To many sales people 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 aint that easy.
What is the difference?
Bookings is when the customer says; “Heck ya! I want to buy what your 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.
There is a difference because of a law called Sarbane’s 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, 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 anytime 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 having 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.
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Jim, I'm usually in enthusiastic agreement with you. I understand your point, agree with much of it, with some big but's………
1. Sales has to own the customer relationship, they can't do a deal and walk away, at least if they expect to generate any future revenue. Sales should be involved in assuring projects are delivered in a manner that meets the commitments they have made to the customer, and that the customer is satisfied. There is a difference between project management and managing the relationship. Sales can never back away from the latter and is wasting their time in the former. This however has nothing to do with paying on bookings versus revenue. That is a different issue.
2. With respect to paying on booking versus revenue recognition. This is one of the holy wars in sales compensation planning, there is no right answer. I'm all for paying on booking, as long as the sales person is willing to: Payback any unnearned commission when revenue is recognized (If less revenue is recognized than was booked, as is often what happens in very large complex projects.), or if the sales person leaves the company or the job before revenue is recognnized. You see, it actually starts getting very complex to manage, both for the sales person and the business.
3. Based on your argument, I would not pay a sales person for additional revenue that is generated in the delivery of the project, probably would have to pay that to the project manager, right? This is often the case in large projects.
I could go on, but revenue is what counts. It's what pays the bills, it's what pays the salaries of people in the company, including sales. Until we generate revenue, everything else is hopeful thinking. Sales people are responsible for producing and assuring revenue. Everything else is just talking about the timing of a commission payment. As a sales person, I want to be paid quickly, as a business manager, I want to make certain I get the revenue. Where should we be at?
Great post, hopefully it will stimulate more discussion and points of view.
Comment by Dave Brock — November 17, 2009 @ 7:11 am
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David, I hope this does create some good discussion, because it is a
very difficult topic.
We are not in disagreement in philosophy, but in execution.
The skills are VERY different for managing a project or delivery of a
project vs selling a deal. Getting to yes is the sale. Delivering
on the commitment is project management, and account management. If
you manage or measure the sale based on revenue recognition, what
happens to the sales people who are brilliant a booking deals,
(getting the customer to yes) when the organization is poor at
delivering?
Managing “SALES” with Revenue Recognition or delivery is mixing two
very different skill sets and objectives. To hold the sales team
accountable for what the entire company owns is a recipe for disaster.
Create two functions: a sales function. Go get the business. Then an
account management or delivery team to deliver and get the revenue.
Keep the success measurement or criteria separate. You can blend the
teams, comp on both on both measurements, but DON'T blend them, they
are too critical to success separately. (I don't like this approach,
but I'm not adverse to it)
As you said, “Sales has to own the customer relationship, they can't
do a deal and walk away, at least if they expect to generate any
future revenue. Sales should be involved in assuring projects are
delivered in a manner that meets the commitments they have made to the
customer, and that the customer is satisfied.” – you are absolutely
right, a great sales person won't. You just don't want to force them
to deliver in order to be deemed successful.
You bring up some great points David. I never said it was easy. It's
just easy for me, cause i can see what's in my head.
Anyone else, what do you think?
Comment by Keenan — November 17, 2009 @ 8:14 am
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Dave Brock beat me to the punch here, Keenan. I concur with his comments completely. B2B sales is now more complex than ever. As such, salespeople have to have an entirely new set of skills, one of which is managing project teams to implement what it is they have sold. Salespeople do own the customer relationship . . . and ultimately, that is what they are being paid for, regardless of the timing of the payment.
I recommend Achieve Sales Excellence by Howard Stevens at HR Chally. This is an excellent source for understanding the customer's expectations of their B2B salesperson.
I would it were so easy as to simply sell the deal! But then, we wouldn't really be creating all of the value we could, would we?
Comment by iannarino — November 17, 2009 @ 8:51 am
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Jim, theoretically, I like the idea of splitting the function into sellers and managers of accounts, but the problem comes in terms of compensation. This is especially true in complex sales where implementation takes months or years and sales come as a function of expanding that relationship. As a pure seller, I don't want to walk away from a potentially large account in order to hand it off to an account manager (very true in industries where there are very few actual accounts to get), who will reap the majority of benefits. My industry (marketing research consulting) doesn't have it right yet either. As far as bookings and billings, this is another debatable decision. But, if we use the model that has the seller acting as relationship manager throughout the implementation, it makes sense to pay on billings, and it also makes sense to pay as the scope increases through strong consultative selling. Great debate!
