Bookings, TCV, ACV, Billings and Revenue

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, the founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, independent consultant, EIR at Balderson Capital, and author of Kelblog.

Together we are the Metrics Brothers.

And an odd couple at that. Uh, I want to be Oscar.

Wait a minute, last week you wanted to be Felix.

Okay, well, I think I'm Oscar this week, but we're mixing up— I want to be Click or Clack or I don't know who. Last week we discussed the iconic 2023 Growth Benchmarks Report. What's on tap for today, Ray?

Well, I recently read Hacking SaaS by Eric Mersch at FLG Partners, and I thought it would be helpful to discuss some of the definitions that were in his book that I might have some different perspective or I didn't fully understand. So Today I thought we could talk about bookings, contract value, and billings.

So before we do that, Ray, 2 things. One, when I first saw that book, I was like, oh, thank God someone wrote the book I wanted to write so I don't have to write it. That was my initial reaction. And I actually was the one I think who pushed you to read it. People should know it's there. They should read it. And it did prompt us to talk about bookings, TCV, and ACV. So, so we'll get a good episode from it.

Okay. But before we do that, let's hear a quick word from our presenting sponsor, Maxio. The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave @kellogg and Ray on LinkedIn @rayreich. Thank you so much for listening to the Metrics Brothers podcast. Okay, Dave, let's start with some of the terms that I thought we could cover today. And the first is bookings. So how do you both define and use bookings in your world?

So look, I think bookings is a very useful SaaS metric. I think it's a metric that doesn't get discussed very much, and I think it's a metric that is kind of ill-defined. And what I've found bookings useful for is as a proxy for cash. So therefore, if you're trying to use bookings as an approximation, like this quarter's bookings equals next quarter's cash inflow, grosso modo, if that's how you're trying to use it, which is the way that I like to use it, then it's very simple. Bookings are things that turn into cash. And turn into cash quickly. And we can define quickly in a minute, but that's how I define bookings. So for example, for a new subscription booking, a new software purchase, most companies will have a bookings policy that says it needs to be payable within 60 or 90 days. So I would say that a subscription booking is basically a valid order that turns into cash within 90 days and ideally 30 to 60. So 90 would be the upper cap, not what I'm shooting for. On services, it would be an order for services, a valid order for services that turns into cash within either 6 months or a year, depending on how long your deployments take. But, and therefore, when we do that approximation exercise, just say we're 80/20 subscription services, we can then, you know, if we have $10 million in bookings in a quarter, we know that we're going to get $8 million in cash in the following quarter because that's got a 90-day cap. And that remaining 2 is going to kind of get striped in, right, across 3 or 4 quarters. So, so that's how I use bookings and that's how I define bookings.

So I don't have a religious perspective on this because I prefer total contract value and annual contract value that we're going to use next. But here's an example that I struggled with, with your bookings definition, Dave. So I close a $100,000 annual subscription agreement. Very easy, right? That's a booking, but the customer pays once per quarter. So $25,000 in quarter 1, $25,000 quarter 2. Is that still $100,000 of bookings with the way you used it, Dave?

Yeah, so you inverted it on me. No, it wouldn't be, 'cause I'm basically saying next quarter. So it would be $25,000 in bookings when you're using bookings to approximate cash. Now you knew I grew up in the other world, so that was kind of an unfair question, 'cause it works really well in the multi-year world. I can give you lots of examples. But look, the word I'm going to quibble with you on, Ray, is you said prefer. And to me, this is not a prefer thing. It's like saying I prefer my kidneys to my lungs. They're just different. I need them both. ARR tells me the annual value of a contract. It's great. TCV tells me the total value of the contract, usually N times ARR plus services if you include services in TCV. But this just measures something else. This measures what turns into cash. And look, in my world, let me just finish the definition of bookings. Total bookings is the sum of 2 numbers, subscriptions bookings plus services bookings. And then subscription bookings takes 2 forms, renewal bookings, which people forget to talk about enough, and new subscription bookings. So basically total bookings, if I break it down, equals new subscription bookings plus renewal bookings, which subtotal to subscription bookings, plus services bookings. And you can use it as defined by me as a great way to approximate cash inflow. Now you've given me a corner case. It breaks my cash thing. So I don't know if I'd say in your specific example I'd count it as $100 anyway, or I'd say— I don't know, it's a good case, right?

