How to maintain a steady backlog

Matt Verderamo is a guide at Effectively Constructed Building Consulting, a Baltimore-based agency that delivers strategic consulting, facilitation providers and peer roundtables for building executives. Opinions are the creator’s personal.

If you wish to develop your building agency, getting your backlog proper couldn’t be far more vital. A robust backlog provides you the power to plan forward — whether or not that’s for hiring wants, manpower wants, key strategic investments or normal cashflows for issues like vans or raises.

Backlog is a measurement of how a lot work you’ve gotten booked that you haven’t but billed for. So, for instance, the day you signal a $3 million contract, you add $3 million to your backlog. After your first billing — let’s say it’s for $100,000 — your backlog on that venture is now (you guessed it) $2.9 million. To get your whole backlog, add up the remaining billings on your entire tasks.

Since backlog is a key indicator of future billings, and due to this fact future income and money flows, there are lots of explanation why you have to be making each effort to take care of a gradual backlog. Listed below are the highest 4 issues it is best to make to make sure you are utilizing this data to greatest information what you are promoting:

Observe the numbers. Because it goes with most issues, individuals received’t concentrate on backlog if it’s not quantified, tracked and emphasised. The extra you discuss and measure backlog, the higher probability you’ve gotten of reaching your targets.

Set a goal based mostly on what you are promoting’s strategic targets after which measure backlog in your monetary experiences. When you’ve began crunching the numbers, distribute up-to-date backlog information to your estimating crew not less than month-to-month, however ideally weekly. 

Contemplate your gross sales cycle. For those who’re a mechanical contractor, it might take eight to 12 months from the time you bid a venture to if you find yourself on web site and considerably billing. Due to this fact, this sort of contractor can be mentioned to have about an eight-  to 12-month gross sales cycle, and will ebook backlog about eight to 12 months prematurely.

For instance, in case you are concentrating on $100 million in income in 2025, and your gross sales cycle is eight to 12 months, that may imply that by Jan. 1, 2025, you’d need to have about $80 million to $100 million in backlog. As a result of should you don’t, any work you win in 2025 will seemingly begin in 2026 and never contribute to your 2025 targets.

For those who’re a smaller contractor with a shorter gross sales cycle — say two to 3 months — and have a goal income of $35 million, you’d solely have to have about an $8 million backlog on Jan 1, 2025 — or about 25% of the objective. Once more, as a result of that’s what you have to be billing within the subsequent two to 3 months to hit your objective.

Separate your backlog. Whereas all backlog is nice, if, right this moment, you win a megaproject that doesn’t begin till 2026, chances are you’ll meet your backlog goal, however it doesn’t imply you’ve gotten work for 2025. I at all times suggest separating your backlog for the following 12 months out of your backlog that falls 12+ months out. That means, you might be nonetheless monitoring each vital numbers, however making selections based mostly on the correct data right this moment.

Look to different indicators. When you should measure your backlog, it’s vital to understand that it’s a lagging indicator. Because of this whether or not backlog is low or excessive doesn’t inform us a lot, apart from that we both do or don’t want work. What it doesn’t inform us are issues like:

• Are we bidding sufficient work to take care of/develop our backlog?
• Are we having sufficient gross sales conferences to take care of/develop our backlog?
• Do now we have sufficient shoppers to help our progress targets?
• Are we doing sufficient enterprise growth with new potential shoppers?

So, whereas backlog ought to function a goal, it’s essential to create a set of main indicators that may guarantee you might be doing the issues that you must be doing to be able to keep a gradual backlog. A easy course of for creating main indicators for backlog is as follows:

1. Calculate your win price.
2. Use your win price to create bidding and gross sales targets. For instance, in case your win price is 10%, and your goal backlog is $35 million, you then would wish to bid $350 million. It additionally means that you must win $35 million. Companies with multiple estimator ought to then break that $350 million down by estimator and create a person bidding objective for every, and break the $35 million down by estimator and create a person gross sales objective for every.
3. Each week, meet as an estimating crew and assessment the quantity every individual bid/received the earlier week and examine it towards objective. Since you is probably not bidding each week, it is best to observe weekly bidding and gross sales targets as an accountability device, however in the end it is best to measure failure/success for assembly targets based mostly on month-to-month bidding and gross sales totals. 4 weeks is sufficient time for the info to settle.

Observe the steps right here, and I promise you can be shocked by the outcomes you get within the type of a gradual backlog that offers you the power to chase your strategic targets.