How to Maintain a Steady Backlog

If you’re a Contractor that wants to grow, getting your backlog right couldn’t be much more important. A strong backlog gives you the ability to plan ahead—whether that’s for hiring needs, manpower needs, key strategic investments, or general cashflows for things like trucks or raises.

Backlog is a measurement of how much work you have booked that you have not yet billed for. So, for example, the day you sign a $3M Contract, you add $3M to your backlog. After your first billing—let’s say it’s for $100k—your backlog on that project is now (you guessed it) $2.9M. To get your total backlog, add up the remaining billings on all of your projects.

Since backlog is a key indicator of future billings, and therefore future profits and cash flows, there are many reasons why you should be making every effort to maintain a steady backlog. Here are the top 4 considerations you should make to ensure you are using this information to best guide your business. These considerations come from my time as a VP of Estimating & Sales at a Specialty Contractor, as well as my time spent with tens of top Construction Contractors around the country: 

What gets measured gets built. The first step of maintaining a steady backlog is as simple as a) setting a target backlog based on your business’s strategic goals, b) measuring backlog on your financial reports, and c) distributing up-to-date backlog data to your estimating team at least monthly, but preferably weekly. As it goes with most things, people won’t focus on it if it’s not measured and in their face. The more you talk about and measure backlog, the better chance you have at achieving your goals. 

Backlog is a lagging indicator. While you must measure your backlog, it’s important to realize that it is a lagging indicator. This means that whether backlog is low or high doesn’t tell us much—other than that we either do or don’t need work.

What it doesn’t tell us are things like: 

• Are we bidding enough work to maintain/grow our backlog? 

• Are we having enough sales meetings to maintain/grow our backlog? 

• Do we have enough clients to support our growth goals? 

• Are we doing enough business development with new potential clients? 

• And many more. 

So, while backlog should serve as a target for the team to drive towards, it’s critical to create a set of leading indicators that will ensure you are doing the things you need to be doing in order to maintain a steady backlog. A super simple process for creating leading indicators for backlog is as follows: 

1. Calculate your win rate 
   

2. Use your win rate to create bidding and sales goals 
   

3. For example, if your win rate is 10%, and your target backlog is $35M, then you would need to BID $350M. It also means you need to WIN $35M. 
   

4. Then, break that $350M down by Estimator and create an individual bidding goal for each, and break the $35M down by Estimator and create an individual sales goal for each. 
   

5. Every week, meet as an estimating team and review the amount each person bid/won the previous week and compare it against goal 
   

6. Disclaimer: Sometimes, projects will fall so that you don’t have anything bidding from one week to the next. 
   

7. Therefore, you should track weekly bidding and sales goals as an accountability tool, but ultimately you should measure failure/success for meeting goals based on MONTHLY bidding and sales totals. 4 weeks is enough time for the data to settle. 

Consider your sales cycle to determine when you need to book work. If you’re a mechanical Contractor, it may take 8 to 12 months from the time you bid a project to when you are onsite and substantially billing. Therefore, this type of Contractor would be said to have about an 8 to 12 month sales cycle, and needs to book their backlog about 8 to 12 months in advance. 

• For example, if you are targeting $100M in revenue in 2025, and your sales cycle is 8 to 12 months, that would mean that by January 1, 2025, you’d want to have about an $80M - $100M backlog. Because if you don’t, any work you win in 2025 will likely start in 2026 and not contribute to your 2025 goals. 

• If you’re a smaller Contractor with a shorter sales cycle—say 2 to 3 months—and have a target revenue of $35M, you would only need to have about an $8M backlog on Jan 1, 2025—or about 25% of the goal. Again, because that’s what you should be billing in the next 2 to 3 months to hit your goal. 

Separate your <12 month backlog from your 12+ month backlog. While all backlog is great, if, today, you win a mega project that doesn’t start until 2026, you may meet your backlog target, but it doesn’t mean you have work for 2025! So, I always recommend separating your backlog for the next 12 months from your backlog that falls 12+ months out. That way, you are still tracking both important numbers, but making decisions based on the right information today. 

Getting it Right 

This stuff is so fun and so meaningful for running a successful construction company. Follow the steps laid out here, and I promise you will be shocked by the results you get in the form of a steady backlog that gives you the ability to chase your strategic goals. Hope you give it a shot on Monday, and as always, if you need any help, shoot me an email at mverderamo@wellbuiltconsulting.com any time. 

Spark Notes:

• A strong backlog is crucial for planning key aspects of your business like hiring, cash flow, and strategic investments.

• Backlog is a lagging indicator, so you need to measure leading indicators like bidding and sales activity to ensure growth.

• Setting clear bidding and sales goals based on your win rate helps maintain a healthy backlog.

• Align your backlog with your sales cycle, ensuring you book work far enough in advance to meet revenue targets.

• Separate short-term and long-term backlog to make informed decisions based on immediate and future workload needs.