Revenues are the key starting point of any business, and this is no different in technology services. However, there are other additional metrics worth tracking that can provide management with top-line visibility. Let’s discuss the pipeline, bookings, and related ratios.
The unweighted (or raw) pipeline is the total of all the deals in the CRM. A healthy pipeline can start to provide management with comfort about future revenue for the business. As probabilities are applied to the pipeline, we derive a probability-weighted pipeline, typically called a weighted pipeline. This is a more realistic view of the deal values the team expects to close in the future.
In a prior note, we discussed the concept of bookings: https://alten.capital/blog/from-bookings-to-recognized-revenue-in-technology-services. As an opportunity in the CRM is confirmed, it is marked closed won, and the deal is “booked.” The sum of those total contract value (TCV) amounts for a specific period (month, quarter, etc.) are the bookings.
Finally, revenue is recognized once it is earned. For example, an original deal with a TCV of $1 million and 10 months of expected length may generate $100,000/month of revenue. We can think of a deal’s lifecycle as pipeline -> bookings -> revenue.
After some time, management will be able to develop metrics that help provide visibility into future business performance. For example, the Win Ratio (in deal quantity or dollar amount) is the ratio of closed won deals versus total deals. Decision-makers can start to estimate a bookings amount by applying their win ratio to their pipeline.
Book-to-Bill Ratio (in dollar amount) is the ratio of bookings over revenue for that specific period. Every company will have different ratios depending on the type of services they provide. For example, large deals will push this ratio up (large bookings that take time to realize their revenue), and smaller deals will create a lower ratio (the nature of smaller bookings being depleted faster).
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