Commonly Confused Metrics: Bookings vs Billings
Our July series on commonly confused metrics
I hate to admit it, but this threw me for a loop for YEARS.
Bookings represent the total value of customer contracts signed during a given period, regardless of when the actual revenue is recognized. This metric is crucial for forecasting future revenue and understanding your company's sales momentum.
Bookings reflect the demand for your products or services and the sales team's ability to secure new business.
However, Bookings do not necessarily translate to immediate cash flow or revenue recognition. There are often timing differences between when a contract is signed and when the actual services are delivered or goods are shipped.
On the other hand, Billings refer to the total amount of invoices issued to customers during a specific timeframe. Billings are a more immediate indicator of cash flow, as they represent the revenue that has been billed and is expected to be collected.
Billings are a more accurate reflection of your current financial position, as they account for the work you've already completed and the payments you've received or will receive. Tracking Billings can provide valuable insights into your company's cash flow and liquidity.
I wrote a Haiku to help explain:
Bookings, future's gleam,
Revenue's bright hopeful dream,
Billings, cash's stream.
Three Key Distinctions
I often revisit these three criteria to keep the metrics straight in my head.