Yeah, and it's one of those things, it was really unfair because we do prep for these discussions and I didn't even think about that during our prep. So sorry that I threw it out there, but I am not—

You're sandbagging me, right? You're sandbagging me.

I know. I'm not a bookings guy, so I really am taking your lead on this as my elder brother.

Yeah. And I've done a lot of work with bookings. The way I use bookings works. Look, I have trouble not calling yours a $100K booking. Here's the only way I could weasel out of it. If the contract was terminatable every quarter, then I'd say, ah, it actually is a $25K booking since I don't know if I'm going to get the other ones. But if it's an annual contract, yeah, I may have to change my definition, but let's not get wrapped around the axle there. If you're in the multi-year enterprise world like I am, My definition works. If you're not, I think we may have to adjust it. And for what it's worth, I do like bookings because, hey, look, cash is oxygen for a startup and you can have all this great ARR, but if it's not, you know, you can't eat ARR. You can eat cash, you can eat bookings. So it's important to me to have something that's tracking cash. And I love using bookings as a proxy for it because you can just kind of look at a business plan and eyeball it.

I'm with you. I'm really taking your lead on this, but let's move to contract value. So I have 2 different types of contract values that I've defined and used. TCV, which is total contract value. And the way I calculate this, Dave, is it has 3 components. It has your subscription revenue, and whether that's 1 year or 3 years, it's the CAR times the number of years of agreement. It's the professional services that are non-recurring. And I also add in services that are recurring, like A designated CSM at $50K a year. So those are the 3 things I put into total contract value with the important caveat, multi-year, it gets multiplied by the number of years and that's all in there. How does that align with how you define it?

So I try to avoid the terms ACV and TCV. ACV in particular, when I was at Salesforce, ACV meant year 1 subscription plus year 1 services. So if you signed up for $100K a year and you had $25K in services, it'd be $125 ACV. And I think we did that. I don't actually know why, but I think we did it because it's a good approximation for cash. I think it was also how the salespeople were compensated. And one of my funny tests here, Ray, a quick aside, is walk into a SaaS company and say, how big is— what's the biggest deal this quarter? They go ACME. You say, how big is it? They go $150K. And then you ask, what unit were you answering in? And that question, oh, you're answering in TCV, you're answering in ACV, you're answering in ARR, you're answering in bookings. What were you actually answering it? So what's kind of the implied unit on your primary SaaS metric? If I just say, what's the forecast this quarter? Or what's, how big is the Acme deal? Because some companies, at Salesforce, that answer was an ACV. At Host Analytics, that answer would be an ARR. And ARR does not include, in my world, services. ARR is subscription only. So I can't say I use TCV a lot because I think RPO is also a better way, or not better, but RPO is the way I currently look at that concept. We'll come back to that in a minute. But if I were to define TCV and if I were to use it a lot, personally, I'd probably do it on subscription only. And to me, your platinum support or your TAM, whatever it was, that would be subscription. I mean, so it wouldn't be services. To me, it's very simple. There's subscription bookings plus services bookings, and whether the services recur or not, they're services bookings. And therefore I would include them if we're talking about bookings, or if I'm looking at total value of a contract, I would include them. So, because to me, you're just breaking out 2 subcategories, just like I had subscription bookings having 2 subcategories, new and renewal. You're saying, hey, services come in 2 flavors, subscription and non-recurring. I don't know what to call them, one-time. And the answer, the only tricky part about this is you kind of cross taxonomies because some people will say, wait a minute, that's services, but it's recurring, therefore it goes in ARR.

Yeah.

