Bookings: Understanding Their Roles in SaaS

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Measuring the results of your SaaS company can get confusing quickly. And unlike revenue, bookings do not have a GAAP standard definition—it varies across businesses. 

In general, bookings refer to a forward-looking metric that indicates a contract’s value over time. Let’s begin by discussing how this differs from revenue.

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Bookings vs. Revenue for SaaS Companies

Revenue does have a standard definition in GAAP: It’s one or both of a settlement of liabilities or inflow of assets from your business operations. Let’s look at a simplified example:

Say a customer books a two-year subscription with your SaaS platform at $500 per month. So your bookings would be the value that the customer brings to your company over the lifetime of the contract: $500 x 24 months = $12,000—that’s your bookings.

On the other hand, you only account for revenue as it comes in. So after the first month, your revenue would be $500, then $1,000 after two months, etc.

Different Types of SaaS Bookings

You can think of bookings as a visual representation of the money you can expect to flow into your business. You can use this information to indicate your product’s demand and the market’s response to it. And while bookings are recorded as annual numbers, they can extend to more or less than a year. Next, we’ll cover the most common types of bookings you’ll see as a SaaS company.

New / Upgraded Bookings

These bookings include any new customers who sign up for your SaaS product. It also includes previous customers who sign a new agreement when introducing a new product or service.

If a current customer upgrades or expands their plan and signs a new contract, that booking typically falls under the “new bookings” category. For example, if someone upgrades from a basic or starter plan to an enterprise-level one, when you fill out and submit a new contract, that contract’s value will be a new booking.

Renewal Bookings

A renewal booking happens when an existing customer’s contract is up for renewal. You can calculate this booking’s value either when receiving the renewal request or on the effective renewal date.

Pretty simple, right? These two bookings are the most common and the only ones that most SaaS companies use; however, let’s look at some other SaaS bookings that might be relevant for your business.

Annual Contract Value Bookings

Annual contract value (ACV) bookings come into play when you have multi-year contracts and have at least one year of committed revenue. So, let’s take the example we used earlier and expand that customer’s agreement to three years at $500 per month instead of two years. Thirty-six months x $500 is $18,000, but only the last two years would fall under ACV bookings, putting the value at $12,000.

Total Contract Value Bookings

Like ACV bookings, total contract value (TCV) bookings involve multi-year contracts; however, they are calculated with the entire contract duration. Looking at the example we used to explain ACV bookings, the total contract value would be $18,000.

Non-Recurring Bookings

All of the above bookings are recurring, and calculating and tracking them is a standard practice that offers companies a defined value over time on a recurring basis. However, there are some non-recurring bookings that you might want to account for, like training fees, setup fees, etc.

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What Should You Include in Your SaaS Bookings?

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Your bookings should include:

  • New contracts
  • Planned upgrades or downgrades
  • Renewals
  • Non-recurring bookings, like one-time charges and discounts 

The core components of a SaaS financial sheet’s bookings include:

  • Average deal size
  • Average contract length
  • Average months paid upfront
  • Average MRR for new customers
  • Average revenue per account

What Bookings Mean for Your SaaS Business

Your bookings help your company at various growth stages. For example, in the early stages, before you begin generating solid revenue, you can look at bookings to see how much you can realistically expect to see. Bookings are also helpful to gain insights into your product-market fit and the market demand for your solution.

Sales and marketing teams can use bookings as a useful tool to decipher revenue flow. It helps improve customer acquisition by drawing data about which leads signed up for which plans, how prospects converted into customers, which sales tactics worked best, etc. 

Bookings are also an essential metric for finance teams and CFOs to help plan cash inflows and outflows. When finance teams can account for and report bookings as committed inflows without stating them as revenue helps keep track of your MRR and ARR without false calculations that result from counting future income as current revenue.

The Importance of Bookings for SaaS Companies

Bookings are a crucial indicator of sales growth, making them a primary metric for sales teams. While MRR, churn, and other metrics are essential for these teams to monitor, bookings are the best way to evaluate sales success—it estimates the revenue brought in by sales and includes both recurring and non-recurring charges. Bookings become even more important when you take into account that MRR does not count revenue from non-recurring payments.0

For example, when looking at new bookings, you can take into consideration things like potential contract cancellation, downgrades, etc. when evaluating the contract’s worth. And for renewal bookings, you can look into possible upgrades and downgrades when the renewal date comes. The idea for bookings is to bridge the gap between the expectations during the sales process and the expectations during continuous service.

Bookings also help us recognize revenue. For example, if bookings are high but revenues are low, there’s a gap somewhere between your sales process and the product delivery.

Bookings & SaaS: The Bottom Line

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For SaaS companies, bookings are an excellent way to measure sales growth and gain valuable insights into how your product fits into the market. They don’t directly impact your income statements or financial reports but instead encourage and empower your sales team to increase cash flow by improving bookings. 

Does your SaaS company perform R&D to create the best product? Get started with TaxRobot and see how we can help you get the biggest R&D credit when tax season comes around again.

Related: R&D Tax Credit: Software Companies

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