SaaS Pricing
Revenue Recognition Basics for Subscription Businesses
Bookings, billings, revenue and cash explained with a single annual contract worked through month by month.
By Emily Richardson · Reviewed by Legamoney Editorial Team
Bookings, billings and revenue are three different numbers from one contract. Confusing them is how forecasts break.
Key takeaways
- Bookings, billings and revenue are three different numbers from one contract. Confusing them is how forecasts break.
- A booking is a signed commitment.
- A billing is an invoice issued.
- Revenue is recognised as the service is delivered.
In this guide
The method
- A booking is a signed commitment.
- A billing is an invoice issued.
- Revenue is recognised as the service is delivered.
- Cash is when the money arrives — often last.
Point by point
A booking is a signed commitment
A booking is a signed commitment. This is the part most people skip, and it is where sales and finance planning costs money quietly rather than obviously.
A billing is an invoice issued
A billing is an invoice issued. Write the answer down before you act on it — an undocumented assumption here is impossible to audit later.
Revenue is recognised as the service is delivered
Revenue is recognised as the service is delivered. Check this against your own paperwork rather than a general guide, because the terms differ between providers.
Cash is when the money arrives
Cash is when the money arrives — often last. If this changes, everything downstream of it changes too, so review it whenever your circumstances move.
A short review checklist
- Confirm which of the points above actually applies to your situation — several will not.
- Gather the documents that prove each figure you are relying on.
- Model the outcome with your own numbers before accepting anyone else's summary.
- Note the date you checked, because rules and rates on sales and finance planning change.
- Keep a copy of any written confirmation you receive.
Questions worth asking
- How does this apply to you: a booking is a signed commitment?
- How does this apply to you: a billing is an invoice issued?
- How does this apply to you: revenue is recognised as the service is delivered?
- How does this apply to you: cash is when the money arrives — often last?
Treat the list above as the agenda for a single sitting. Working through 4 specific questions with your own paperwork in front of you settles more about sales and finance planning than reading another general explanation, and it produces a written record you can revisit when something changes.
Worked numbers
Commission on closed revenue at common plan rates
| Closed revenue | 5% rate | 8% rate | 12% rate |
|---|---|---|---|
| $25,000 | $1,250 | $2,000 | $3,000 |
| $50,000 | $2,500 | $4,000 | $6,000 |
| $100,000 | $5,000 | $8,000 | $12,000 |
| $250,000 | $12,500 | $20,000 | $30,000 |
Common mistakes
- Measuring blended figures instead of by segment or cohort.
- Using revenue where gross margin is the correct input.
- Changing definitions mid-period, which makes trend data meaningless.
- Building the plan around the best rep rather than the median one.
Sources
- 01U.S. Small Business Administration — Manage your finances
Government guidance on small-business financial management.
- 02IRS — Business expenses (Publication 535 topics)
Rules on deductible business costs referenced in compensation and hiring maths.
Frequently asked questions
Which numbers should sales and finance agree on first?
Bookings definition, quota credit rules, discount authority and commission timing. Those four cover most disputes.
How often should these be recalculated?
Monthly for pipeline and churn metrics; quarterly for compensation and quota design.
Does this apply to small teams?
Yes. The arithmetic is identical at two reps or two hundred — smaller teams simply feel a definition error faster.
Editorial transparency
- Written by
- Emily Richardson — SaaS and fintech writer — business software and financial technology
- Reviewed by
- Legamoney Editorial Team — Editorial Team — finance, insurance, lending and consumer legal topics
- How this was researched
- Worked with the standard published formula for this calculation and checked against the primary sources listed below.
- Corrections
- Spotted an error? Tell us and we will correct and re-date the page. See our editorial policy.
- Advertising disclosure
- Ad placements are clearly labelled and never influence editorial judgement or the ordering of comparisons.
About the author
Emily Richardson covers the software side of money: accounting and invoicing platforms, payroll and CRM tooling, payment processing and consumer fintech. Her comparisons are built from vendors' own published pricing and terms pages, dated at the time of writing, rather than from review-site rankings or affiliate placements. She works with the Legamoney Editorial Team desk.
How this article was checked
- Every factual claim is traced to a named regulator, government agency, or the provider's own published terms before publication.
- Figures that change — rates, limits, thresholds — link to the primary source that publishes them rather than being quoted as a fixed number.
- Worked examples are shown as full arithmetic so a reader can reproduce the result independently.
- Each guide is checked by the owning editorial desk before it is published, and again whenever the underlying rules change.
Covers: SaaS pricing models and total cost of ownership · Accounting, invoicing and payroll software · Payments and business banking tooling · Consumer and business fintech products
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Disclaimer
Figures on this page are worked examples produced with standard formulas and the assumptions stated. They are not an offer, a quote, or personalised financial advice. Consult a qualified professional before acting on any information here. Read our full disclaimer.