Or ACV, whatever you want to call it, because you wouldn't put it in ACR actually, but you would put it in ACV.

Yeah. So I use this all the time for benchmarking because I want to show benchmarks based upon ACV and based upon ARR and other segmentation attributes. So I have always used ACV as the value of the annual contract that's recurring in nature. So to me, if it was $90,000 recurring of subscription for the software and $10K of recurring for some type of services, but it's contractually recurring, then all $100K would go into my annual contract value, Dave. And that's the way I've always done it.

Yeah. So what you're saying is, and I don't, I use different language, but I don't disagree because to me that $10K, I'm going to call it platinum support. That would show up as subscription revenue. If it flows into subscription revenue on the P&L, which I think it would, if I'm buying a platinum support package for $10K a year, that, that is recurring revenue, i.e., subscription revenue is something I subscribe for, right? It's not called software revenue. It's called subscription revenue. You would put that $10K in there. So yes, it would be, I would call that $100K of ARR. It would be annual recurring revenue because it recurs. The question is for you in your definition of ACV, do you include non-recurring services?

I do not. Never.

Yeah, and I would agree with that. So I think I— look, I don't use ACV a lot as a term, but I think I agree with your definition. On TCV, I tend to default, probably incorrectly, to just, you know, if it's an N-year deal, N times ARR equals TCV. Um, if— and to me, the ARR would already include the services, so I'm not going to fight with you about that one because it's in there already. The non-recurring services I'd leave out, and technically that kind of runs counter to the whole notion of total. So, but usually people don't prepay year 2 and year 3 services. So I'm only missing the year 1 services, to be honest.

Right. But that's what I do. Because if, you know, if you've got 20% of your revenues from services and the board asked me, what was your total contract value? I'd say that was this much subscription, this much services. And those 2 added is total. So a little bit of difference there, but do you mind if we double-click on a nuance on annual contract value?

Yeah.

And I know I, I want to stay away from revenue recognition policy as much as possible because I'm no accountant, but let's say you close a deal which is 3-year subscription. Year 1 is $50K ARR, year 2 it escalates to $60K ARR, and year 3 it escalates to $70K ARR. I know you don't use ACV a lot, but what would be your ACV in that? Would it be all 3 divided by 3? Or would it be different every year?

So, so, so there's a couple of questions in there, Ray. And let me ask— I'm going to answer the more basic one that you didn't ask first, which is in your— I'm going to re-ask your question. Dave, in your parlance, how would you talk about a deal that is $50K a year? It's a 3-year contract and it prepays year 1 only. That's— so I want to restate the question. We'll come back to your more complicated example in a minute. I would call that $50K in ARR. I would call it $150K in TCV. If you had some year 1 services in there, okay, I might call it $150K plus year 1 non-recurring services, but I would call that TCV. I have ARR, TCV. I would call it $50K in what I call new subscription bookings, because booking— yeah, $50K, because only $50K turns into cash quickly. So that would be $50K ARR, $50K NSB, $150K TCV. That would be the Kelloggian way of looking at that deal. Okay.

Got you. Now you know what we do in SAS Metrics Standards Board discussions all the time. These are the type of discussions we have.

And the examples really help, right? The concepts are— look, it's important to have definitions, but to me, the examples kind of elucidate the definition. Now let's do the harder one, the 50-60-70. You ready for that one?

I'm ready for that.

