ARR vs. Bookings vs. Revenue: Understanding the Differences
These terms get used interchangeably, but they mean different things. Getting them confused leads to misaligned expectations between sales, finance, and investors.
Sales teams talk about bookings. Finance reports revenue. Boards want to see ARR. These metrics can differ by 50% or more for the same deal, and the confusion creates real problems. Getting these definitions right is foundational to revenue operations.
Why It Matters
A $300K 3-year deal creates $300K in bookings, $100K in ARR, and possibly $8K in Q4 GAAP revenue (if it starts mid-December). Same deal, wildly different numbers depending on which metric you use.
Key Definitions
Bookings (TCV)
Total Contract Value signed. The full value of the deal regardless of term.
When recognized: At contract signing
ARR (Annual Recurring Revenue)
The annualized value of recurring subscription contracts. Does not include one-time fees or multi-year prepayments.
When recognized: When subscription starts
GAAP Revenue
Revenue recognized according to accounting standards. For subscriptions, recognized ratably over the service period.
When recognized: As service is delivered (ASC 606)
Cash
Actual payment received in your bank account.
When recognized: Per payment terms (Net 30, etc.)
Example: Same Deal, Different Numbers
Let's say you sign a 3-year, $300K deal on December 15 with Net 30 payment terms:
| Metric | Q4 Amount | Notes |
|---|---|---|
| Bookings | $300,000 | Full TCV at signing |
| ARR | $100,000 | $300K ÷ 3 years |
| GAAP Revenue (Q4) | $4,110 | $100K ÷ 365 × 15 days |
| Cash (Q4) | $0 | Net 30 = January payment |
The Communication Gap
Sales celebrates a $300K deal. The board sees $4K in revenue. Both are correct, but without shared understanding of terms, miscommunication is inevitable.
When to Use Each Metric
| Metric | Best For |
|---|---|
| Bookings | Sales performance, pipeline value, commission calculation |
| ARR | SaaS valuation, growth metrics, investor reporting |
| GAAP Revenue | Financial statements, audit, bank covenants |
| Cash | Cash planning, runway calculation, working capital |
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