Bookings vs ARR (quick definition)
ARR vs bookings is a common comparison: bookings measure contracted value you sign in a period, while ARR (Annual Recurring Revenue) is an annualized recurring run-rate snapshot (typically MRR * 12). They are related but not interchangeable.
What each metric measures
| Metric | What it measures | When to use | Common mistake |
|---|---|---|---|
| Bookings | Contracted value signed in a period (may include one-time fees/services). | Sales performance, pipeline conversion, forecasting demand. | Treating bookings as recurring run-rate. |
| ARR | Recurring run-rate snapshot (MRR * 12). Excludes one-time fees/services. | Comparing SaaS scale and momentum across time or companies. | Treating ARR as guaranteed annual revenue or including services. |
| Cash | Money collected (cash receipts). Sensitive to billing terms and prepay timing. | Runway planning and cash-flow management. | Using annual prepay cash spikes as proof of recurring growth. |
Core formulas
- Bookings (simplified) ~ total contract value signed in the period.
- MRR equivalent = recurring portion / contract term months.
- ARR = MRR * 12.
Bookings vs ARR example
If you sign a $120k, 12-month contract with a $10k one-time fee, bookings are $120k. Recurring run-rate is ($120k - $10k) / 12 = $9,167 MRR, so ARR is about $110k.
Bookings vs billings vs revenue
- Bookings are what you sell (contracted value).
- Billings are what you invoice (timing can lag or lead bookings).
- Recognized revenue is what you earn under accounting rules.
- Cash is what you collect; it can spike with prepay.
Worked example (annual prepay + one-time fees)
Suppose you close a $120,000 12-month contract that includes $10,000 of one-time onboarding. Bookings are $120,000. Recurring portion is $110,000. MRR equivalent is $110,000 / 12 = ~$9,167. ARR run-rate is ~$110,000 (MRR * 12). Cash collected may be $120,000 upfront if prepaid.
Common mistakes to avoid
- Including services/onboarding in ARR (inflates recurring run-rate).
- Comparing bookings to ARR without normalizing for term length.
- Mixing recognized revenue with bookings/cash (different timing).
- Using blended metrics without segmenting (SMB vs enterprise terms differ).
How to use these metrics together
- Use bookings to manage sales execution and forecasting.
- Use ARR to track recurring momentum and valuation context.
- Use cash receipts and burn to plan runway and hiring.