Coming to the end of August, we have a fairly mundane topic – the difference between SaaS Bookings and Billings. It seemed like a good idea as the question has come up recently quite a bit. Metrics have no value unless their definition is clear, so it is worth spending a few minutes on the topic.
There are two main differences in how the Bookings number and the Billings number for the same contract most likely will be different. The timeframe can be different and the value can be different. Let’s start with the basic definitions:
Bookings is the total of the signed contract value with a customer. It includes product, subscriptions and any services that the customer may have contracted. The bookings value encompasses everything sold. If the signed contract is for multi-years, then the full amount for all years would be included in the total amount.
Note: for the OPEXEngine benchmarking, we ask that companies include the one year value only of bookings for benchmarking purposes, because it evens out the differences between one company selling three year contracts (bookings value 3X) compared to other companies selling monthly or 12 month contracts only. This is a valid definition for benchmarking purposes, to compare apples-to-apples across companies. Internally, an individual company should track the total value of contracts they’ve booked, whether it is multi-year or not.
Billings is the amount of the customer invoice at any given time. There may be several billings amounts over the course of a contract, or it could all be billed at one time.
If a contract is for three years of an annually recurring subscription costing $20,000/year, plus $30,000 of services for installation, training, and customization is signed in December, then the two metrics look like this:
- December: ($20,000 X 3) + $30,000 = $90,000
If the contract was signed on December 29thand the customer asked to be invoiced for the first year subscription only and invoicing happened a few days later, plus the customer is only paying for services as delivered, the first year Billings timing and values could look something like this:
- Dec: $0
- Jan: $20,000 subscription + $10,000 installation
- Feb: $10,000 training
- March: $10,000 customization delivered and invoiced
In this example, the Bookings value fell into one year, and the Billings first year value fell into the following year.
Bookings and Billings Metrics and Benchmarks Give You Different Information
The Bookings number delivers a variety of important pieces of information. It tells you what you should expect to be paid in total from a customer, even if you don’t get all of it paid right away. It tells you about your sales activity and sales motions with customers. It tells you what kind of commitments your customers are willing to make with you.
While Bookings tells you about sales activity with customers, it’s not guaranteed that customers will actually pay for everything they contracted for. Billings is a more solid number, based on the invoices that you send out. Billings tells you about cash flow and helps you gauge the cadence of when cash is coming in the door. Visibility on billings is important, especially as companies are growing and depending on cash flow. Investors particularly tend to focus on billings numbers to track cash runway that a company has before needing additional investment. And once a company is cash flow positive, billings’ consistency and growth positively impacts valuations.
Systems and Accuracy
Bookings usually from the CRM. Billings are usually calculated out of the invoicing system, which may be part of the CRM, or a financial system. In the best of all worlds, you have a fully integrated system, from quote to cash, but most mid-market SaaS companies integrate point systems.
It is important to make sure in your reporting of Bookings and Billings that you can associate the different dates (Bookings from time of contract and Billings from date of invoice(s) and different amounts (Bookings being the full contract value and Billings may be broken up into separate pieces) to the original quote to cash process. And it is important to get this structured and simplified early on to avoid friction in tracking your activity and growth as you scale.
Getting into so much detail about Bookings and Billings is pretty mundane stuff, but it is hard, if not impossible, to do accurate analysis without accurate metrics. After more than a decade benchmarking software and SaaS companies, we’ve found over and over and over again, that it is the companies that are very data-driven that grow the fastest. When the data is accurate, everyone in the management team understands the metrics and consistently makes improvements, which leads to faster and more efficient growth.
These data-driven SaaS companies are the companies that push us to better understand the benchmarks to compare against their internal metrics, and we are so proud to be able to work with such terrific Finance teams.