Every owner or manager wants to know what the future looks like. What does the next 6 months look like? How much business do we have in the pipeline? Do we have enough equipment to handle the jobs we have lined up?
The term used most for future commitments is the Backlog, and although most business managers have a general sense for whether business is rising or falling, very few have developed a system for tracking and measuring their backlog of work.
What is a Backlog?
First of all, let’s define what we actually mean by the term Backlog. It’s an estimate of a business’s future revenue stream, ideally expressed as a total revenue for future periods, such as months or quarters. The basis for this estimate comes from your sales team, and the components of this estimate are as follows:
What are the Components of a Backlog Report?
- Jobs currently in progress (i.e. an estimate of future billings on active jobs)
- Jobs won, under contract, but not yet started
- Jobs won per verbal notice, but not yet started or under contract
- Jobs bid, likely to win (as measured by estimated probability)
- Unexpected work, extras, walk-in, etc – based on historical experience
It’s relatively easy to collect the total revenue potential from the above categories of business. The hard part is to estimate when the above work will occur, and how much of the total value of each job will occur in what time period. I recommend relying on your sales manager (if you have one) to produce your backlog report on a quarterly basis. Down the road, after everyone is comfortable with the process, you can change to a monthly report.
The format of your Backlog Report should be a spreadsheet that looks something like this:
Other categories that could be included in the Backlog
- Jobs bid, unlikely but possible (a small pct of the total Bid $ for all unlikely jobs)
- Jobs upcoming, not yet out to bid (a very small pct of the total $ for these jobs)
Documentation Requirements for the Backlog
Underlying the production of any quarterly or monthly Backlog Report, there are certain other procedures that have to be put in place. First, your sales team has to record or “log” all of their job quotations or bids. Second, each bid or quotation your sales department issues should be documented, either by the sales reps notes or with a simple, standardized form. And finally, the status of each active job and bid should be updated every week or two, active jobs by your Crew Superintendent (Construction manager) and bids/quotes by the Sales Manager.
Having and using a Backlog Report, however simple or complex it is, will help you run a successful business by giving you an idea of what could happen in the coming months. It will always be an approximation, of course, but you will be surprised by how accurate you and your team will eventually get at forecasting the future of your business. It also has the benefit of improving the way your Sales and Construction teams work together as they share the status and schedules of your jobs. Finally, if you ever think about selling your business, your potential buyers will place significant value in the fact that you and your team have learned how to stay prepared for the future.