Every piece of financial advice written for software companies assumes you know what next month looks like. Recurring revenue, a churn rate, a growth curve. If you run projects, none of that applies. You might invoice eleven lakh in March and nothing at all in April, and both are normal.
The instinct is to average it out. Take last year, divide by twelve, call that your monthly number. That number is useless, because the whole problem is the variance, and averaging is how you delete the variance from view.
The mistake underneath the mistake
Ask most project businesses what their pipeline is worth and you get one figure. It usually includes a signed retainer, an invoice sent last week, and a proposal that has been sitting unopened for a month, all summed into a single confident total.
That total is not wrong so much as meaningless. It mixes money that is already in your bank with money that depends on somebody replying to an email.
Four layers, sorted by certainty
Split everything you are owed or hope to be owed into four buckets. Order matters: each one is less certain than the one above it.
| Layer | What it is | How certain |
|---|---|---|
| Collected | Money in the bank | Certain |
| Invoiced | Billed, not yet paid | Very likely |
| Contracted | Signed, not yet billed | Committed |
| Pipeline | Proposed, not yet won | A hope |
Collected is the only number that is genuinely yours. Most tools show you this and stop.
Invoiced is work you have billed for and not been paid for. Split it by how overdue it is, because a week late and ninety days late are different problems with different fixes.
Contracted is the one almost nobody tracks, and it is the most useful of the four. It is money you have already won but not yet asked for: the retainer month that has not come round yet, the milestone still to be delivered. If you have signed a twelve month retainer in February, ten of those months are contracted revenue sitting in your future, and you can see them.
Pipeline is what is out there, weighted by your honest guess at winning it. A ten lakh proposal at thirty percent is three lakh of pipeline, not ten.
Why you must not add them up
The moment you sum these four into one number, you have built a figure that is mostly hope and looks like a plan. That is how a business hires against revenue that never arrives.
The four layers are shown side by side, never summed. That constraint is the whole point.
The design note in our own dashboard
Keep them separate and each one answers a different question:
- Can I pay salaries this month? Look at collected plus invoiced falling due.
- Should I take on another project? Look at contracted, because that is work already promised.
- Do I need to sell harder right now? Look at pipeline, and at how thin the next two months are.
The number worth watching
Once you have the four layers, one derived figure is worth more than all of them: how many months of your average billing are already covered by what is outstanding plus what is contracted.
Call it secured months. If your trailing six month average is four lakh and you have six lakh outstanding plus twelve lakh contracted, you have roughly four and a half months secured. That is a far better prompt than any revenue target, because it tells you when to start selling, not just whether last month was good.
Dry months are data, not failure
If you look back at a year of project work you will usually find two or three months where nothing landed at all. That is not a sign the business is broken. It is the shape of the business.
What matters is whether you saw them coming. A dry month you predicted in advance is a scheduling problem. A dry month that surprises you is a cash problem, and they are not the same thing.