When referring to Sales Bookings, we mean the bookings’ value over a certain time period. On the other hand, a booking means a committed, signed or won sale. It is worth mentioning that a booking is not usually valid if the product has not been delivered or the specific services have been fulfilled.
Therefore, a booking is added to the Sales Bookings metric when the product or service – basically, the end-product of your business – has successfully reached your customer.
The Sales Bookings are considered a high-level metric – it is so because it will be used by the financial analysts and executives in order to come up with efficient, strategic decisions and forecasting, as well.
The Basics of Sales Bookings
It’s important that you don’t confuse bookings with revenues when calculating the Sales Bookings. As we mentioned before, a booking refers to the value of a contract that has been signed with a customer – when you sell your product/ service.
On the other hand, revenues refer to the inflow of settlements of liabilities or assets that are resulted from the activities of the central operations of a certain business.
In order to come up with the Sales Bookings metric, you first have to multiply the average cost per transaction with the total number of bookings. The end result is then subtracted from the sum of bookings dollar sales.
This is a quite difficult metric to understand, so we’ll explain it further with the help of an example.
Example: Sales Bookings
First of all, when one of your customers sings a contract with you, it doesn’t mean you have profit, revenue in your hands. For example, let’s say that your offered service is to provide your customer with a different product for one year.
As soon as a customer signs up for such a service, it will mark the start of your booking. The customer will sign a contract between you and your company, based on the service you are offering him or her.
So far, you still have zero revenue for your company. Let’s say that this service costs $120 for the entire set period of time – in our case, for a year. However, in most cases, you can’t bill your customer as soon as he or she signs the booking contract – this is usually billed monthly as if the customers were paying for the product before or after receiving it.
Therefore, with every month that’s passed since your customer signed the booking contract, you have a revenue of $10/ per month. Of course, if you can’t supply your customer with the product/ service specified in the contract, the booking will be canceled and you will no longer get revenue.
The Bottom Line
Basically, the Sales Bookings metric shows you how much you will be making over a set period of time from your current bookings. This metric’s success is indicated by an increase in the bookings’ dollar value.
Of course, this means that you have to get your product/ service to your customer without any issues – that is, if you want a certain booking to be added to the Sales Bookings metric.
With the help of this metric, analysts can make predictions and then come up with strategies that can increase the number of bookings and, therefore, the Sales Bookings – such as changing the pricing of your product/ service or advertising it in another way.