All right. So in my world, the new subscription bookings is easy, 50, because that's how much— that's what's going to turn into cash quickly. TCV, I think, is easy too. 50 plus 60 is 110 plus 70 is 180. So it's 180 in TCV. We agree on that. It's 50 in new subscription bookings. Now the question is, what's ARR? What's the ARR on this deal? And I'm going to give you 2 answers. I know what I want it to be. I want it to be 50 in year 1. I want there to be $10K of upsell at the start of year 2, and I want there to be $10K of upsell or expansion. I'll use them synonymously for right now. In year 3. So that's what I want it to be. And by the way, I encourage salespeople to structure deals like this. I might even give them a kicker, not only to get the 3-year, but also to build the NDR or the NRR into the deal, right? Because this deal is a nice healthy NRR built in. And that's my favorite kind of NRR is the kind I have to do nothing to earn. So no better flavor of NRR. So now the question is, will the accountants come along and flatten this out? And say, wait a minute, 70 plus 60 is 130, plus 50 is 180, divided by 3 is 60. This is actually a $60K a year deal and you've done some financing structure on it, right? We're effectively loaning the customer $10K in year 1, and then the customer's kind of paying us back that $10K in year 3. So is this actually a kind of a software transaction plus a financial transaction or not? And that is the world of ASC 606. where you and I just spent half an hour and how many pages was that document, Ray? What did you learn from that document?

That it was like 600 pages and I have ADD is what I learned.

Yeah, you learned that you don't wanna do, that we don't wanna do ASC 606 on SaaS Talk. So last time I talked to a CFO who has to do ASC 606, they would say cash is king and they would go, it's 50 in year 1, 60 in year 2, 70 in year 3. But that was a couple years ago the last time I had to deal with this issue myself. I don't know what people do today. I would just say in my world, it's $50K in year 1 plus $10K of expansion plus $10K of expansion across the 3 years. And, you know, ask your CFO, ask your auditors to be sure they don't go flatten it out. 'Cause the only thing criminal here would be is if we paid an incentive to sales to structure deals like this and accounting came along and flattened them out. So we paid extra to get zero NDR.

Yeah. And you're right. Ask your accountant, ask your CPA. Another example, some companies that are just— the subscription is based upon usage and they're asking for so much usage, they may have an escalating— it's 20% more usage in year 2 and 20% more in year 3. And then that really opens up the whole ASC 606 can of worms regarding contingent revenue, right?

Yeah. Yeah. I mean, you're right. We're talking about the simple case, which is just annual fee-based SaaS where it escalates across years. And as soon as you bring usage pricing in, it gets much more complicated. The document Ray and I read was only 345 pages, Ray, and it's called Revenue from Contracts with Customers: Navigating the Guidance in ASC 606. So it's kind of a user-friendly manual to ASC 606, and it's 345 pages. So—

Oh, it's only 345. I thought I saw one with almost 600.

Maybe that was one of our other searches. But yeah, look, we know what this deal wants to be. But you need— this is a case where ARR in my mind turns into revenue. So we need to understand how ARR turns into revenue so as to not kind of incent the wrong things.

Okay, now we're about 15 minutes, 16 minutes here into it. So don't leave us yet, listening audience. The next one is billings. So Dave, I know that you've used billings quite a bit and you also have that kind of MBA kind of approach to this. What is billings?

So look, I view billings as a well-defined SaaS metric. It just happens to be a public company metric. So private SaaS people don't talk about it very much, much like RPO, by the way. RPO is a remaining performance obligation, is a public company SaaS metric that like billings does not get discussed much in a private context. And before we end the episode, Ray, we need to come back to RPO because it relates to TCV. But let me answer your question first on billings. Billings is, Revenue plus change in deferred revenue, period. That's what it is. And so it's a simply defined metric. The reason people use it is to approximate bookings, in my opinion, to approximate new ARR bookings, because most SaaS companies don't release the ARR pool. And if you're trying to figure out how much the ARR pool went up, you basically look at how much they burned down in a quarter. So that's kind of how much, you know, in a given quarter, multiply that by 4, you should get ARR. how much they delivered. And then you say, how much did they go bill? And provided they're only doing 1-year deals, right? If you change your billing terms, like all of a sudden you start billing 2 years in advance, the deferred revenue's gonna shoot way up. So everything needs to be kind of ceteris paribus. But if things are ceteris paribus, it's actually not a bad approximation 'cause you're looking at what you burned down in a quarter and you're adding, just pretend all the deals come in at the end of the quarter, all the stuff where you burned down nothing. And well, either way, you throw it in deferred revenue. So you look at the change in that pile And it kind of approximates how much you sold in the quarter, right? So that's what billings is. It's a public company SaaS metric. Private companies don't use it because we can disclose directly the thing that people care about, which is new ARR.

