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Bookings is a Salesperson’s term and Revenue is an Accountant’s term.
Bookings = Total Amount of Contracts or Deals. Sometimes Bookings is defined as what will be invoiced over the first year of a deal. This is a Sales Person’s barometer and the Board loves focusing on these numbers because it means the company is closing big deals and has momentum. Bookings is a Leading Indicator for the business. The Board knows that eventually all those Bookings will eventually be recognized as Revenue.
Revenue = The amount of Revenue that corresponds to the services delivered in a specific month or period. This is how accountants think because you can’t recognize an entire deal in one month, or one quarter if the service will be provided over a longer time. So a 12 month deal will have the revenue recognized over 12 months. All the other invoiced amounts that are not recognized in a specific month, sit in Unearned Revenue, waiting to be recognized in the future. Revenue for SaaS companies is a trailing indicator, it reflects what you have done in the past.
Let’s dive into some examples, and also talk about ARR, a term often thrown around when discussing revenue. We’ll use Kruze Consulting, my CPA firm, as an example to illustrate this.
Kruze Consulting has over $20 million in recognized revenue over the past 12 months. Note that this is recognized revenue, not bookings and not ARR (the team discusses the definition of annualized recurring revenue here and breaks down the difference between billings, recognized revenue and ARR here.)
So, based on GAAP accounting, Kruze’s top line number over $20 million, which means that our firm delivered over $20 million in services, and invoiced for those services, in the past 12 months.
Now let’s discuss our bookings - Kruze signs contracts with our customers to provider services. Our clients often sign contracts in advance of us delivering the services. For example, a client may prepay for tax compliance services. Using GAAP revenue recognition, we would not immediately recognize all of that contract value if the service is to be delivered in the future. Instead, the sum total of all of those contracts would be our bookings - a somewhat higher number than the over $20 million number we referenced above.
It’s a little out of context for this page, but let’s also dive into how you’d calculate Kruze’s ARR. A meaningful portion of the services that Kruze provides are recurring services; our clients have signed contracts to receive services every month, on a continuous basis, and are invoiced and pay accordingly. These services would be considered recurring revenue, and could be called MRR and ARR if annualized. However, our Kruze also provides one off services, such as help preparing for due diligence - this one time revenue would not be included in an ARR or MRR calculation.
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