Billings, Bookings and Backlog: Whats the Difference?

This shows the money you expect to receive over the next two years for the project. However, revenue backlog isn’t tied to a specific period — it’s based on contracted revenue. 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. 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.

1. While there’s no easy answer, it’s important to understand the pros and cons of each before making a decision.
2. Real-time data on AR aging and overdue invoices enables the AR team to stay on top of collections and optimize the AR processes when required.
3. The mix-up is understandable — both terms refer to revenue for something you’re going to provide in the future.
4. In reality, as soon as the deal ends, you will likely secure fewer contracts.

How can Mosaic help manage revenue backlog?

While there’s no easy answer, it’s important to understand the pros and cons of each before making a decision. For companies using accrual-based accounting, revenue is considered recognized when a performance obligation is satisfied. For example, revenue for a product is recognized when the customer takes possession of it. Tracking both backlog and deferred revenue will give you the most complete understanding of your organization’s finances. For example, if you’re not a SaaS business and instead you sell physical products, you probably don’t have a meaningful revenue backlog. Revenue backlog differs from revenue in that it is money that you expect to receive for a future service rather than money that is actually in your account.

What are Bookings in SaaS?

When it comes to tracking bookings and revenue, there are five major mistakes that companies often make. Simply put, Bookings reflect the total value of orders or contracts that have been signed but not necessarily delivered or invoiced. A big misconception companies can sometimes make is to think of bookings and revenue as the same thing. Bookings can include deals that are not yet finalized or implemented, whereas revenue only accounts for completed transactions. Regardless of when the payments for these orders will be received, they will be delivered on every month the contracts are active. Make sure to track start/end dates correctly and note when contracts will be rebilled to make sure they go out on time.

Bookings vs. Revenue: Top Mistakes Companies Make When Tracking These Metrics

This is a snapshot of just how different these metrics can be despite being related to each other. Various types of Bookings accounting errors and corrections include  New Bookings, Renewal Bookings, and Upgraded Bookings. However, it is also important to understand Annual Contract Value (ACV) Bookings, Total Contract Value (TCV) Bookings, and Non-Recurring Bookings . In the life of a SaaS accountant, preparing a revenue report can get complex… quickly.

ASC 606 requires you to make disclosures about your unfulfilled performance obligations. Companies have to report qualitative and quantitative information on the amount of the remaining obligations and when those remaining amounts will be recognized as revenue. The mix-up is understandable — both terms refer to revenue for something you’re going to provide in the future.

Computing SaaS Metrics like Bookings, Billings and Backlog

As you can see from the above, using the BBB metrics you can gather information to form a relatively precise and detailed idea commission expense accounting of the way your business is going. For instance, you’ll be able to tell which products bring you the most revenue. You will also have an idea of whether you will meet various goals in terms of sales and revenue, whether your orders are being delivered on time, and more. A backlog represents potential revenue that has not yet been booked. This can help you forecast your future sales and determine if you can take on more work. However, a large backlog can also tie up working capital and create cash flow issues.

We’re sure that the main, overarching goal for your organization is business success. In order to achieve this, however, you need to be able to adapt to changes in the market and have the right information to allow you to do this. pandl accrual vs cash accounting The bookings, backlog, and billings (or BBB) information that you have is a crucial part of your success. Backlog can be a useful metric for assessing a company’s future sales growth potential since it represents the value of all sales that have been contracted but not yet fulfilled. If you’re like most business owners, you’re always looking for ways to improve your bottom line. One of the biggest debates in the business world is the importance of backlog vs bookings.

Your revenue backlog doesn’t affect the official revenue you report on balance sheets and other financial documents. For SaaS companies, tracking your revenue backlog gives you a more complete picture than revenue alone. Any type of business can monitor revenue backlog, but it’s especially important for SaaS companies that run on subscription models because subscriptions naturally create a backlog. It isn’t an official GAAP metric, and you’re not required to disclose it in your company’s annual 10-k reports. But it can still be a very valuable metric for you to track and report on internally.

Since RPO serves as a proxy for future revenue, the RPO growth rate provides a leading indicator of growth. In Splunk’s case, the RPO growth indicates that the company will show Total Revenue growth in fiscal year 2021. Venture-backed companies have long tracked this dynamic, though not with RPO. We use average Total Contract Value (TCV) and the ratio between TCV and ACV as metrics to measure future revenue opportunity. In the example above, TCV is the value of the three-year deal or $360,000 and the TCV/ACV metric is 3.0. We will use an for our example because these companies typically have contract terms greater than one year’s duration.

Next, subtract the revenue that’s already been recognized for each contract. Essentially, this recognized revenue is the amount billed and earned as the services are delivered. Add these up to get your company’s total amount of revenue backlog. The main difference between bookings and ARR is their focus and timing.