The Book-to-Bill Ratio: A simple way to predict demand and revenue
One of the most important responsibilities for professional services leaders is ensuring the firm has enough work booked to meet its revenue goals — and enough capacity to deliver that work effectively. While detailed resource and revenue forecasts are ideal, they often require significant time and effort.
For a faster, high-level signal of future demand, many firms turn to a simple metric: the book-to-bill ratio.
What is the Book-to-Bill Ratio?
The book-to-bill ratio is a simple but powerful metric used to compare the value of new work sold to the revenue earned from work delivered in the same period.
It’s calculated by dividing new bookings (signed contracts) by recognized revenue.
For example, if a firm booked $500,000 in new projects last month and recognized $400,000 in services revenue, the book-to-bill ratio would be: $500,000 ÷ $400,000 = 1.25
That performance yields a book-to-bill ratio of 1.25 (which is excellent). It means the firm sold more work than it delivered — a signal of growing demand.
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 is less than 1, it likely means there won’t 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?
So, we now know that a 1.25 ratio is a good signal — but what exactly should the company aim for?
While the ideal number depends on the professional services subsector, business momentum, and the firm’s internal dynamics, most companies that are planning for growth (which is nearly all of them) should aim to keep their book-to-bill ratio above 1.
A consistently strong ratio means the firm is selling more work than it’s currently delivering — a sign of rising demand. Over time, this builds backlog. If the team has the ability to scale delivery accordingly, that growing backlog will turn into revenue.
For example, if a firm earns $1M in revenue in January and books $1.1M in new contracts, it has a book-to-bill ratio of 1.1. That extra $100K adds to future work. If that pattern continues over several months, it creates a healthy pipeline — but only leads to revenue growth if the firm can deliver on it.
Key considerations for calculating an accurate Book-to-bill ratio
While the book-to-bill ratio is a useful indicator of future demand, it’s not always as straightforward as it seems. To get an accurate picture, consider the following:
- Look at trends, not just one period
A single low month (e.g., a 0.9 ratio) doesn’t necessarily mean a downturn is coming. If previous months were strong, the firm might still have plenty of booked work to carry revenue and utilization forward. Focus on the trend over several periods, not one-off fluctuations. - Watch for delayed project starts
A high ratio doesn’t guarantee near-term revenue. For example, if a large deal is booked today but scheduled to start six months from now, it boosts the ratio but doesn’t help this quarter’s delivery targets. - Pick the right timeframe
Tracking the book-to-bill ratio weekly often produces noisy data with extreme swings. Monthly or quarterly tracking gives a more stable, reliable view — and that’s how most public services firms report it. The longer the timeframe, the clearer the signal.
The importance of proper revenue recognition
The book-to-bill ratio is only as useful as the accuracy of its inputs — both bookings and earned revenue. While most firms track sales reliably, revenue recognition is often less precise, especially for fixed-fee projects.
For time-and-materials (T&M) projects, revenue recognition is straightforward. Hours are logged, invoiced, and recognized as they’re worked.
But with fixed-fee work, it gets more complex. A project might be fully invoiced up front, but delivered over several months. In that case, the revenue needs to be recognized gradually, based on the percentage of work completed — not when the invoice is sent.
If firms don’t follow proper revenue recognition practices, their book-to-bill ratio can give a false signal, overstating how much work has actually been delivered.
✅ Tip: A high book-to-bill ratio looks great on paper — but if delivery is delayed or revenue isn’t recognized properly, the business reality may look very different.
A previous blog article goes into more detail on Calculating Services Revenue on a Fixed Fee Project.
Applicable to consulting firms of all sizes
The book-to-bill ratio is worth tracking for any professional services organization — regardless of size. Whether the firm has 10 employees or 10,000, this metric provides a quick, reliable signal of near-term business health and future delivery needs.
Smaller firms use it to anticipate hiring needs and avoid periods of overcapacity.
Mid-sized firms rely on it to keep backlog strong and balance growth with delivery.
Large firms often report book-to-bill ratios publicly to demonstrate pipeline strength and revenue outlook to investors.
Here are some examples of how it plays out across different sizes and situations of firms:
1. Small firm (15-person consultancy)
- Revenue delivered this month: $200,000
- New bookings signed: $260,000
- Book-to-bill ratio: 1.3
This small firm is booking significantly more work than it delivered — a sign of healthy demand. If this trend continues, the team may need to increase capacity to stay ahead of workload and maintain service quality.
2. Mid-size firm (150-person software services company)
- Revenue delivered this quarter: $4.5M
- New bookings signed: $4.0M
- Book-to-bill ratio: 0.89
This firm is currently delivering more than it’s selling — a signal that backlog is shrinking. If the ratio stays below 1.0 for consecutive quarters, leadership may need to shift focus toward pipeline generation and sales acceleration.
3. Large firm (global enterprise)
- Consulting revenue delivered (Q1): $9.2B
- New consulting bookings: $9.2B
- Book-to-bill ratio: 1.0
This balanced ratio shows that sales and delivery are aligned. In contrast, if another division — like managed services — shows a higher ratio, that may indicate where growth investments or hiring should be prioritized.
Book-to-bill ratio: Final Takeaway
This metric gives professional services leaders a clear, no-fluff signal of where the business is headed — whether it’s time to hire, sell more, or hold steady. When used consistently and in context, it helps connect the dots between pipeline health, revenue planning, and team capacity.
But like any metric, it’s only useful when the data behind it is accurate and timely. That’s where modern tools make a difference.
When leadership asks, “Is revenue likely to increase or decrease next quarter?”, the book-to-bill ratio is one of the fastest ways to get an early answer.
If your firm isn’t already tracking this — or if you’re cobbling together numbers manually — it might be time to look into a professional services automation (PSA) platform. The right PSA tool can help you automatically calculate book-to-bill, forecast utilization, track revenue, and spot trends before they become problems.
Take the next step: explore tools that make book-to-bill tracking (and more) effortless.
See our guide to the 15 best PSA platforms for services firms
