Bookings vs. Billings vs. Revenue in SaaS Subscription Management
The subscription industry is popular for its jargon-heavy specialized and industry-specific concepts that can overwhelm both new entrants as well as experts in the field. However, understanding the subtilities of these terms can easily help one to navigate into this dynamic industry with confidence.
Although it is not easy to cover all the terms associated with this industry, we’ve chosen three foundational concepts that are particularly essential for anyone working with subscriptions. These are Bookings, Billings and Revenue. A clear grasp of these terms can enhance your financial insights, improve decision-making and strengthen your subscription strategy. A lack of clarity on these concepts can lead to poor financial forecasting and confusions.
In case you are looking to gain deeper insights into these terms, this blog is for you! Whether you're a newcomer or a seasoned professional, we will help you differentiate each of these concepts and provide valuable knowledge.
Bookings
Bookings are forward-looking SaaS metrics that represents the total value of signed contracts over a given period. Bookings offer a snapshot of the future potential revenue in a subscription business. However, they are not considered as the actual revenue and can be considered so only after the services are delivered and paid for. They are recorded as soon as the contract is signed.
Bookings can be new contracts or even renewals. Some of these contracts may include multiple products or services. In such situations, the booking amount will be the sum-total of all these services. Even though bookings cannot be considered as the actual revenue figure, it is relevant as it can give approximate insights into the future growth of the business.
Financial bookings help companies to plan for growth by providing insights into future cash flow. They reflect how well the company is growing in customer acquisition and building future business opportunities. It is also noted that as the bookings increase so will the revenue of the company. It is a sign that there is a huge demand for the company’s products in the market.
It is therefore a forecast of the expected revenue based on the signed contract values. It gives a sneak peek into an estimated revenue that the business is likely to generate.
Let’s further explain bookings with a situation:
Booking happens when the subscription business signs a contract with a client for a said period of time, say a year. Let’s say that this contract is for a total amount of $12,000. In such a case this total amount of $12,000 is considered as the booking amount. It is based on a signed agreement and represents potential future revenue. It becomes the actual revenue only once the services are delivered and paid for, typically in instalments over the billing period.
Billings
Billings refer to the total amount that clients are invoiced for the goods or services that they have subscribed to. These will be issued against the respective billing period which could be monthly, quarterly, annually or any other duration depending on the terms of the subscription. Billings provide a view of the anticipated cash flow by reflecting what has been invoiced, even if payment may still be pending.
Through billings, businesses can track their revenue potential; however, unpaid invoices indicate that billings alone do not guarantee cash flow. As a key SaaS metrics, billings give insights into accounts receivable and projected income that funds the businesses’ daily operations and growth. Billing levels also indicate overall business health and represents what the customers owe but maybe awaiting payment. It therefore represents potential income.
Let’s explain billing with the same example:
Once $12,000 is signed as the total booking value for the billing term, the company will start generating billings by issuing invoices as per the agreed billing schedule. In case of a monthly billing, the company will issue an invoice of $1,000 per month to the client and in case of a quarterly billing, the issued invoice would be for $3,000. The client is required to pay this billing amount thus contributing to the company’s cashflow. However, unlike bookings, which is more likely a commitment or total contract value, billings translate to actual revenue over time as invoices are paid, which supports daily operations and growth.
Revenue
This is the money earned once the products and services are delivered to the customer. The revenue reflects the financial performance and profitability of the business. It includes both recurring revenue as well as one-time-charges.
While billings represent the actual cash flow expected from invoiced amounts, revenue is only recognized in financial reports once the services have been delivered according to the agreement. In a subscription setup, revenue recognition often aligns with the billing cycle, but it depends on the delivery of service and the accounting method. As per GAAP rules, revenue is recognised only when it is earned.
For example, in the monthly billing cycle, each $1,000 payment (post-payment) is recognized as revenue for that month as services are provided.
Let’s wrap it up!
The subscription industry is one that is enriched with unique terminology and specialized concepts that adds to its depth and precision. These jargons can be confusing to those who lack in-depth knowledge of this industry. A solid grasp of this vocabulary can quickly elevate newcomers to the status of experts in this field. It can further enhance the strategic and operational decision-making capacity of the experts.
Booking, billing and revenue are three such terms that have specific meanings and implications within the subscription economy. These terms may not be immediately clear to those who are unfamiliar with the industry. In the above blog, we have discussed how these terms differ from each other and the identity that each of them holds. Understanding these distinctions is essential for effective subscription management, as they directly impact financial booking, customer relations, and business strategy. This blog can enlighten you about what these terms means and how it relates when it comes to subscription management.
Saaslogic Billing is a leading subscription management software that offers powerful tools for businesses to manage subscriptions easily, efficiently, and seamlessly. Through a clear, structured approach, we manage key components like bookings, billings, and revenue to help you gain control over your financial operations and future growth. Visit us to learn more about how Saaslogic Billing can streamline and support your subscription services.