Many smart business people think that if bookings steadily increased over the past year, your business is on the right track. It looks great to see a chart go up and to the right, indicating revenue growth. However, if you only look at bookings, you could be masking larger, systemic problems in your business.
The three core metrics that drive bookings are:
Those three metrics multiplied equal the total bookings number. However, you can’t just assume all three metrics are rising along with bookings. For example, you might see bookings are going up, pipeline is going up, but your win rate is actually decreasing. How is that possible? In this case, your ASP is probably going up and compensating for the drop in win rate. Although your team is closing more business, it’s actually because you’re booking larger deals, but winning fewer deals in total.
This change in win rate and ASP isn’t necessarily a problem in the short run. But in the long run, is your business able to handle significantly larger deals? If your business is only used to closing $100K deals and suddenly closes a huge, $1 million deal, can your team effectively support a customer of that size? For a SaaS company specifically, it might look great that bookings are through the roof, but that huge account could churn the next day. Then you’ll have to explain a sudden dropoff in bookings in the next month to your board of directors.
If you’re only reviewing the total bookings over time, you’re probably missing out on the bigger picture behind what’s driving that number. Though it may seem harmless, misinterpreting this specific metric could lead to huge problems for your business down the line.