SaaS Bookings Definition - Two Quick Questions

We go by monthly recurring revenue. We count the amount that will be revenue on a GAAP basis assuming the contract is clean, the commitment is for more than a year, collectability is reasonably assured and the time between bookings is not extensive (usually one quarter). Using monthly as a basis is easy to keep up with and avoids problems of contract duration.

As you noted it will vary by company since it's a non-GAAP measure but I would use the effective renewal date not the order date or churn rates will lose their meaning/comparability (for your second bullet). For the first bullet, you could report all bookings on an annualized basis. I've seen treatment where if it's a multi-year paid up front it's a booking in the period recorded but if it's a multi-year with long-term installments it's a locked in renewal.

Bookings are not a GAAP measure – they are a management measure. Bookings don’t show up on your financial statements unless they are invoiced but not yet revenue – usually under a category like deferred revenue. Since bookings are a management measure, we can make them what we want them to be. There are some general guidelines people use for bookings – but in the end they should be measured to help you understand and guide your business forward.

A huge benefit of a subscription or pay for service world is future revenue predictability. That predictability is one of the main items people are measuring with bookings – what does future revenue look like based on the customers we have already won. At the same time some bookings are less certain that other bookings – the quality of the predictability can vary.

To your original question – if you have multi-year customer contractual commitments then you have multi-year future revenue predictability. If there are potential outs in future years (customer option to renew, evergreen contract cancellation options, uncertainty about purchasers future business stability) that reduces the predictability of the future revenue. This is where segmenting your bookings into categories helps. You could group bookings by current year or future year applicability. You could group your bookings by service type (subscription, setup, service, micro transaction, anticipated or minimum usage). Each company can add a bit of definition and insight into what drives future revenue and how bookings support predicting that future.

Bob Scarborough
www.tensoft.com

One other quick point ...

Since bookings are often a popular measure for your sales team there may be differences in how they report and compensate that team. Bookings for the sales team will be defined by the behavior desired and the compensation plan in place.