Although bookings and revenues are often used interchangeably, they actually mean two different things.
When a customer commits a contract to spend money with your business, that counts as a booking. In simple terms, think of SaaS bookings as contracts which customers sign up for, but haven’t used your services nor paid you yet.
On the other hand, revenue occurs when a booking becomes actual revenue when you’ve rendered (fulfilled) the promised service. From a GAAP accounting perspective, bookings do not count as revenue until the service or the product is delivered to the customer and there’s a reasonable guarantee of receiving payments for the service.
Examples of SaaS bookings include subscription agreements, license agreements in software, and insertion orders in advertising. However, some SaaS bookings do happen without a contract.
new SaaS bookings, renewal SaaS bookings, and upgraded SaaS bookings. New SaaS bookings represent new customers who have just signed for a product or service.
Renewal SaaS bookings include existing customers whose contracts are up for renewal.
Upgraded SaaS bookings are simply those customers who want to upgrade their contracts. For example, if a customer wants to upgrade from a basic plan at $100 to a premium plan at $500, that counts as an upgraded SaaS booking.
It’s vital for a business to track their SaaS bookings to measure the impact of their marketing strategy as well as the conversion rate. When you understand the number of your bookings and their value, you can determine whether you’re doing a good job in marketing your products or services to customers. It can also help you to establish if your leads are converting into paying customers. SaaS bookings give businesses an enormous amount of insight into efficiency and effectiveness in customer acquisition.
Tracking SaaS bookings is essential when it comes to making comparisons with SaaS revenues. If your business is getting a lot of SaaS bookings, but they are not going into your accounts receivables, it means there is something you’re not doing right. When your SaaS bookings are considerably lower than the SaaS revenues, it means tough times lie ahead for your business.