Few topics create more confusion between finance, sales, and operations teams than the distinction between revenue, bookings, and billings. These three metrics often get used interchangeably in casual conversation, but they measure fundamentally different things. Conflating them leads to misaligned incentives, inaccurate forecasting, and compensation disputes that consume cycles from every team involved.

This guide provides clear definitions, practical examples, and guidance on how each metric should factor into your sales compensation design and financial planning.

Definitions That Matter

Bookings

A booking is the total contract value committed by a customer when they sign a deal. It represents a future obligation to deliver a product or service in exchange for payment.

Example: A customer signs a 3-year SaaS contract for $120K per year. The total bookings value is $360K. The annual bookings value (often called Annual Contract Value, or ACV) is $120K.

Bookings are a leading indicator. They tell you what the sales team has sold but do not yet reflect cash collected or revenue earned.

Billings

Billings represent the amount invoiced to the customer. Billings timing depends on the payment terms in the contract, which can be monthly, quarterly, annually, or upfront for the full contract term.

Example: Using the same $360K contract, if the customer is billed annually in advance, billings in Year 1 are $120K. If billed upfront, billings at signing are $360K. If billed monthly, billings are $10K per month.

Billings are a cash flow indicator. They tell you when money is expected to arrive (or has arrived) from the customer.

Revenue

Revenue is the amount recognized in the income statement according to accounting standards (ASC 606 or IFRS 15). Revenue is recognized as the performance obligation is satisfied, which in SaaS typically means ratably over the subscription period.

Example: For the $360K, 3-year contract billed annually in advance, revenue recognition is $10K per month ($120K / 12 months), regardless of when the cash was collected.

Revenue is the accounting measure. It is governed by rules, not by when the deal was signed or when the invoice was sent.

Why the Distinction Matters for Compensation

The metric you use to credit and compensate sales reps has a profound impact on their behavior and your financial outcomes.

Compensating on Bookings

This is the most common approach in SaaS companies. Reps earn commission based on the ACV or TCV of the deals they close.

Advantages: - Directly rewards the selling activity the rep controls - Simple to calculate and easy for reps to understand - Aligns with the sales team’s primary function: acquiring customer commitments

Risks: - Can incentivize reps to close large multi-year deals with heavy discounting to inflate the contract value - Does not account for deal quality; a customer who churns after three months still generated a booking - Multi-year bookings can create lumpiness in commission expense relative to the revenue those deals generate

Compensating on Billings

Some organizations tie commissions to billings, paying reps when the customer is invoiced or when payment is collected.

Advantages: - Aligns commission expense more closely with cash inflow - Reduces the risk of paying commission on deals where the customer never actually pays - Naturally penalizes deals with unfavorable payment terms

Risks: - Reps may avoid annual or multi-year prepayment terms, even when they benefit the company, if monthly billing generates higher near-term commissions - Payment collection is often outside the rep’s control, creating frustration - Timing of invoicing may not align with selling effort, creating a disconnect between action and reward

Compensating on Revenue

Tying commission to recognized revenue is less common but used in some industries, particularly where revenue recognition is complex or where deal structures vary significantly.

Advantages: - Perfectly aligns commission expense with the P&L line - Encourages reps to consider the deliverability and sustainability of the deals they close

Risks: - Revenue recognition is an accounting concept that most sales reps do not understand and cannot influence - Creates long payment delays for reps, which can hurt retention - Adds complexity to commission calculations, especially for deals with variable consideration or milestone-based recognition

How These Metrics Interact in Practice

Consider a real-world scenario to see how the three metrics diverge.

Deal terms: A mid-market customer signs a 2-year SaaS contract on March 15. ACV is $100K. The customer is billed annually in advance. The contract includes a one-time implementation fee of $20K, billed at signing.

Bookings impact: - Q1 bookings: $220K TCV ($100K x 2 years + $20K implementation) - Or, if your organization measures ACV: $100K in Q1

Billings impact: - March: $120K ($100K Year 1 subscription + $20K implementation) - March of Year 2: $100K (Year 2 subscription)

Revenue impact: - Implementation revenue: Recognized as the implementation is delivered (perhaps $20K over 2 months: $10K in March, $10K in April) - Subscription revenue: $8,333 per month ($100K / 12), starting March 15, prorated for the partial month

In this single deal, the bookings, billings, and revenue figures differ significantly in both magnitude and timing. The metric you choose for compensation determines when the rep gets paid and how much.

Best Practices for Choosing Your Commission Metric

Match the Metric to the Selling Motion

For high-velocity transactional sales with short cycles and monthly billing, compensating on billings or bookings produces similar results. For enterprise sales with multi-year contracts and annual billing, bookings-based compensation is usually the cleanest approach.

Layer in Quality Adjustments

Regardless of which primary metric you use, add guardrails that account for deal quality. Common mechanisms include clawback provisions for early churn, reduced credit for heavily discounted deals, and bonus multipliers for deals that include strategic products or longer terms.

Align Finance and Sales on Definitions

Create a shared glossary that defines exactly what counts as a booking, how billings are measured, and how revenue is recognized for each product and deal type. Publish this document and reference it in every compensation plan.

Reconcile the Metrics Regularly

Finance should produce a monthly reconciliation showing the relationship between bookings, billings, and revenue. This reconciliation surfaces anomalies early and builds organizational fluency with all three metrics.

Common Misconceptions

“Bookings equals revenue.” It does not. Bookings are a contractual commitment. Revenue is recognized over time as the obligation is fulfilled. A $1M booking in January does not mean $1M of revenue in January.

“Billings equals cash.” Not necessarily. Billings represent invoiced amounts, but cash is only collected when the customer pays. Days Sales Outstanding (DSO) measures the gap between billing and collection.

“More bookings is always better.” Large bookings numbers can mask problems. If bookings are growing but billings and revenue are not keeping pace, it may indicate backloaded contracts, deferred start dates, or deals that are not converting to active usage.

Building Cross-Functional Alignment

The organizations that handle these distinctions best have a shared operating rhythm where finance, sales, and operations review all three metrics together. Monthly business reviews should include a bookings waterfall, billings forecast, and revenue recognition schedule. When everyone speaks the same language, compensation disputes decrease, forecast accuracy improves, and strategic decisions are grounded in a complete picture of the business rather than a single metric taken out of context.