Forrester (FORR) Q1 2025: Contract Value Slips 7% as AI Research and Pipeline Efforts Intensify

May 6, 2025 | By EarningsIQ Research

Forrester’s Q1 2025 underscored persistent macro headwinds, with contract value down and revenue falling short of plan, even as management leaned into AI-driven research and sales process optimization. Despite lower enrichment and wallet retention, the company’s strong multi-year contract mix and cash position give it room to maneuver. Investor focus now shifts to the pace of sales pipeline conversion and client retention as Forrester navigates a volatile demand landscape through the remainder of 2025.

Summary

• AI Research and Platform Push: Forrester doubled down on AI coverage and Izola, its proprietary LLM, to differentiate in a cautious market.
• Sales Pipeline Up, Conversion Lags: Sales activity and pipeline per rep rose, but sales cycles lengthened and enrichment fell.
• Retention and Targeting in Focus: Multi-year contracts hit a record share, but small client churn and persona mismatch remain pressure points.

Performance Analysis

Forrester’s Q1 2025 results reflected broad-based demand softness, with total revenue dropping 10% year-over-year to $89.9 million, and contract value (CV, a key recurring revenue metric) down 7%. The research business, which anchors Forrester’s subscription model, saw an 11% revenue decline, while consulting revenue slipped 7%. The consulting line was mixed, with advisory services showing single-digit growth but core consulting lagging. Events revenue was negligible, consistent with seasonal norms.

Retention dynamics were mixed: Client retention held steady at 73% for the third straight quarter, but wallet retention slipped to 86%, with enrichment—the ability to expand client spend—dipping due to tighter budgets and macroeconomic caution. Multi-year contracts, however, now represent 73% of CV, an all-time high, providing some revenue stability. Free cash flow was a bright spot at $26.1 million, and operating expenses fell 10% driven by an 11% headcount reduction, helping to offset margin pressure from lower top-line growth.

• Subscription Weakness: Research subscription revenue fell 6%, with additional drag from discontinued products and reprints.
• Consulting Divergence: Advisory services outperformed core consulting, but overall consulting revenue declined.
• Cost Controls Blunt Margin Impact: Lower compensation and headcount helped deliver operating margin and EPS above consensus, despite revenue shortfalls.

Management’s ability to hold margins above expectations amid top-line pressure signals disciplined cost control, but the underlying demand picture remains challenged, especially as enrichment and wallet retention soften.

Executive Commentary

Strategic Positioning

1. AI Research Leadership and Izola Expansion

Forrester is positioning itself as the leading AI research company, expanding coverage across generative and agentic AI, and leveraging Izola, its proprietary large language model (LLM, a type of AI that generates text or analyzes data), to deliver differentiated client value. Izola’s most common use case is vendor selection, with nearly 40% of prompts from technology executives focused on market comparisons. The platform now integrates consumer and technographics data, aiming to make Forrester’s research more actionable and accessible. This AI-first approach is core to Forrester’s client engagement and operational strategy.

2. Go-to-Market and Sales Process Overhaul

The final phase of the Forrester Decisions platform transition centers on go-to-market optimization, with efforts to target higher-level executives and expand the number of personas (decision-maker types) served within accounts. The FAST sales methodology is being reinforced across both sales and analyst teams to ensure message alignment. Despite a year-over-year decline in account executive headcount, pipeline per rep is up 33%, though deal cycles have lengthened by 10–12 days as client scrutiny increases. Management is focused on converting this pipeline and improving retention lifecycle processes.

3. Retention and Client Mix Management

Retention remains a double-edged sword: While multi-year contracts provide revenue visibility, wallet retention and enrichment are under pressure, especially among small clients and single-seat holders. The company is now more vigilant about targeting the right personas and avoiding product-client mismatches, which have been the primary driver of non-retention. Forrester is prioritizing team-based solutions over single-seat contracts to reduce churn risk.

