One of the most important tasks for a professional services leader is to ensure that the firm will achieve its revenue goals by having the capacity to meet the future demand. While detailed resource planning will yield accurate revenue and utilization forecasts, a simpler and quicker approach is to evaluate the company's book-to-bill ratio.

What is the Book-to-Bill Ratio?

The book-to-bill ratio is a fundamental professional services metric. The ratio is calculated by dividing the dollar value of new bookings (signed contracts) by the earned revenue from services delivered in that same timeframe. As an example, let's assume we sold $500,000 in new contracts last month and delivered $400,000 in revenue. That performance yields a book-to-bill ratio of 1.25 (which is excellent).

When the book-to-bill ratio is greater than 1, the firm is experiencing an increase in demand and is likely to drive greater near-term revenue. But, when the book-to-bill ratio is less than 1, it likely means there will not be enough work to keep the team fully busy. Billable utilization will fall and the hours of "bench time" will increase.

What is an Ideal Book-to-Bill Ratio?

While the target book-to-bill ratio is dependent on the professional services subsector and the firm dynamics, every professional services organization should strive to be at or above a ratio of 1. For companies that are planning for growth (which almost all are), the average book-to-bill ratio must be above 1.

A consistently strong book-to-bill ratio will result in meaningful revenue growth. For example, a firm with $1M in services revenue in January and a book-to-bill ratio of 1.1 has generated $1.1M in sales during the month. If the book-to-bill ratio remains consistent throughout the year, the firm will more than double its revenue over the year.

Key Considerations

While the book-to-bill ratio provides quick insight into future revenue performance, there are some key considerations to keep in mind. Specifically:

• Evaluate consecutive book-to-bill periods. If the book-to-bill ratio for last month was .9, that may not indicate a near-term revenue problem. It is possible that the periods leading up to last month produced very strong book-to-bill ratios. Thus, there may be plenty of previously-sold work to allow the team to hit its utilization and revenue targets.
• Delayed projects depress near-term revenue. If the book-to-bill metric was strong last quarter, but a large sold project will not start for six months, there could still be a revenue shortfall this quarter.
• Duration impacts the reliability. Evaluating the book-to-bill ratio on too short of a period is not helpful. If you capture the book-to-bill ratio weekly, the metric will almost certainly swing wildly from one week to the next. A month is likely the shortest timeframe that will be useful. Most publicly-traded professional services firms report the book-to-bill ratio on a quarterly basis. The longer the duration, the more stable the metric from period to period.

The Importance of Proper Revenue Recognition

The book-to-bill ratio is only useful when both the sales and earned revenue figures are accurate. While most firms leverage a CRM system and have a good handle on their bookings, not all professional services organizations properly track earned revenue.

For professional services engagements that are billed on an hourly basis ("Time and Materials" billing), revenue recognition is a fairly trivial concept. The hours are recognized as they are worked and they are typically invoiced on a monthly basis. But, for fixed fee projects, companies must recognize revenue based on the percentage of the project that has been completed. For example, a project could be fully-invoiced in advance and then delivered over many months. In that type of scenario, the book-to-bill ratio will be incorrect unless proper revenue recognition processes have been followed.

A previous blog article goes into more detail on Calculating Services Revenue on a Fixed Fee Project.

Applicable to Firms of All Sizes

The book-to-bill ratio is important to track for any professional services organization, regardless of size. Whether the firm has 50 personnel or 50,000 personnel, the book-to-bill ratio will provide insight into the near-term health of the business.

Larger firms often segment out their book-to-bill ratio by business unit or practice. For example, on Accenture's fiscal 2025 first quarter earnings conference call, the company reported $9.2 billion in consulting bookings with a book-to-bill ratio of 1.0 and $9.5 billion of managed services bookings with a book-to-bill ratio of 1.1. These ratios tell investors that Accenture's revenue will likely increase in the coming quarter.

When professional services executives need to answer the question, "Is revenue likely to increase or decrease next quarter?", the book-to-bill ratio provides a quick and reliable answer.