding one-time fees or professional services. 

In such cases, TCV would represent the full contract value, while bookings would be a subset of that value.

Bookings vs. RPO

Bookings and remaining performance obligation (RPO) are both forward-looking metrics, but they provide distinct insights. RPO is the total value of contracted services that have not yet been delivered or recognized as revenue. It includes both invoiced and non-invoiced amounts. The key difference between bookings and RPO is in their focus. 

Bookings emphasizes new sales performance, indicating sales momentum, while RPO highlights the backlog of revenue to be recognized from existing contracts, offering insights into revenue stability and growth trajectory.

Bookings vs. deferred revenue

Timing is the key distinction between bookings and deferred revenue, which represents payment received for services that have not yet been delivered or earned.  

Bookings occur when a contract is signed, while deferred revenue is recorded when payment is received but before products/services are fully delivered. Bookings indicates future business potential, while deferred revenue represents a more concrete obligation to deliver services for payments already received.

Build a bookings dashboard to better leverage your bookings data

Tracking bookings is crucial as it provides valuable insights into sales and marketing performance, future revenue potential, and overall business health, enabling more accurate forecasting and informed decision-making.

Given the increasing competitiveness in SaaS, leveraging the right technology to track and manage bookings is essential. Strategic finance software and business intelligence tools can automate data collection, provide real-time insights, and offer customizable dashboards for different stakeholders. This not only saves time but also reduces manual errors and provides a seamless view of bookings trends.

An advanced FP&A software, Drivetrain takes this a step further by offering a user-friendly platform where sales and customer service executives can build customized dashboards for real-time visibility into their bookings data. 

On the Drivetrain platform, sales and customer service managers/executives can easily build their own custom dashboards and get real-time visibility into product mix, customer segmentation, pricing trends, and customer purchasing behavior (such as, expansion, contraction, churn, etc.), among a host of other data points. 

As seen from these screenshots, your customs bookings data dashboard makes for quick analysis of booking patterns, enabling teams to identify opportunities for growth and areas needing attention. 

By centralizing this critical data, Drivetrain empowers SaaS companies to make data-driven decisions, optimize their sales strategies, and ultimately drive business growth.