The BUY in the Question

Quick Summary: A transaction needs to produce recognized revenue to be considered an “order.”

Abstract:

The receipt of an executable order from a prospect is the “BUY” and is the ultimate goal in the question.  “BUY” does not mean trial, test, or any other highly conditional transaction other than those including standard guarantees.  It also means being paid for the product or service. All of which translates into GAAP Recognized Revenue compliance.  For good business reasons, any of the criteria that disallow revenue recognition may be pursued through conscious actions, but this will leave “The Question” not fully answered.

The BUY in the question “Who is the Customer and what is their Single Most Compelling Reason to Buy Now from You?” captures the obvious goal of the question: receiving an executable order from a customer.  The order needs to be based on common, written, or clearly understood terms and conditions that are applicable to both parties.

In context of the question, “buy” refers to one party providing goods or services with the other party providing monetary compensation.  With this definition, the “buy” excludes non-committed trials, on-going feedback (beta customers), payment through testimonials, or even conditional sales.  Perhaps, bartering in which both companies permanently exchange goods or services can be categorized as “buying,” but all of the other arrangements should not.

The “BUY” represents the act of a company actually making a decision to invest in the offering.  This implies that a decision maker with some level of financial authority has agreed to the purchase.  A good example of the opposite case is a Chief Technology Officer, who reports to the prospect’s CEO, requesting a lab trial of a system.  At the end of the trial, even if the product has performed perfectly and meets all of the prospects expectations, there is no guarantee that a sale will be made for a variety of reasons from no budget, to implementation considerations, to non-technical business directions.

If a prospect insists on a trial, try to reframe it as a conditional sale.  This approach presumes that a positive buying decision has been made up front with the customer (no longer a prospect) reserving the right to terminate (reverse) the transaction for any reason after some period of time.  From a revenue recognition perspective, both a trial and a conditional sale are treated the same, not recognized.  However, from a mindset of the prospect/customer, they are very different.  In the trial situation, business issues and the involvement of other parts of the organization may not be aware or involved until the end of the trial.  In the conditional sale situation, most or all of the other disciplines will be involved from the very beginning.

No matter what approach is taken, including an outright, up-front, standard purchase, the actual “BUY” event only marks the beginning of the fulfillment relationship.  Except for the sale of immediately consumable goods or services, the “BUY” begins the customer satisfaction trial that, hopefully, will result in a long-term, mutually beneficial relationship.

There can be a number of strategic reasons to pursue a sales opportunity that will not result in a GAP recognized revenue event.  Consciously making that choice, up front, during negotiations is critical.  “Reclassification” or “re-stating” revenue after the fact is never in the company’s best interest.  Understand what “BUY” means before your prospect becomes a customer.

 

Article Number : 5.010306   

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