Most contract staffing firms focus entirely on their gross margin. This is not good.
They should spend more of their time looking at sales bookings.
Why, and what’s the difference? Keep reading.
What’s the difference?
What’s the difference between revenue and bookings?
Gross Revenue: According to GAAP principles, revenue is recognized when it is “realized or realisable” and when it has been “earned.” What’s this mean? In the case of contract staffing, revenue is recognized only after a consultant performs the period of service, submits a timesheet and an invoice is sent to the client.
Sales Bookings: this is the entire expected gross margin dollar amount for the duration of the placement. If a contract is 6 months it is the full value of those 6 months. Often the account manager does not have perfect information about the end date, but he is still in the best position to make an estimate.
What do you need to calculate the booked value of a contract placement?
(Start Date - End Date) * (Bill Rate - Pay Rate - Burden)
Why should you care about Bookings?
Keeping a close eye on gross revenue, trends, client make-up, and percent margin are all critical health indicators of your business. However they are not the right metrics by which to measure your sales organization.
Contract staffing shops should focus on bookings for 3 reasons:
- Align Sales Incentives: Sales reps and recruiters are typically compensated off of billed revenue, which makes sense from cash flow perspective. The problem is that it encourages short-termism, as a rep gets the same commission next month whether the contract is 6 weeks or 6 months. It also disconnects rewards from performance. Compensation is dragged out over the term of the contract and a good sales run can leave a sales rep with little incentive to do more. Bookings allows you to track “what have you done for me lately.”
- Leading Indicator: By the time you uncover a trend in your contract revenue analysis, or your general ledger for that matter, it’s likely too late to act on it. Bookings tell you what happened this week. They are a leading indicator of the health of your sales performance and gives you a view of trends to come, rather than a diagnosis of the past.
- Run your Contract and Perm businesses the same way: We often hear that contract and permanent placement are like apples and oranges, you can’t compare them. But by looking at the booked value of your contract placements, you can evaluate the sales productivity of your entire organization with the same lens.
Tracking Bookings Requires Discipline
It’s not easy to evaluate sales bookings retrospectively. Part of the learning process for an organization to become more sales driven is estimating booked value and comparing to actual, and improving booking accuracy over time. So get started now by adding booked value as a required metric to your contract placement sales process.
