A design studio closed its monthly business report with good news: more than half of the year's target, and a pace that pointed to beating it. In the same half-year, the accounts said something else. Revenue had fallen by more than a quarter, and the result had moved from profit to loss.
Nobody had lied. Both readings were correct. They were measuring different things.
The four figures
At that studio, four figures for "where we are this year" coexisted, and all four were correct in their own definition:
| Figure | What it measures | Where it comes from |
|---|---|---|
| Closed | What the monthly report counted as won | The CRM |
| Contracted | What was signed with the client | Accepted proposals |
| Invoiced | What has been issued as an invoice | The accounts |
| Recognised | The period's revenue, according to the work done | The accounts |
The monthly report sat close to the contracted figure and was compared against a revenue target. It counted as closed about 2.2 times what had been recognised. And of the value contracted in the year's projects, only around 28% had been invoiced.
Why it matters
The fall took six months to show. One of the studio's main accounts stopped buying, and the report kept showing progress because it measured signatures, not revenue. There's no record of any response to that fall in the meantime. Our hypothesis is that the report didn't make it visible.
The target couldn't be measured. The gap to the target was calculated on the contracted figure, and the profitability target was measured on recognised revenue. With two different bases, no number said whether things were going well or badly.
And it changed what had to be done. A large part of what was missing from the target was already contracted. It didn't need selling: it needed invoicing. That conversation never comes up if the report only shows what's closed.
How to fix it
You don't need a new tool. You need three decisions, and they take an afternoon:
- Separate the figures in the report. Contracted, invoiced and recognised, each with its name, on the same page. The open pipeline goes separately, and isn't added to any of them.
- Give each one a source. Revenue comes from the accounts. The CRM is the source for open opportunities, origin and conversion. Whatever isn't in either yet comes from whoever owns the relationship, and is marked as such.
- Fix the basis the target is measured on. Invoicing or recognised revenue, but only one, and the same one for the revenue target and the profitability target. The studio chose invoices issued.
Four questions for your next report
- Is your "where we are" figure a signature, an invoice or revenue? Does the report say which?
- Are the target and the result measured on the same basis?
- How much do you have contracted and not invoiced, and how much of that is work already delivered?
- If your largest account stopped buying this month, in which figure would you see it first, and when?
If any answer is "I don't know", the problem isn't this month's sales. It's what the report measures.
A case from a RevOps Studio diagnostic, anonymised. The figures are ratios from the case itself; absolute amounts have been removed.
Carlos Estrada Fonseca
Carlos Estrada Fonseca, with 15 years in B2B business development and revenue across EMEA and Latin America. He teaches at ISDI, The Valley and LaLiga Business School.