What are bookings and sales?
Bookings and revenue are commonly used to measure a company’s financial performance and make important strategic decisions. While both are related to a company’s income, they represent different concepts and have distinct purposes in the revenue cycle.
Bookings are places where contracts have been signed. They find out how much people want a business’s goods and services.
Revenue is the cash a business gets from its customers minus any returns, discounts, or allowances. It shows how much a company sells or gives.
Bookings and income are not the same in a few critical ways:
- The time. Bookings are entered as soon as a contract is signed, even if the money isn’t received until later. The company only records revenue once the payment has been received, which means the service or product has been provided.
- Parts and pieces. Bookings are possible sales or orders that have been agreed upon but not yet carried out. Revenue only includes deals that have been finished.
- ₷Right on. Bookings are built on signed contracts, so they can sometimes give a false picture of how well a business is doing financially if the contracts aren’t kept (for example, because customers leave). Revenue gives a more accurate picture of how much money a business makes.
- You are looking ahead vs. looking backward. Reservations show how much money you might make in the future and can be used to guess how much you will make in the coming months. Revenue is based on past sales and shows how well a company has done financially.
- Between strategic and tactical. Bookings are mainly used to make long-term choices, like planning investments. Revenue is used to make strategic choices, like how to price products or how well they work.
In short, bookings are the first step in the income cycle because they show how much extra money will be made in the future. Revenue, or actual customer income, is the last step because it shows how much the business has made. Knowing how they work together is essential to understanding a company’s present and possible future financial health.
Synonyms
- Bookings in SaaS
- Bookings in the revenue cycle
What do bookings mean?
Bookings show how many and how much the new contracts or orders customers have signed that the business hasn’t yet carried out are worth. Bookings for SaaS companies are the total value of new customer accounts or renewal contracts signed during a specific period. As long as they’re part of the deal, they include extra services like training, implementation, and support.
Bookings are an essential measure for budgeting and forecasting because they show how much money will be made in the future. Businesses often keep a close eye on plans to see how many sales they make and guess how much money they will make.
Because bookings aren’t guaranteed that all contracts will be fulfilled or that customers will pay in full, they can’t be used alone to predict income growth.
What do billings mean?
Billings are the amounts of money a company charges its customers during a particular financial period. People usually use it to determine how much cash a company has on hand because it shows how much money it thinks it will make soon.
Regarding SaaS, billings include a business’s incoming payments, such as regular subscription fees, support and consulting fees, and one-time fees. Bookings and revenue can be different if a customer pays in advance for a subscription that lasts for more than one time.
The balance sheet and income account are not changed during the booking stage. Customers who owe money to a business can be listed as an asset on its balance sheet during the billing phase.
What does “recognized revenue” mean?
Bills a company has marked as revenue in its books are called “recognized revenue.” It’s the actual money that a company makes from its customer contracts.
Bookings are contracts for the future; billings are current income, and recorded revenue is income from the past. ASC 606 says it should only be recorded after the company has met its obligations and received payment. So, the number of bookings could be much higher, while the recognized income will slowly rise over time.
Different Kinds of Reservations
- There are three main types of bookings. A few others are common for SaaS companies that sell contracts lasting more than one year.
- People who have signed up for the product or service for the first time are called “new bookings.” This includes people who have never bought from the company before and those who have bought different goods but agreed to buy a new one.
- Current users whose contracts are up for renewal are included in renewal bookings. Companies write them down on the date they’re due to be renewed or as soon as they get the request, whichever comes first.
- Upgrade bookings will finally turn into expansion income. They are first marked as bookings when a customer increases the value of their present contract by adding more paid users, buying more licenses, or investing in more products.
- Every year, SaaS companies ask for an annual contract value (ACV) booking when they need a one-year commitment up front for a multi-year deal.
- Total contract value (TCV) bookings are like ACV bookings, but they show the total value of a long-term deal. They are used when the customer agrees to pay for the whole deal, even if they don’t pay it all at once.
- Non-recurring bookings are the one-time fees that come with the first steps of initiating a contract. Some of them are costs for implementation, setup, infrastructure, and skilled services.
Why it’s Important to Track Bookings in SaaS
When a company gets paid, its sales don’t always match its business goals and efforts. Bookings let them know how much business they can expect in the future, which helps them plan expenses like hiring more people or making a new product. It’s also helpful in judging how well marketing and sales are doing.
Evaluate the prospect-to ratio.
