All varieties of professional services companies have the common challenge of balancing supply with demand. The “supply” side is your pool of capable workers (who could be employees or contractors), and the “demand” side is your set of sold projects that need to be delivered.

If balance is not maintained between supply and demand, the firm will ultimately suffer. If there are too many workers and too few projects, profitability will take a hit. When this supply surplus persists, the firm will likely have to reduce headcount. On the other extreme, if there are too many projects and too few workers, client satisfaction will take a hit. When a project surplus persists, project schedules will get delayed and clients will grow frustrated.

The never-ending task of firm leadership is to continuously balance supply and demand. In reality, the two sides are never perfectly balanced, but the goal is to keep them reasonably level. This takes daily monitoring, forecasting, and adjusting. Ignoring a significant out-of-balance condition for even a small period of time will have negative downstream effects.

In order to maintain equilibrium, firm leaders need a reliable forecast of the volume and type of upcoming project work. That forecast of future work is comprised of projects that have already been sold as well as projects that are highly likely to be sold soon. This forecast directly informs the firm’s hiring decisions, termination decisions, and general sales aggression (i.e. bill rate discounting on new opportunities).

The two tools that are used to feed the firm’s forecasting process are the revenue backlog and the sales pipeline. The revenue backlog is a ledger of all sold work that has yet to be delivered. Ideally, the sold work in the backlog will be proactively allocated to specific people within the firm. The sales pipeline captures data on all of the sales opportunities the firm is currently pursuing. The opportunities with a high probability of being won are factored into the firm’s forecast. While it is fairly simple to track sold work and who will deliver that work, it is a little trickier to predict which sales opportunities will convert into projects.

The forecast, revenue backlog, and sales pipeline are covered in more detail in later sections of Compass.