So many salespeople think there is no difference between booking and revenue. Many may not even have heard the word “bookings.” For most transactions, there is no difference. Bookings and revenue happen at the exact same time. Your customer buys from you. You give them their widget, they give you their money and all done. A nice clean transaction.
But for many complex sales, it just ain’t that easy.
What is the difference?
Bookings are when the customer says; “Heck yeah! I want to buy what you’re selling, where do I sign?” A booking is when the customer makes a commitment via a contract to buy your services or product. Revenue, on the other hand, is when the geniuses in accounting can account for the revenue as being recognized. It’s when the revenue “counts” on the books.
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Why it Matters
There is a difference because of a law called Sarbanes-Oxley that sets the rules for when a company can recognize and, therefore, report on revenue. You can thank the boys from MCI, Enron and others during the 2000 accounting scandal for this nifty law. In essence, what it says is you can’t count revenue from something if there is a contingency to it, such as implementation. It says that you as a company have to fulfill your end of the transaction before you can count it.
A good example is your cell bill. Your mobile provider can’t claim the entire amount of your 2-year contract as revenue once you sign it. Even though you contractually agree to 2 years with them, the mobile provider can only recognize the revenue monthly. The impact is rather than the mobile provider recognizing $1,200 dollars in revenue the minute you sign (50 a month times 24 months) it forces them to recognize $50 dollars a month, after each month you actually used the service.
I get it and agree with much of it.
But what about the sales people? This changes things in the sales department. When should the sale be considered sold? When does the sales guy get credit for selling the deal? At booking, when the customer agrees to buy OR at revenue recognition when the deal has met the revenue recognition requirements?
I say at booking. To me, it’s simple. In many cases what is delaying revenue recognition is implementation or an annuity contract (like the cell contract). A company buys a software solution and needs it implemented. This could take 2 months or 2 years. I don’t want my sales team spending any time managing an implementation. By defining the sale as being sold at revenue recognition, you turn your entire sales team into project managers, who become focused on making sure the deal is implemented and signed off on in order to get paid and close the sale.
Project management and Sales are very different roles. They require different skills and talents. Distracting sales people by making them responsible for revenue recognition will only slow your sales engine. Get your sales people out of the project management game. Pay them on the booking and give implementation to a project manager to deliver. This keeps your sales team focused on the next deal and gets the project management team focused on delivering for the customer.
You don’t want the guys hunting the food, preparing it. Cause if they are, who’s hunting?
It’s sold on bookings. The rest is non-sales noise.