As a startup, you’re probably juggling many different balls – and trying to measure your business results is one of them. Measuring your business results involves monitoring a lot of key benchmarks. However, of all the metrics you need to keep track of, three are of the most significance: bookings vs billings vs revenue.
These three metrics we’re going to discuss are extremely related to each other but mean totally different things. So you must understand the difference between them. Bookings vs billings vs revenue in SaaS are all closely related. But they’re not the same.
This article will help us understand each of these metrics and how they differ. To explain each point, we will refer to the sample data below to give examples of each metric.
|Customer||Join Date||Plan||Interval||Amount||Contract Value|
|Customer A||January 2022||Premium||Annual||$100||$1,200|
|Customer B||January 2022||Basic||Monthly||$60||$60|
|Customer C||February 2022||Basic||Annual||$60||$720|
|Customer D||February 2022||Basic||Annual||$60||$720|
|Customer E||March 2022||Premium||Annual||$100||$1,200|
|Customer F||March 2022||Premium||Monthly||$100||$100|
|Customer G||Aril 2022||Basic||Annual||$60||$720|
Let’s consider all customers are paying 12 months upfront for yearly plans, which may or may not be true in your case. It’s common for companies to offer their customers the option to commit to a full year while still billing them monthly.
What are Bookings in SaaS?
Booking is a forward-looking metric that represents the commitment of a customer to buy your product or service. Essentially, it’s the total value of all contracts that have been signed and not yet invoiced. It’s usually tied to a contract at the moment of the subscription/signup that can be signed both electronically and physically.
Booking is like making a contract with your customer. They signed an agreement with you but haven’t used your service nor paid you yet.
For example, if a customer subscribes to a 12-month plan — in the $100/mo example — they’re committing to spending $1,200 with your company. That’s what bookings are all about. Bookings for a specific month is the sum of all the closed deals, with different prices and durations. So remember to always consider the full duration of the contract.
You need to know your contract value (the average deal size) and the number of booked contracts to calculate bookings. This metric is important because it can give you an idea of how much future revenue your company is likely to bring in.
Considering our sample data set, your monthly bookings would be the total of all the contracts you booked.
|Metrics||January 2022||February 2022||March 2022||Aril 2022|
What are Billings in SaaS?
Billings is a metric that reflects actual sales that have been made. It’s the total value of all invoices that have been sent to customers, regardless of whether or not they’ve been paid yet. Payment collection happens either at the time of booking if they’re paying you for months in advance, or at the time of revenue recognition if they’re paying you per month.
To calculate billings, you first need to know your contract value (average deal size) and the number of invoiced contracts. This metric is important because it can tell you how much money your company has actually brought in – which is a key indicator of your company’s growth.
Looking at our sample set again, let’s consider two factors: if a customer subscribed to a yearly plan, we would consider paying for 12 months upfront and bill for the total contract value. On the other hand, if the customer subscribed to a monthly plan, we will consider billing the plan amount every month.
What is Revenue in SaaS?
Revenue, as you might have guessed, is the most important metric of them all—the total amount of money your company has earned – both from booked and invoiced contracts. Revenue is the income you earn when you provide your service to your customers. For every month of successful service delivery, you can determine the potential revenue for that month. According to GAAP rules, “a business can only recognize revenue once it is earned.”
To calculate revenue, you need to know your contract value (average deal size) and the number of invoiced contracts. This metric is important because it tells you how much money your company has actually made. And as we all know, revenue is the key to success in any business.
Going back to our sample data, your revenue would be the sum of the portion of revenue each customer brings per month. Again, for the purpose of this discussion, we’re not considering hindrances such as potential churn or contraction.
Why Should You Automate Your Billing?
To monitor your business results, it’s important to automate your billing. This will help you keep track of your bookings, billings, and revenue more accurately.
When you automate your billing, you’re able to:
- Get real-time updates on your business performance.
- Spot trends and irregularities quickly.
- Identify customers who are late on payments.
By using an automated recurring billing platform, you can rest assured that you’re always keeping track of the most important metrics in your business. This will help you make more informed decisions and grow your company in the right direction.
How ReliaBills Can Help
While it may not help you calculate your billings, bookings, and revenue directly, ReliaBills and its invoicing and payment processing services can help you get paid quickly to better understand your business’ financial health.
ReliaBills is an expert at making sure you get paid on time; We offer a variety of invoicing and payment processing solutions such as the following:
- Easy Invoicing: create and send invoices in minutes, receive payments online, and get paid faster
- Estimates: turn quotes into invoices in minutes and get paid faster
- Customer Data Management: keep track of customer data and payment history, and more
- Recurring Billing: automate payments for your subscription business, and reduce late payments
- Installment Billing: offer your customers the option to pay for products or services over time
- Collection Automation: get paid on time, every time with our automated collections process
- Easy Payments: accept payments in any method you have in mind!
- Customer Portal: let your customers pay invoices, update their information, view invoices, and payment history, and even generate their statements.
- Relevant Reporting: Get access to an intuitive dashboard, email notifications, and relevant reporting that you can schedule and export anywhere.
For more information about ReliaBills and its amazing invoicing and payment processing services, visit our official website now at www.reliabills.com.
In the world of SaaS, there are an array of accounting metrics that you need to know. However, none are as relevant as bookings vs billings vs revenue. Use this article as a guide to help you get familiar with each of these terms so that you won’t be confused once you’re presented with data that involves them. Happy accounting!