Published on Friday, March 26, 2021
Having a good grasp of sales bookings management can save your organization a lot of future trouble. Understanding your sales bookings can give you insight into how well your products are doing and how well their value is being communicated to your customers.
Another important thing about sales bookings management is understanding what it means in terms of money coming in. This will affect when you pay your sales representatives.
To ensure that you’re handling your sales bookings management well, we have put together a guide covering various aspects of the practice that you need to be aware of. Read on to find out more.
Defining Sales Bookings
When a client or customer makes a commitment to purchase a product or service from you – or spend money with your organization in any way – then you have a sales booking. In other words, their commitment means a deal is booked.
It can be considered as a metric that is forward-looking, which helps you to manage and plan for your anticipated sales. Using the sales bookings information, you can calculate new orders in the present financial period, and you can monitor sales trends by looking at which products are doing well and which are performing poorly.
This means that you’ll be clear on if and when you should adjust your marketing or communications for each product.
Often, sales bookings have an accompanying contract attached. This is most common with SaaS businesses. The client will have committed to a contract to use your product for a certain period of time, in exchange for a monthly payment.
Bookings vs Revenue
It is important to note that revenue is not recognized simply because a sales booking has gone through. Revenue recognition can only occur once the product or service has been received by the customer.
For instance, if you are selling software then you are only able to recognize revenue once the client receives the software for use. Or, if you’re selling on a subscription basis, then revenue is recognized in portions across the period of the subscription.
By looking at sales bookings, you can tell the amount of revenue that has been booked but not necessarily recognized just yet. In other words, sales bookings give you a picture of the future, it doesn’t really give you insight into your finances in the present moment, since most commonly the revenue from the bookings won’t be recognized immediately.
You should never confuse revenue with bookings. If you do, you’ll have an incorrect idea about the success of your sales and your business in general. What’s worse is that it could ruin your forecasting efforts.
Sales Bookings Management And Sales Rep Compensation
Since there is a bit of a time difference between when the sales booking is made and when the money comes into your organization, you may need to put some thought into when you pay your sales reps. This is an important aspect of sales bookings management.
You could opt to pay your reps when a sale has been booked. This can be quite good for your business, as often it results in sales reps working harder. Getting paid as they book a deal leads to a positive feedback loop in which sales reps feel motivated by their compensation and thus work harder to make more sales.
The downfall of doing this, however, is that it can lead to loss which makes it a dangerous option. For example, if the deal ends up failing or falling through, then you would have paid a sales rep commission for a sale that was not really made. In the end, this could lead to problems with cash flow too.
Other Compensation Structure Options
If paying commission on the arrival of a sales booking sounds too risky for you, then not to worry. There are other options.
Compensate On Revenue
This is a much less risk-fraught option. Here, you compensate your sales reps once the sale order has been paid by the customer, in other words, on revenue.
The downfall here is different. While this option is likely to result in a more steady flow of cash, it might decrease the motivation of your sales team. They won’t see the fruits of their labor as quickly as they would with the other option, which means they may be less inspired to make sales. It is also worthy of noting that it is more tedious to track invoices when you use this structure of compensation.
Somewhat of a middle ground between the two previously mentioned options is to pay your sales rep commissions when invoices are made, or to compensate on invoicing.
It is also possible that you allocate your sales reps credit for making the bookings. This would mean that it is clear what they have earned, even before they are paid (whether you decide to pay them at revenue or at invoicing). Most commonly, you will then have two columns on their payment statements – one showing what they earned for the month and the other showing what they were paid for the month.
Some businesses opt to compensate their employees on a sort of goodwill basis, where they pay half of the eligible commissions when the sale is booked, and the other half at invoicing or on revenue.
Factors To Consider
When you’re making your final decision about when to compensate sales reps, there are some factors you should think about.
- Customer consistency – If there are high rates of customer attrition at your organization, then it may be safer to compensate at the period of invoicing. You must take into account how common it is for customers to stay until the end of their contract.
- Your organization’s business model – If you have a business model that comes with more risks, it may be better to stick to compensation at the invoicing period. If not, then it could be worthwhile to motivate your sales team with payment on bookings.
- Staff turnover – If you know that your sales team has high rates of attrition, then you shouldn’t make payments upfront.
The correct sales rep compensation structure decision in sales bookings management will be much clearer once you take these factors into consideration.
A final aspect of sales bookings management that can help you with the sales process is booking forecasts. Forecasts in general help you set the direction of your organization and assist you in planning for the future. Bookings forecasting is a bit different from other types of forecasting though. It will require that you spend a lot of time finding information in your CRM system, but it will be worth it in the end.
Your options for how to forecast bookings are basic forecasting, weighted pipeline, and collaborative forecasting. The first option is the easiest but is also the least dependable. It requires that you aggregate the pipeline. You’ll use information from your CRM.
The most difficult and complex option is collaborative forecasting. It requires every member of the team to hand in a forecast to their manager.
With the weighted pipeline option, you weigh your opportunities in relation to the likelihood that they will be closed. Then tally all of the amounts to determine the volume of the pipeline.
Sales bookings management can be a tricky task, but with the correct know-how, you should be good to go. This guide gives you a base understanding you some aspects that you need to know about. Hopefully, you will now move on to organizing your sales bookings management to optimize your organization.