Sales Bookings: An Introductory Guide
Sales bookings are an important metric to keep track of in a sales accounting strategy. A sales booking is a form of commitment made by a customer to spend money with your company. For instance, a SaaS customer might agree to start paying for a subscription at the beginning of a new month, but they may be able to start using the software straight away.
By looking carefully at bookings, sales teams can get an insight into the potential health of the company and the upcoming income the business is set to make.
Sales Bookings Meaning: What is a Sales Booking?
Sales Bookings refer to instances wherein a customer for your brand commits to spending money with your company. A deal is “booked” or scheduled to be completed on a certain day, such as at the end of a month or at the start of a new month.
As a forward-looking metric, bookings can also indicate the amount of money a customer is expected to spend over a specific period of time. For instance, a SaaS customer could agree to sign up for a subscription service with a recurring monthly fee for a total of 12 months.
The commitment made in most sales bookings is tied to a contract in the moment of a sign-up or subscription process, which a customer sign either physically or electronically. Bookings demonstrate your customer has agreed to make a specific purchase for a set period of time.
What are the Common Types of Sales Booking?
There are various different kinds of sales bookings which might occur in a standard sales environment. Some of the most common options include:
- New bookings: Which looks at new subscriptions and customers, as well as existing customers who have subscribed to new services or acquired new products.
- Renewal bookings: A renewal booking refers to when an existing contract is rolled forward onto a new contract. Sometimes, the booking will be equal to the previous purchase, or it might feature a longer or shorter term.
- Upgraded booking: Upgraded or expanded bookings refer to when a customer agrees to pay for a subscription to an upgraded service, usually with more features, and a higher price tag than the previous booking. This will often require the signing of a new contract.
- Annual contract value bookings: In the case off multi-year contracts where bookings with a minimum of one-year revenue commitments are considered, ACV bookings are common.
- Total contact value bookings: While ACV bookings look at contracts with a minimum of one year tied to them, TCV (Total Contract value bookings) consider the full potential duration of contract, which could be several months or years.
- Non-recurring bookings: Non recurring bookings are bookings with no guarantee to recur the service in future. These bookings are common with set-up and installation fees in SaaS.
Why Measure the Sales Bookings Metric?
Bookings are one of the most important sales metrics to track when you want to evaluate the potential success and health of your business. It estimates the potential revenue won by your sales team including non-recurring bookings, training, and set-up fees.
The sales bookings metric can provide a more complete insight into the health of a business than the standard MRR (Monthly Recurring Revenue) calculation. This is because MRRs do not count revenue from non-recurring charges.
You can also get a better understanding of your business success rate by comparing your sales booking metrics to your recognized revenue. If your booking levels are high, but your revenues recognized are low, this indicates you may need to reconsider the effectiveness of your sales strategy and product delivery.
The Sales Bookings metric further helps CFOs and finance teams to plan cash flow for the business, and keep track of long-term growth.
Sales Bookings vs Revenue vs Billings
Notably, Sales Bookings are commonly confused with Sales billings and Sales Revenue for a lot of teams. While these concepts have various things in common, they’re not exactly the same. Sales Billings, for instance, are the amounts billed to your customers, sometimes over a certain time period, like a month or a year.
A billing involves actually collecting money from your customer, while your Sales bookings simply demonstrate what your customers have agreed to pay in future.
Revenue is similar to billing in that it involves the collection of money. However, revenue is a little more complex, it involves looking specifically at the income you earn when you provide your service to your customer. For every month you successfully deliver the service “booked” by your customer, you can “recognize” the revenue earned for that month.
Knowing the difference between sales bookings, revenue, and billings is often important in sales accounting, where it’s critical to know the impact of different deals at specific times in the company’s annual operations.