What is the book-to-bill ratio?
The book-to-bill ratio is bookings divided by billings over a period. It compares new orders coming in against what you are actually invoicing.
It is a forward-looking demand signal. Because bookings are commitments and billings are invoices, the ratio between them hints at where revenue is heading before it shows up.
The formula.
Book-to-bill ratio = bookings divided by billings, over the same period. Bookings are signed commitments; billings are what you have invoiced, which often lags.
Read the result against 1. Above 1 means orders are outpacing invoices and backlog is building; below 1 means you are billing down a backlog faster than refilling it.
A worked example.
A company books 130,000 and bills 100,000 in the quarter. Book-to-bill is 130,000 divided by 100,000, which is 1.3.
What does a good book-to-bill ratio look like?
Above 1 is generally the healthy direction, since it means demand is growing faster than you are invoicing. A ratio below 1 is not automatically bad, as it can reflect a planned drawdown of backlog, but a sustained decline is worth investigating.
Bookings are the front of the same flow that billings and revenue sit further along. Reading it next to the ARR it recognizes over time connects new orders to recurring revenue.
How to improve it.
Grow bookings through more qualified pipeline and higher win rates, since the ratio rises when new orders accelerate. The denominator follows naturally as those bookings convert to invoices.
Sustained order growth needs a sustained source of demand, which is the case for building pipeline that does not cost per click.