Now, I have— I was in one company and I got confused by this, so I had to go and do some research, but they interchanged how much did we invoice in this accounting period With billings. So it's like, hey, our invoices went out for $1 million this quarter, so that was our billing. So to me, that was a misuse of the term billings. You agree with that, right?

Well, or a couple of uses. There's actually 2 uses. I mean, some— I mean, basically some accounting people will say that billings— it's funny, it's kind of SaaS metrics billings versus billings. But billings, if you just say billings is the sum of the invoices, I'd say yes. But I'd also say that billings is revenue. But in a SaaS metrics context, Billings is revenue plus change in deferred revenue.

So I think it's really important to understand in your companies how you're defining billings. And when that word gets thrown around, to at least know which of those 2 approaches they're taking, right?

Oh, absolutely. Yeah, I'm glad you brought it up. I was answering in the SaaS metrics context, obviously. But yeah, I would even dare say the more standard definition of billings is the sum of the invoices. But that's when we're talking about public SaaS companies and financial analysts write about billings. They're writing about revenue plus change in deferred revenue.

So that's right, you know, whether we're writing a book or writing standards for the SAS Metric Standards Board, it's these nuances that you really need to be able to cover and make sure everyone is using it the same in your company. Very important.

Okay, 2 things I wanted to hit, Ari. I wanted to hit RPO. So RPO is a metric that's called Remaining Performance Obligation. It is spiritually similar to TCV. Which is you're trying to capture the total value of the kind of stuff we sold. And TCV does it by just saying, hey, how many years of subscription are in the contract and add services on top if you want to. And then you get TCV. It's total value of the contract. You add up all customers and you get TCV for a period. RPO is trying to get the total kind of outstanding work yet to do. And it represents basically, I'm just going to give an example. We do a 3-year deal. 100 units a year, 1 year prepaid. So it's 100 units of ARR, it's 100 units of new subscription bookings, it's 300 units of TCV. Just say there's no services, there's nothing to debate. The question is, on the first day we signed that deal, what do things look like? And the day we signed that deal, we're going to have an invoice out for 100 units and we're going to have on the balance sheet 100 units of deferred revenue, right? Because we invoiced 100 units, we got paid in effect for 100 units because it's day 0 of the contract, we haven't delivered anything. Well, where did those other 200 units go? So we could see the deal happened 'cause we now have 100 units of deferred revenue on the balance sheet, but it's actually a $300K deal. We signed a 3-year contract or maybe a 10-year contract. So it's a million-dollar deal. And the answer is that's what RPO is. So RPO is basically, and I believe it's defined inclusively, it's deferred revenue plus the leftover stuff that's contractually committed. 'Cause you could do, just to blow your mind, you could do RRPO, like, oh, just the remaining part that's not in deferred revenue. And there is some distinction to be made between short-term and long-term deferred revenue that I don't know about. your local accountant, but I just know the spirit of this metric is to say, if this was a 3-year deal, 100 is showing up in deferred revenue, 200 is effectively invisible. Where does it go? RPO. And that's that metric. And I think public companies talk much more about RPO these days than TCV. It's a hard metric to interpret because you're including different length contracts, right? I may have 200 more to deliver on you because it was a 3-year deal. Say I did a 6-year deal with somebody else, I got 500.

Right.

Right. So that's why ARR is better to look at because we know it's going to be recurring. But in point of fact, this is something valuable to measure and people do measure it.

But in that definition, the way you did it, if $100K went into deferred revenue every month, as you recognize 1/12 of that, deferred revenue will go down by that equal amount, correct? But the RPO stays the same.

