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SaaS Bookings Definition - Two Quick Questions

saas bookings definitionThere appears to be no single approach to measuring bookings for SaaS companies. That said, I would be interested in members' answers to the two questions below. Thanks. 1) Are multi year deals counted as a single booking in the first year -or- is only the first year value counted as a booking with the subsequent year(s) counted as renewal booking(s) in those year(s)? 2) Are renewal bookings counted on the effective renewal date or order date (date the order is legally binding)?

Answers

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

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.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

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.

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

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

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

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.

Topic Expert
Marc Linden
Title: CFO
Company: Intacct
(CFO, Intacct) |

Typically a SaaS business looks at bookings in a very different way than a traditional, perpetual-license software business. Almost all SaaS businesses track Monthly Recurring Revenue (MRR) as the key management metric. MRR is a measure of the predicable, recurring revenue components of your subscription business. The calculation excludes one-time revenue and can exclude highly variable fees. In a monthly subscription model, MRR = billed or paid fees. At Intacct, we also measure CMRR (Contracted or Committed Monthly Recurring Revenue). While MRR measures the current run rate of your business, CMRR measures the future run rate of your business. CMRR is MRR +/- known future changes, so CMRR accounts for future committed revenue and known downgrades or cancellations. MRR and CMMR are not GAAP or industry defined terms and differ than a traditional view of bookings. Adapt these metrics to your unique business model, but be cautious when understanding others' definitions.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Hi Marc - do the analyses show MRR for historical and CMRR for projections (or am I misunderstanding the usage of the two metrics)? CMRR sounds like MRR adjusted for new business projections and churn.

Topic Expert
Marc Linden
Title: CFO
Company: Intacct
(CFO, Intacct) |

Hi Ken, we believe both MRR and CMRR are forward-looking, but show different run rates. You are correct that we calculate CMRR starting with MRR (monthly subscription fees) and then taking into account known, committed new business, add-ons, and churn. MRR is what your business would look like if nothing changed. CMRR takes into account the known changes, which we believe is the more accurate way to view your future run rate.

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