A financial measure called “prospect-to-bookings” shows how many prospects turn into customers by comparing the number of new meetings with prospects to the number of closed bookings. As a pretty accurate indicator of sales performance, it shows how well the sales team takes care of leads, moves them through the pipeline, and finally turns them into paying customers.
A high prospect-to-booking number shows that a business has a good sales team and is good at turning leads into customers. There may be problems with the product, the sales plan, or the competition if the ratio is low.
Find the best way to set prices.
Companies can learn much about their customer’s buying habits and trends by closely tracking and studying booking data. For example, the number and size of bookings can show what kinds of price structures customers like, like monthly subscriptions vs. annual contracts. Companies can also see how price changes affect sales, allowing them to test and improve their pricing strategy.
Booking insights can also find links between prices, sales success, and the cost of getting a new customer. So, if it’s adequately understood, it can help businesses set competitive and sustainable prices and make the most money for their target market.
Find problems with contracts.
If a company keeps getting low-value bookings or the average contract value goes down over time, this could mean that there are problems with the way they make contracts or sell them. The same goes for low numbers of upgrade or renewal plans or high numbers of customers leaving, showing that customers aren’t happy with the service.
A low rate of upgrades or extensions could also mean you aren’t keeping customers or trying to sell them more. So, the bookings data acts as an early warning system, letting the business spot and fix any problems with contracts before they get worse. This keeps customer relationships solid and long-lasting.
Find problems in the sales cycle.
Since bookings lead to sales, keeping an eye on booking data can help you find any problems in the revenue cycle. If a business sees a lot of new bookings but not much income, it could mean there are problems with billing or collections. In the same way, if there are a lot of upgrades and renewals but not many expansion sales, this could mean that the tactics for keeping customers and growing the business aren’t working right.
As early as the sales and marketing steps of the bookings and revenue cycle, they can also be used as a diagnostic tool. Companies can find problems in the prospect flow by looking at booking numbers. This will increase the number of leads and conversions.
For instance, a lack of one-time bookings could mean the business relies on one-time payments instead of recurring revenue, which is unsuitable for a SaaS company in the long run. Or, sudden booking drops could mean problems with how leads are found or how well the sales team is doing their job.
How to Figure Out Reservations
Bookings are easy to figure out. It’s just the total number of new sales or contract renewals a business gets during a specific perien agreed upon but not yet paid for.
One way to find out how many bookings there were is to add up the value of all the new contracts signed during the period, whether monthly or yearly.
How many more licenses sold to current customers are worth
Customers promise to grow and stay with the business
All the one-time or professional service fees that new or current customers have agreed to pay.
Remember that these numbers must come from customer promises, not accurate payments. A buyer who has agreed to pay $50,000 over the next year still has made a reservation for $50,000, even if they only paid the first $10,000 this month.
How to Turn Reservations into Money
When a business has done what it agreed to for a customer, and that customer knows it, bookings turn into income. For example, SaaS businesses can record revenue when the service is fully delivered or based on completion percentage.
For example, on January 1, a SaaS company sells 100 users a $10,000-a-year plan. The total number of reservations is 100,000, which is $1,000,000. However, the business only records $83,333.33 in income for January (1/12 of $1,000,000) since that’s how much of the monthly subscription was paid for in advance.
The best ways to make sure that bookings turn into sales
Customers have to go through the whole cycle for a business to reach the revenue recognition stage, which means that the customer’s bill has been paid and the business has made the money. From bookings, several people will leave or not pay. This is mainly relevant for significant, long-term contracts where revenue spreads over time, but bookings show the total’s total value.
- The company’s Customer Success team’s primary goal is to increase the number of bookings that turn into sales.
- For a company to reach the revenue recognition stage (where the customer’s bill has been paid and made), it has to take the customer through the whole cycle.
- Make sure that the price plans of the sales and customer success teams are the same so that customers know what to expect.
- Review your ticket data regularly to find patterns and trends affecting your income.
- Give customers different ways to pay, like weekly or yearly, so that you can meet their needs.
- Set clear terms and conditions for the contract to avoid disagreements or delays in recognizing income.
- CPQ software can help you handle contracts more quickly and automatically, reducing mistakes and boosting productivity.
- Use subscription management and payment software to automate the collection process and reduce defaults and forced customer turnover.
- Keep an eye on and raise customer happiness so that customer success can keep customers from leaving and find ways to sell more to them.