Yeah. Deferred revenue will burn down to zero across the year. This will all reset on day 366. But yeah, as an RPO will go down. Sorry. No, because we've delivered— wait a minute. Will RPO go down? Give me a second. RPO, remaining performance obligation. Oh, that's an interesting one, right? Well, it should go down because deferred revenue is going down. It's inclusive of deferred revenue. So yes, yes, it will go down.

See, that's very important. Thank you for clarifying that. RPO is the deferred revenue plus the outlying RPO. And so every month it'll go down by the amount of recognized revenue for that contract.

Yeah, RPO is basically deferred revenue plus RRPO, right? The leftover stuff, but it is defined inclusively. So there's the kind of unnamed second part. It's deferred revenue plus the leftover stuff that is contractually committed. That sum of it equals RPO. So if deferred revenue is burning down, RPO is burning down, which actually makes sense because you have delivered every month, you're delivering $8,300 worth of work.

Before we wrap up, Dave, anything else you want to make sure we covered?

Well, I made a math mistake last week, Ray. I wanted to get that off my chest. I somehow decided that the inverse of 0.6 was 0.8. Or conversely, and you didn't catch me on that race, you owe me one. I was trying to do the CAC equivalent of the magic number. And I remember I did 2 things wrong. I said one, net magic number, why is the word net there? And the answer is, well, I was right and wrong on that one because net is implicit in the definition of magic number to me because it's done on revenue, which means it's automatically net, right? Because you're not doing it on ARR where you're looking at new ARR versus churn ARR. You're just, you're doing it on change subscription revenue as defined. So that is inherently net. Uh, I inverted that number incorrectly. Oh, and I think I made one other mistake maybe, that we looked at CAC payback period and we decided the 30 was really long. And I don't know if we've left that one unanswered yet. I thought it was long because we were looking on a net basis, but don't you always look at CAC? No, you don't always look at CAC payback period on a net basis, do you? Oh shit, we'll come back to it.

No, most people don't look at it on a net basis. I'm still walking away questioning Why it's 30 to 31 unless you do it on a net ARR growth basis. That's the only way I can get there.

I think that's what's going on. So we owe the audience an answer to that question next week, Gray. I'll keep you honest for that. But that's what I wanted to share with the audience because my gut, I was kind of in the shower thinking about that. Don't ask me why. And I'm like, oh, I bet it's happening on a net basis, which is why it's so long.

But Dave, you know what this highlights? You and I do a lot. We live this every day. We do a lot of research. We talk about the script for every episode. And there's still some complexities and nuances that are just hard to catch. And that's why the executive team at the board meetings, you need to have these level of discussions to get alignment so that 2nd quarter, 4th quarter, 8th quarter, that you know exactly what you're talking about.

Yeah. Or in my opinion on that issue, you need to— I actually believe the better answer is a metrics committee where you get a small group of the willing and they go understand it. Because you don't want to subject the whole board necessarily to this level of detail. But usually there's a few people, the CFO, one of the independent directors who care, maybe the ops person who's not on the board, and you get that group together to make sure that they really understand what's going on. And then there are people on the board who can report back, hey, at this company, we had that conversation. Here's how we answered it.

And if that's something that you and your listening audience are interested in and you're still listening, Please contact me because I would love for you to join a working committee at the SAS Metrics Standards Board. That's exactly the type of people we want, Dave.

Yeah, maybe we should do an episode on actually dealing with boards and metrics because a lot of boards I work on, I end up suggesting a metrics committee. So different idea. One's a standards committee for Ray's thing, and one is just should your board have a metrics committee? And that might even be a fun episode.

That's a great one, Dave. Hey, I got to run. Thank you so much. And thank you most importantly to our listening audience.

Thank you guys. Take care. The Metrics Brothers: AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC and a member of the Benchmarket Podcast Network. By accessing this podcast, you acknowledge that The Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told. Ray, information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X @rayreich. Dave Kellogg is based in Silicon Valley and available on X Kellogg. Schedectity, which is French for unspellable, is not our actual production location. Thanks for listing.