Test 05
The Consumption Gap Test
In a consumption model, what share of the ARR your forecast counted was ever actually consumable?
What everyone does instead
Consumption businesses forecast and celebrate committed contract value, because that is what the sales motion produces and what the compensation plan pays on. Recognised revenue then depends on a consumption ramp that the selling team does not control and the forecast never modelled. The two numbers drift apart quietly and get reconciled at the end of the year.
What to compute
- Committed value at close versus consumed value at 12 and 24 months, by cohort.
- The share of contracts that never exceed half their commitment.
- Forecast error measured against recognised revenue rather than against bookings, usually the first time anyone has seen both.
- Whether consumption ramp is predictable at the moment of close from anything the manager knew.
The arithmetic
$95M ARR consumption business, 340 deals closed in the period Committed at close $52.0M Consumed in year one $35.4M 68% of commitment Unrealised in year one $52.0M - $35.4M $16.6M Forecast error against recognised revenue $16.6M / $52.0M 32% Contracts never exceeding 50% consumption 22%
Worked example
A $95M ARR consumption business: $52.0M committed at close, $35.4M consumed in year one, 22% of contracts never exceeding half their commitment. The forecast was accurate on bookings and 32% wrong on revenue, and only one of those was ever measured.
Illustrative figures. The relationship shown is the hypothesis the test exists to check.
What changes if this is true
Your forecast can be accurate and your revenue can still miss, and both can be true at once. The size of the gap by cohort tells you whether to change what you sell, how you ramp it, or what you count as a win. Nobody is at fault. The sales motion is doing exactly what it was designed and paid to do.
What you need and how long
Closed-won contracts with committed value
- Where it lives
- CRM
- Days
- 0.5
Consumption or usage by contract by month
- Where it lives
- Billing or metering system
- Days
- 1
Cohort ramp curves and forecast reconciliation
- Where it lives
- Analysis
- Days
- 2
Every test runs on the same two extracts, forecast history from the CRM and contract history from billing, pulled by a RevOps analyst in about an hour. Everything is measured against your own outcomes: no benchmark, no composite, no assumed uplift.