Learn how to calculate bookings, an important metric for any SaaS business
For SaaS (software-as-a-service) businesses, one important metric to measure is the bookings. Users often subscribe to a SaaS for a period of 12 months, so most SaaS contracts are active for a period of time. Bookings capture that potential monthly revenue. In this article, you will learn what the bookings metric is and how it is calculated, why you should calculate it, how you should analyze it, and how you can improve your bookings.
Bookings refer to the expected revenue for a given month in the future. As each booking is tied to the subscription of a user, bookings are calculated from the total of the anticipated revenue for a given month. Bookings serve as the baseline for the minimum revenue that a business can expect; the actual revenue for a specific month will usually be higher due to the potential for new users and subscribers.
As the bookings are tied to the subscription contracts that the users sign on, we can classify these bookings into different types:
You might wonder, how are bookings different from the total contract value (TCV)? Well, bookings do not include the initial costs that your user will have to pay as part of getting the contract or subscription.
Bookings signify not only the amount of subscriptions that you have but also the value your users think they gain from the services you offer. Bookings are essentially the commitment of your users to you to provide the services. Finally, bookings also indicate the success of sales and marketing campaigns. Thus, bookings are one of the main metrics that sales teams measure to assess their performance.
Our first instinct is to expect our bookings metric to always increase! However, this is not always possible, and sometimes it can be a good sign. You should ask two questions:
We can easily answer this by referring to the new bookings. If we record the number of new bookings we get per month, we can also quickly calculate the average new bookings and see if they are opting for shorter-term or longer-term subscriptions.
Renewal bookings and upgraded bookings will help us answer this question. High renewal bookings means that a lot of your users are satisfied with the services you offer. High upgraded bookings means that a lot of your new users are satisfied with the services you offer, and will opt to continue using them! Beware, however, that this may represent a slight drop in your monthly revenues, as monthly subscriptions are often pricier than the annual subscriptions on a per-month basis.
After some time, you may notice a plateau in upgraded bookings. This means that most, if not all, of your users have already switched to their preferred subscription plans.
Finally, you also need to watch your churns. Churns indicate the amount of your users who stop using your service. A high churn rate means that you need to improve something in your service. It could be the features, the prices, or the accessibility. Perhaps you may need a more personalized marketing strategy to retain your users? The next section can help you improve your bookings.
The higher the bookings, the better! Besides improving the services you offer, here are two tips to improve your bookings:
Most SaaS businesses come with at least two options: one with monthly pricing and another with annual pricing. Why? The monthly pricing is for the potential users who want to try their service first, while the annual pricing is for the users who have decided to avail of your services for a longer time.
At the same time, offer an easy way for the potential users to sign up for longer-term subscriptions so they can stay on your service longer.
One major problem with launching your services is aligning them to the needs and wants of your target market. You can load so many features into your service, but it can still fall flat because you were not able to correctly identify the customer’s wants and needs! This can be quantified as the churn rate. The churn rate refers to the rate of abandonment of your service by its first-time users. (You can learn more about churn rate here.) A well-conducted market research campaign can yield surprisingly simple recommendations! It might be that a simple UI change or an addition or removal of a feature or two will make the churn rate drop, thus retaining more users that will opt for longer-term subscriptions.
You will find the second half of this article helpful to learn about conducting market research.
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