🎙️ Hey there, SaaSpreneurs!🎙️

Welcome to the latest edition of SaaS Metrics School! 📚🎉 

In this episode, we'll dive into the topic of Software Bookings and whether usage-based revenue should be considered a Booking.

I'm your host, Ben Murray and I'll discuss the importance of distinguishing between subscription revenue and variable revenue and how it impacts metrics and valuations in the SaaS industry. Join us as we explore the criteria for including variable revenue in Bookings reports and gain insights from my experience as a member of the SaaS Metric Standards Board. 📊💼 

Tune in to make sure you have a clear understanding of this hot topic in the SaaS world. 🔥 Thanks for joining us on this educational journey! 🚀👏

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. Definition of a Software Booking: 📝 A software booking refers to an executed contract between a SaaS provider and a customer for products and/or services. It encompasses the various revenue streams outlined in the contract. 💼💰

2. Variable Revenue vs. Subscription Revenue: 🔄 While subscription revenue remains consistent over time, variable revenue is subject to change based on usage, processing, transaction, consumption, or any other variable and unit rate factors. 📊🔄

3. Inclusion in Bookings: 📈 Whether usage-based revenue should be included in the bookings report depends on the presence of contractual minimums. If the revenue can potentially go to zero and there are no contractual minimums, it is not considered a booking. However, if there is a minimum tier and a minimum contractual amount for the variable revenue, it should be included in the bookings report. 💹💯

4. Importance of Contractual Minimums: 🚀 Contractual minimums play a crucial role in determining whether usage-based revenue can be counted as a booking. They provide a level of predictability (helps your valuation) and ensure that revenue does not drop to zero unexpectedly (pandemic). 📌💼

5. Internal Clarity: 🧐 It is essential for SaaS companies to have a clear definition of bookings internally. By establishing guidelines and defining concepts, such as ARR (Annual Recurring Revenue), companies can ensure accurate reporting and make informed decisions based on bookings reports. 📊📆

Understanding these concepts is vital for SaaS businesses seeking to maintain accurate metrics, valuations, and revenue streams. By clearly defining contractual minimums and differentiating between subscription and variable revenue, companies can effectively measure their financial health and make informed business decisions. 📈📚💼

In conclusion, it is essential for SaaS businesses to define and understand what constitutes a booking. Including variable revenue in bookings reports depends on the presence of contractual minimums. It is crucial to determine whether this revenue can potentially drop to zero or if there are minimum thresholds specified in your customer contracts.

If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge of essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,

Ben Murray
Host of SaaS Metric School

📝 Episode Recap 🎧

Welcome to another episode of SaaS Metrics School. In this episode, Ben Murray dives into the topic of whether usage-based revenue counts as a booking in SaaS. He highlights the importance of understanding revenue streams and their impact on SaaS health, metrics, and valuations.

To begin, Ben defines a software booking as an executed contract between a SaaS company and its customer for products and services. He emphasizes the significance of outlining different revenue streams in Bookings reports and closed loan opportunities. This includes subscription revenue as well as variable revenue, such as usage, processing, transaction consumption, and other forms of variable income.

However, the inclusion of variable revenue as a booking depends on whether the revenue can go to zero and whether there are any contractual minimums. If the revenue can reach zero and there are no minimum contractual amounts specified in the contract, it is not considered a booking. This is a consensus shared by the SaaS Metric Standards Board.

Ben stresses the importance of contractual minimums in determining whether variable revenue should be included in the Bookings report and as a Bookings number. If there is a minimum usage tier outlined in the contract and a minimum contractual amount for that variable revenue, it should be included. However, if the usage-based revenue can go to zero and the contract solely outlines quantity times rate, without a minimum amount, it is not considered a booking. This is because it becomes difficult to determine the value and derive meaningful insights from the customer based on variable revenue that can fluctuate to zero.

In conclusion, understanding the impact of variable revenue on bookings is essential for internal clarity and consistency. By defining these terms and aligning them with closed won opportunities, SaaS companies can effectively measure their ARR and accurately report their bookings. 📈📚💼