Comment by Keith Bossey — November 17, 2009 @ 8:56 am
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Sales person should absolutely own the account. Don't think it's zero
sum. There is a cost to the company if I measure my sales people on
delivery.
//keenan
Comment by Keenan — November 17, 2009 @ 9:34 am
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As a pure question about when salespeople should be compensated, I agree they should be compensated at bookingm in part, because it's a more effective motivation for salespeople (many or most of whom are or should be money-motivated).
The rest of the issue, to me, starts to cross the line that reflects specific duties of a specific rep in a specific company in a specific industry. My client companies are B2C (please don't make the mistake many people do and read “B2C” to mean “simple” or “not complex!”).
Many B2C sales-customer relationships are single transactions rather than acting as an initial point of entry for ongoing business from the customer. If you look at sales through this lens, it suggests that some of the others' comments here aren't applicable, because discussions about “sales” are usually viewed through the lens of B2B selling.
Anyway, having said that, I always enjoy reading debate about age-old issues such as business development vs. account management, or sales vs. project management.
And, I agree with Dave Brock when he says “As a sales person, I want to be paid quickly, as a business manager, I want to make certain I get the revenue.”
Your post is good fodder for discussion, Jim.
Comment by SkipAnderson — November 17, 2009 @ 10:50 am
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You are right; it is never a zero sum game. There may be a cost to your company to have the sales staff be responsible in some way for delivery. However, there may also be a cost to your company if the salesperson isn't responsible for delivery. But, the expectation that matters is not yours or mine–it is the customer's. Typically, the hand-holding at the beginning of a new relationship requires the skills that salespeople possess (often they are selling to both companies during this stage of the relationship, but that is another blog post).
I don't think that anyone would disagree with keeping your reps in the field as much as is humanly possible. But, what Chally's research shows is that clients of B2B sales now expect their salesperson to actually help them achieve the result they promised. They sold it, they own it. They feel abandoned when the sales rep leaves immediately after the sales is concluded, and, a big part of their decision to choose a company is based on the salesperson's commitment to being there to hep them achieve the result promised.
Surely there as many answers to this part of your post as there are companies. Do some companies have an operations team with the sales skills to manage a complex implementation? Sure. Do some companies need the salesperson involved in order to facilitate an implementation? Sure. Is there an ability to involve the implementation team into the sales process to make the hand off easier on the client? Sure. Does this make compensation more complicated? Absolutely!
Comment by iannarino — November 17, 2009 @ 12:10 pm
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Good summary of the complexity.
Comment by Keenan — November 17, 2009 @ 12:48 pm
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It's what makes blogging so much fun. I live for a good debate.
Glad you liked.
Comment by Keenan — November 17, 2009 @ 8:18 pm
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It is a great post.
One other angle to throw – I skimmed the other comments but this one didn't pop out at me – is when you sell a product that offers annual vs. monthly payment plans. A third option some companies use is pay sales people based on cash.
Get the cash up front? Pay the salespeople up front, even if you have to defer and recognize the revenue over the course of the year.
On the other hand, if all the salesperson sells is a monthly plan to the customer, why should they get the same incentive as closing the annual plan deal? It doesn't bring in as much cash and if your goal is annual deals, then structure the comp plan accordingly.
Comment by aaronklein — November 18, 2009 @ 12:46 am
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You're right Aaron. The comp plans definitely need to reflect the
needs of the business. This isn't done enough.
Comment by Keenan — November 18, 2009 @ 7:36 am
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It is a great post.
One other angle to throw – I skimmed the other comments but this one didn't pop out at me – is when you sell a product that offers annual vs. monthly payment plans. A third option some companies use is pay sales people based on cash.
Get the cash up front? Pay the salespeople up front, even if you have to defer and recognize the revenue over the course of the year.
On the other hand, if all the salesperson sells is a monthly plan to the customer, why should they get the same incentive as closing the annual plan deal? It doesn't bring in as much cash and if your goal is annual deals, then structure the comp plan accordingly.
Comment by AaronKlein — November 18, 2009 @ 7:46 am
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You're right Aaron. The comp plans definitely need to reflect the
needs of the business. This isn't done enough.
Comment by Keenan — November 18, 2009 @ 2:36 pm