How do SaaS businesses report bookings, billings and revenue?
Given the subscription-based model of SaaS businesses, they have unique financial reporting needs that come with timing differences between when a sale is made, when it is invoiced, and when the revenue is actually earned.
- Bookings reporting: Bookings are often reported as a non-GAAP metric in earnings calls or investor presentations to provide a forward-looking view of the company’s financials. They may be broken down into new bookings and renewal bookings to show both new business acquisition and customer retention. Some companies also report annual contract value (ACV) or total contract value (TCV) alongside bookings.
- Billings reporting: Billings are typically calculated and reported as a non-GAAP metric and are often disclosed in management discussions or earnings calls (if applicable). Billings provides insight into sales and marketing momentum. Some companies report billings as ‘calculated billings’, which is revenue plus the change in deferred revenue.
- Revenue reporting: Revenue is a GAAP metric and is an important line item in the income or profit and loss (P&L) statement. SaaS companies often break down revenue into subcategories like subscription revenue, professional services revenue, to provide more granular reporting. Under ASC 606 guidelines, public companies must disclose the amount of revenue recognized from performance obligations satisfied in previous periods. Many companies also report annual recurring revenue (ARR) or monthly recurring revenue (MRR) as supplementary metrics to provide a clearer picture of predictable, ongoing revenue.
Since bookings and billings are not standardized GAAP metrics, their calculation and reporting can vary between companies. As a result, making direct comparisons between peers can be challenging. Revenue, being a GAAP metric, offers a more standardized view of a company's financial performance.
SaaS businesses often combine these metrics in different ways to help stakeholders understand the company's current financial state and future outlook.
Bookings vs. billings
- Bookings represents the total contract value, reflecting sales momentum and future revenue potential. They provide a forward looking view of the business, indicating the company's ability to secure new deals and retain and grow existing customers.
- Billings, on the other hand, represents the amount invoiced to customers during a specific period (monthly/quarterly/annually). This metric offers insights into expected near-term cash flow and the company's ability to convert bookings into actual invoices.
Simply put, bookings shows what a company has sold, while billings indicates what it has invoiced. As one can imagine, bookings often precedes billings in the sales cycle, and the gap between the two can provide valuable information about contract terms, sales efficiency, and potential revenue recognition timing.
Billings vs. revenue
- As stated above, billings represents the total amount invoiced to customers during a specific period. It offers insight into a company's near-term cash flow potential and includes all accounts receivable.
- Revenue, conversely, is recognized only when products or services have been delivered, regardless of when payment was received. It represents the actual earnings of the company in accordance with accounting principles.
There is always a gap between these metrics. Let’s say that a company signs a multi-year contract, it may result in high billings but revenue is only gradually recognized.
Bookings vs. revenue
- Bookings represents the total value of contracts signed, capturing the full value of customer commitments, regardless of when the revenue will be recognized.
- Revenue, recorded according to accrual accounting principles, represents the portion of sales that has been earned and can be recognized in a given period.
Due to the recurring revenue model and multi-year contracts common in the SaaS industry, accrual-based revenue recognition may not fully reflect a company's growth trajectory or the success of its sales efforts.
Bookings, therefore, provides a more immediate indication of sales performance and future revenue potential, enabling a better assessment of a company's growth profile and the effectiveness of its sales and marketing strategies.
It is important to note, however, that not all bookings will necessarily translate to revenue due to factors like contract cancellations or modifications.
Pairing bookings, billings, and revenue with other SaaS metrics for deeper insights
While we are on the topic of bookings vs. revenue, it’s also important to understand annual recurring revenue (ARR) and how it works in comparison to these metrics.
ARR is the annualized value of recurring revenue from subscriptions. It provides a normalized view of recurring revenue, making it easier to compare performance across different contract lengths and billing cycles. While bookings might spike with large multi-year deals, ARR grows more steadily, offering complementary insights into a SaaS company's performance.
It is also worth noting that bookings, billings, revenue, and ARR are not the only important comparisons in SaaS financial metrics.
On the revenue side, comparisons with metrics like deferred revenue and ARR can offer a more comprehensive view of a company's financial health and future prospects.
Bookings can also be contrasted with ACV to differentiate between overall sales momentum and the quality of individual customer contracts, whereas the comparison between bookings and TCV can reveal nuances in how companies define and report their sales figures.
Additionally, comparing bookings to remaining performance obligation (RPO) can provide insights into new sales performance versus the backlog of revenue to be recognized.
These additional comparisons, explored in more detail in our comprehensive metrics guides on bookings and revenue, provide a richer understanding of a SaaS company's financial landscape.
In summary, while revenue provides a standardized, GAAP-compliant view of earned income, bookings and other related metrics offer valuable insights into sales momentum and future revenue potential.
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