4. Government and Sector Diversification

Federal government business, while less than 6% of total CV, is under pressure from efficiency drives and policy shifts, resulting in contract cancellations and tighter budgets. Forrester is responding by targeting AI and cybersecurity opportunities within government, leveraging Izola and new leadership to unlock previously inaccessible accounts. State and local government and international public sector wins are also being pursued to offset federal softness. Sectorally, discrete manufacturing, retail, and financial services are seeing the most caution, with Asia and Europe particularly sensitive to tariff-driven uncertainty.

5. Product Innovation and Data Tools

Product innovation remains a differentiator, with “Expanded Access” broadening content availability for Forrester Decisions clients and a new interactive data tool enabling vertical, demographic, and geographic research queries. These enhancements are designed to deepen client engagement and expand addressable market, especially as clients seek guidance on cost optimization, risk management, and technology stack simplification during volatile times.

Key Considerations

Q1 2025 was marked by persistent demand caution, operational discipline, and a strategic pivot toward AI-driven research and platform differentiation. Investors should weigh the following:

Key Considerations:

• Sales Pipeline Growth, But Longer Cycles: Pipeline per account executive rose sharply, but deals are taking longer to close as client approval layers increase.
• Retention Stability Masks Enrichment Risk: Flat client retention is offset by wallet retention declines, signaling risk of further spend contraction among existing clients.
• AI and Data Investments as Differentiators: Izola and expanded AI research are central to Forrester’s pitch, aiming to offset macro-driven budget tightening.
• Sector and Geographic Sensitivity: Discrete manufacturing, retail, and financial services, especially in Asia and Europe, remain most exposed to demand and tariff volatility.
• Cost Controls and Cash Resilience: Headcount reductions and lower compensation have preserved margin and cash flow, but future growth depends on pipeline conversion and enrichment recovery.

Risks

Forrester faces several material risks: Prolonged macro uncertainty, especially from tariffs and government efficiency initiatives, could further dampen contract value and wallet retention. Small client churn and product-persona mismatch may persist, limiting enrichment. Lengthening sales cycles and increased scrutiny could delay revenue recognition. While cost controls are effective, further top-line pressure could force additional restructuring or limit investment in innovation. The goodwill impairment underscores vulnerability to market cap and valuation swings.

Forward Outlook

For Q2 and the full year 2025, Forrester guided to:

• Full-year revenue of $400 to $415 million, down 4% to 8% year-over-year
• Operating margin of 8% to 9%
• EPS of $1.20 to $1.35

Management maintained guidance, citing a conservative and balanced view that incorporates ongoing volatility but does not assume a full recession. Key variables include government contract risk, pipeline conversion, and continued cost control.

• Second-half improvement is expected as prior-year bookings headwinds diminish
• Opportunities in government AI and cybersecurity, and expanded state/local focus, are offsets to federal softness

Takeaways

Forrester’s Q1 2025 highlights a company in disciplined transition, balancing cost management with innovation investment amid a challenging demand environment.

• Revenue and enrichment remain under pressure, but multi-year contracts and cash generation provide a buffer as the company leans into AI research and platform upgrades.
• Sales pipeline growth and process improvements are promising, but conversion and retention among small clients are key watchpoints for the remainder of 2025.
• Investors should monitor the pace of pipeline conversion, wallet retention stabilization, and the impact of AI-driven differentiation as Forrester seeks to reaccelerate growth in a volatile market.

Conclusion

Forrester’s first quarter underscored both the resilience and the limits of its subscription-based model in a turbulent macro climate. With AI research and Izola at the center of its platform push, the company’s ability to translate pipeline momentum into revenue and enrich existing client relationships will determine the trajectory for the rest of 2025.

Industry Read-Through

Forrester’s Q1 signals persistent caution across the enterprise research and consulting sector, with clients delaying spend and scrutinizing contracts as macro and policy volatility mounts. The shift toward AI-driven research platforms and data tools is becoming table stakes, with proprietary models like Izola emerging as a key differentiator. Sectoral caution in manufacturing, retail, and financial services, especially in Asia and Europe, is likely to weigh on peers. The focus on multi-year contracts and client persona alignment may become best practices for others seeking to stabilize recurring revenue in a tightening environment.

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