Published on Tuesday, March 28, 2023
Tracking bookings and revenue is critical for companies to understand their financial health and make informed decisions. But companies often use the terms interchangeably, despite the key differences between them. This is a big problem. Both metrics measure critical parts of a business – but to accurately assess its financial health, an organization needs to keep them separate.
This guide breaks down the difference between these metrics, why understanding the difference is critical for effective revenue operations (RevOps), and some of the chief mistakes companies make when measuring them.
Related article: Revenue Operations vs. Sales Operations: Key Differences
What is the Difference Between Software-as-a-Service (SaaS) Bookings vs. Revenue?
The definition of SaaS bookings is the total value of orders or contracts that customers have made for a SaaS product or service during a specific period.
The SaaS bookings definition is the total value of orders or contracts that customers have made for a SaaS product or service during a specific period. This includes new sales, renewals, and upgrades. Bookings are recognized when the contract is signed or the order is received, regardless of when the revenue is recognized.
SaaS revenue, on the other hand, refers to the actual amount of money received from customers during a specific period. Revenue is recognized when the service or product is delivered and invoiced to the customer. In the case of SaaS, that would be a monthly or annual payment for the service.
A big mistake companies can sometimes make is to think of bookings and revenue as the same thing. They’re not. Bookings do not always result in revenue. Bookings can include deals that are not yet finalized or implemented, whereas revenue only accounts for completed transactions.
While bookings can provide insight into the company’s future revenue potential, revenue reflects the company’s current cash flow. By analyzing both metrics respectively, SaaS companies can make informed decisions about their pricing, sales, and growth strategies.
Bookings vs. ARR
ARR (annual recurring revenue) is a forward-looking metric that represents the expected annual revenue from existing customers and contracts. ARR is calculated by taking the total recurring revenue generated from a company’s customer base and dividing it by the number of years in the subscription term.
The main difference between bookings and ARR is their focus and timing. Bookings focus on the total value of orders or contracts signed during a period, while ARR focuses on the recurring revenue generated from those contracts over a year. Bookings are a backward-looking metric that reflects past sales activity, while ARR is a forward-looking metric that reflects expected future revenue.
Bookings vs. Billings
Billings are recognized when the product or service is delivered and invoiced to the customer, and therefore reflect the actual revenue that a company has earned during a given period.
Bookings, on the other hand, reflect the total value of orders or contracts that have been signed, but not necessarily delivered or invoiced.
Related article: The Optimal Sales Operations Organizational Structure and Why RevOps Must Play a Role
5 Common Mistakes Companies Make Tracking Bookings vs. Revenue
When it comes to tracking bookings and revenue, there are five major mistakes that companies often make.
Mistake #1: Confusing Bookings With Revenue
When organizations confuse these two terms, it can have the following consequences:
- Inaccurate Financial Reporting: When bookings are confused with revenue, financial reports may not accurately reflect the actual financial health of the company. This can lead to misinterpretation of the company’s financial position by investors, lenders, and other stakeholders.
- Poor Decision-making: Confusing bookings with revenue can lead to poor decision-making, as it can result in an overestimation of the company’s revenue and cash flow.
- Unreliable Forecasting: Bookings provide insight into future revenue potential, while revenue reflects the company’s current cash flow. Confusing the two can make forecasting unreliable, as it can result in inaccurate revenue projections and unrealistic growth targets.
- Increased Risk: Confusing bookings with revenue can increase risk to a company by causing a misallocation of resources, overvaluation of the company’s assets, and an inaccurate assessment of creditworthiness.
Mistake #2: Ignoring Cancellations
Companies often focus almost entirely on bookings without giving enough thought to how cancellations are weighing on revenue down the line. Such an oversight can have ripple effects, with companies overestimating their revenue and cash flow based on projections of revenue that don’t take cancellations into account.
Also, ignoring cancellations will have an effect on future bookings – not just revenue – because it reflects poor customer satisfaction and negative customer experiences that will make it harder to sell later.
Mistake #3: Inconsistent Tracking
Inconsistent tracking is another common problem for companies, as it’s not uncommon for companies to have different departments track these metrics in different ways, which makes it difficult to get a complete picture of the company’s financial performance.
Companies must establish clear guidelines and procedures for tracking bookings and revenue and to ensure that all stakeholders follow them consistently. Otherwise, the company will constantly grapple with errors in data entry and just generally unreliable data.
Related article: How to Build a Revenue Operations Software Stack for a B2B Business
Mistake #4: Failing to Account for Discounts
Discounts have an obvious impact on revenue, but that isn’t always taken into account by companies that rely on them to boost bookings. If your team makes a booking based on a discount, but enters it into the system as full price, you will end up creating unrealistic revenue projections.
It’s important to train employees on how to track discounts within your system to ensure that the revenue they actually booked is correct. Also, companies should conduct regular audits to ensure discounts are being properly recorded.
Mistake #5: Not Analyzing the Data
Perhaps the most common mistake companies make is not taking advantage of the wealth of data at their fingertips to make adjustments and improve revenue operations. The simple act of not carving out time to analyze this data means you’re missing potential sales, failing to spot underperforming products or services, and not taking advantage of opportunities for expansion.
Companies should assign people to analyze the data and set aside time each week – or at least each month – to talk through some of the insights this data provides. It can make a world of difference for future bookings and revenue.
Related article: How to Structure Your Revenue Team for Success
Boost Both Bookings and Revenue by Building a RevOps Strategy
Tracking bookings and revenue properly is just a small piece of the puzzle – ultimately, your goal as a business is to grow both. The best way to do that is to build a RevOps strategy that is tailored to your company’s needs and goals.
That’s not an easy process, but it’s one you must undertake if your business is going to grow. All of your departments – from sales to marketing to accounting – must be unified in the shared goal of growing revenue for the business.
Learn more about creating your own revenue operations strategy with our guide: