Book-to-bill
This is a ratio that many B2B marketers watch closely because it gives an early indication of where the company’s business is headed (up or down). It is pretty simple math; take the bookings (orders) / billings (revenue).
- When you have long lead-times (e.g., airplanes), you need to start slowing down production as soon as you see the market turning
- It is an internal metric, so you have better information than anyone
Yes, you want a book-to-bill >1
This means your future is bright.
Airplane orders are booming
Airbus reported a book-to-bill ratio of 1.5 recently here, which is crazy. 1.5x more orders than current revenue. That gives me the sense that the HUGE run that Boeing has had over the last 2 years will likely continue too. Cue the pun on Boeing stock taking off.
Useful in consulting?
Accenture mentioned their book-to-bill on their last conference call here. Quotes in blue font.
New bookings were $10 billion for the quarter, reflecting 19% growth in local currency over last year. Our consulting bookings were $5.9 billion, with a book-to-bill of 1.1 and represented an all-time high. Outsourcing bookings were $4 billion, with a book-to-bill of 0.9.
This means that Accenture had hard POs for $5.93 billion of consulting work for the next quarter compared to the $5.18 of revenues in this quarter. More coming in the future than we have today = happy shareholders.
Okay, so what?
Think about this like a managing partner of a consulting firm:
- If book-to-bill > 1.0, then you can continue to hire, promote, invest.
- If you see it dip below 1.0, you start to get a bit concerned. That implies that future business (potentially) is not as good as it is now.
- Ideally, your book to bill is slightly greater than 1.0 (growing), but not erratic. You need to staff (a diversity of) projects consistently