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Bookings typically indicate the value of a contract signed with a prospective customer over a given period. They can also refer to the options that a customer selects when signing up for a product or service.
In the business world, the term “bookings” describes the monetary value of a contract with a potential customer. It’s forward-looking, considering the expected income that a business will gain from a contract over its lifetime.
Bookings allow companies to estimate their projected cash flow and potential growth, allowing for better planning and strategic decision-making. However, unlike revenues, the precise definition of bookings can vary across companies.
A booking can also refer to the specific services or features that a customer selects. For example, if a new customer signs up for a streaming service’s “Premium Plan”, which comes with 4K streaming and offline downloads. This type of booking is particularly common with subscription-based products and services.
What Are Revenues?
Revenues is a Generally Accepted Accounting Principles (GAAP)-defined term. It represents the inflows of assets or settlements of liabilities (or both) that come from a business’s operations.
Companies recognize revenues when they have provided a service to such an extent that they can almost certainly guarantee receiving payment. Understanding revenues allows companies to easily measure their financial performance in a standardized manner. This metric is an integral part of financial reporting and is essential in determining a company’s profitability.
Example: The Difference Between Bookings and Revenues
Imagine a SaaS billing and monetization platform offers several different plans for its customers. It has recently signed a new two-year contract with a customer under its Enterprise.
Bookings
Suppose the Enterprise plan costs $2,000 per month. The contract (a booking) represents a total future value of $24,000. In other words, bookings represent the entire financial commitment for 24 months. Considering the value of the booking as a whole helps the company in resource allocation and operational planning.
Revenues
Revenues, on the other hand, are recognized progressively. For example, imagine the customer signed up in January 2022 and was billed at the beginning of that month. By the end of January 2022, the revenue recognized would be $2,000. By the end of June 2017, the recognized revenue would total $12,000.
Conclusion
Bookings and revenues are essential financial metrics, but they serve different purposes. Bookings provide a future-focused view of contracts and commitments. They allow companies to understand their potential growth and future commitments to customers. However, revenues show the actual financial inflows from those contracts, providing a clear picture of the current financial state.