What is the difference between ARR and bookings?

What is the difference between ARR and bookings?

• A. ARR reflects recurring revenue expected over the contract period; bookings are the contracted value at signing and may include non-recurring items, not yet revenue.
• B. ARR is the same as bookings; both mean the contracted value at signing.
• C. ARR is only the non-recurring portion; bookings are recurring.
• D. ARR is the value of all invoices sent; bookings are only future potential deals.

Answer: (A)

The main idea is to separate the ongoing, predictable money from the total signed commitment. ARR represents the recurring revenue you expect to recognize each year from subscriptions or ongoing services, normalized on an annual basis and excluding one-time items. Bookings, by contrast, is the total value of a contract at the moment it’s signed, which can include non-recurring charges like upfront fees or professional services, and revenue isn’t recognized until those obligations are fulfilled. For example, if a two-year contract has $120k per year in recurring revenue and a $20k one-time onboarding fee, ARR is $120k per year, while bookings total $260k ($240k recurring over two years plus the $20k upfront). This distinction helps with forecasting recurring revenue versus measuring total signed commitments.

The main idea is to separate the ongoing, predictable money from the total signed commitment. ARR represents the recurring revenue you expect to recognize each year from subscriptions or ongoing services, normalized on an annual basis and excluding one-time items. Bookings, by contrast, is the total value of a contract at the moment it’s signed, which can include non-recurring charges like upfront fees or professional services, and revenue isn’t recognized until those obligations are fulfilled.

For example, if a two-year contract has $120k per year in recurring revenue and a $20k one-time onboarding fee, ARR is $120k per year, while bookings total $260k ($240k recurring over two years plus the $20k upfront). This distinction helps with forecasting recurring revenue versus measuring total signed commitments.