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We’ve told you all about why you need product line items in Salesforce to help you answer some difficult questions. One of those difficult questions is when companies – especially organizations selling Software-as-a-Service – need to figure out the difference between a bookings forecast and a revenue forecast. The nuances of each of these different types of reports can be tricky to navigate without the help of product line items in Salesforce reports.

The problem is that there are vast differences between making a booking and scheduling out revenue at a company operating under a SaaS model. In fact, there are three different scenarios where a SaaS company might have to deal with the differences between bookings forecast and a revenue forecast. Let’s dive in deeper below.

(For more detailed information about sales forecasting, check out our FREE eBook: The Ultimate Guide to Sales Forecasting.)

 

1. Bookings

One of the most important sales metrics for companies to track and analyze is bookings. Quite simply, this represents how much (in both value and deal count) was booked by the sales rep. The CEO needs this information at two levels. First, they need to know how well the company is doing on a total sales basis. Secondly, they need to know how the sales guy is doing against his quota and bookings goal.

Bookings Trend

The bookings forecast is most simple when customers agree to pay the entire cost of the contract or SaaS terms up front, instead of spreading payments out. In that scenario, companies can just tally up their various bookings for specific months, with the knowledge that each booking and its value represents an actual payment made to the company right there and then. Unfortunately, most SaaS companies don’t operate in such a manner, instead collecting Monthly Recurring Revenue (MRR).

2. Saas Metrics

This is where things get substantially more complicated – and where product line items in Salesforce can be a tremendous asset. For a company that operates largely on Monthly Recurring Revenue (MRR), one of the most important sales metrics to figure out is to see a booked amount spread out over a contract period. This will be a more accurate measure of how sales are going than a raw bookings total. Therefore, they need an accurate scheduled revenue forecast that breaks down different payments at different times of the month and for how long these scheduled payments will last (i.e. the length of the contract).

For SaaS companies, your MRR is one of the absolutely most critical metrics you can have. Without knowing exactly what their MRR is like every month, CEOs at SaaS companies won’t be able to accurately and effectively run their business. They need to distinguish between new MRR, churned MRR, and expanded MRR, all to figure out what their Net New MRR is each month. Product line items are absolutely crucial to assist in this regard.

Additionally, having product line items in Salesforce lets companies track their product mix, or the breakdown of the different products they are selling. Ideally, companies don’t want their scheduled revenue to be too heavily dependent on only one product. Imagine if 90% of Apple’s revenue came only from the sale of iPhones. A plunge in iPhone users who switched to the Samsung Galaxy would decimate Apple’s core revenue. When product line items are tracked in Salesforce, companies can ensure that there is a fairly even product mix, like in the example below.

Product Line Items - Product Mix

3. Cash-Flow Interest

Along with up-front payments and MRR setups, some companies have to deal with even odder or more fragmented payment schedules. For instance, some customers might choose to pay half the cost up-front, and then schedule out the rest of the payments across the term of the contract. This might be a headache for companies, but is nevertheless necessary to deal with. Product line item schedules in Salesforce can help dive into the more granular aspects of MRR, while solving the cash-flow questions of Chief Financial Officers and other budget planners in the company.

Look at this example below. This company knows exactly how much money they are due to receive each month, which is essential for forecast and commission models, as well as for budgetary and planning purposes. Knowing that they are due to collect $8 million in revenue in January might embolden this company to hire more and scale out their operations at the turn of the new year.

Scheduled Revenue

Again, having product line items scheduled in Salesforce will make it easier to then track the scheduled revenue using a Salesforce add-on such as InsightSquared. With that information, companies can then more easily breakdown the various payment schedules they will have to deal with. For the purposes of keeping the lights on three months down the road, it is critical that companies know exactly what their cash-flow is going to look like month-to-month. There is no substitute for a true general ledger, but with the proper setup involving product line items in Salesforce, you can come close to actual

 

Bookings forecast and scheduled revenue forecasts are two critically important areas for companies to track, yet are vastly different. In order to deal with the nuances of each of these reports, it is essential that companies enable product line items in Salesforce.

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