Billings is the amount that you’ve invoiced for that is due for payment shortly. For example, if you closed an annual contract of $12,000 in May, where payment is due quarterly, the total billings for May would be $3000. The rest of the contract would be accounted for as “deferred revenue” because you have yet to invoice for it. You’d see billings of $3000 in August, November and February from this same contract as you send out your quarterly invoices.
Take a look at the example for this one particular contract in the chart below.
Billings is an important metric because it helps show how much money you’ll actually be collecting in each time period. Especially when cash is low, billings can be a key indicator in the health of a business.
Billings vs Bookings vs Revenue
Billings, Bookings and Revenue are all slightly different variations of measuring how much money your clients are paying you and when. Bookings are what customers have committed to spending with you – for example, the entire $12,000 annual contract from earlier would be added to the May bookings. (We’ll talk more about Bookings in a future Academy lesson…)
In accounting principles, revenue can only be realized when the service is provided. This is because until you’ve met your contractual obligations, the money that’s committed is at risk. For example, imagine a customer signed up on an annual contract, but cancelled halfway through the year due to poor service. You’ve only recognized revenue for six months, because the second six months won’t be collected. For this reason, the revenue from that $12,000 annual contract would be shown as $1000 revenue per month. Take a peek at what breaking down that contract into Bookings, Billings and Revenue looks like over a full year.
Billings can provide a better picture of the health of a SaaS company because Revenue tends to understate the true value of a customer – due to deferring value until the service is provided.
- Billings – The money you’re currently owed.
- Bookings – The money customers have committed to paying.
- Revenue – The money exchanged for the service provided in that time period.
Predictability in recurring revenue is important to SaaS startups, but cash is king. If you can bill for more money upfront, you’ll be able to invest it in growing your business. This is why increasing billings is critical to jump starting growth.
Offer discounts for annual pre-paid service – Encourage customers to sign up and pay for a full year upfront by offering a discount. Having that extra cash in the bank now is more valuable than the small reduction in monthly revenue.
Convert existing monthly contracts to annual contracts – we were able to increase annual conversions by 30% by using Intercom’s in-app messaging. Once customers had spent a few months on the monthly plan, they were happy to commit to a full year in order to enjoy a small discount.
Hustle – every single day matters when it comes to closing a big deal. Getting that invoice on the books earlier means you’ll get the money in your bank account earlier.