What is backlog in construction?
Backlog is the dollar value of signed construction contracts that has not yet been earned, meaning the work a contractor is committed to but has not performed. It equals current contract value, including approved change orders, minus revenue earned to date. Owners, bankers, and sureties use it to judge how many months of work are lined up.
Backlog is the remaining revenue on contracts a contractor has already signed. Take each job's current contract value (including approved change orders), subtract the revenue earned to date, and add the results up across all jobs. That number tells an owner, a banker, or a surety how much work is lined up and roughly how many months the company can run before it needs new jobs.
How to calculate backlog
Backlog comes straight off the WIP report. The earned revenue column there is based on percentage of completion, not on billings, so overbilled jobs do not shrink backlog early.
| Job | Contract value | Earned to date | Backlog | Est. gross profit in backlog |
|---|---|---|---|---|
| Clinic TI | $1,150,000 | $920,000 | $230,000 | $25,300 |
| Warehouse | $2,600,000 | $780,000 | $1,820,000 | $218,400 |
| School addition | $3,400,000 | $1,360,000 | $2,040,000 | $163,200 |
| Retail strip (signed, not started) | $900,000 | $0 | $900,000 | $117,000 |
Notice the clinic job. It is 80 percent earned, so most of its value is already behind the company. The retail strip has not started, so all $900,000 is still ahead. Backlog shifts every month as jobs progress, which is why it should be recalculated from the WIP at each close rather than kept as a number someone typed into a slide.
Total backlog is $4,990,000. If the company earns about $600,000 a month, that is a little over eight months of work. The last column is the one owners skip and sureties do not: about $523,900 of expected gross profit is left in those jobs. If monthly overhead is $70,000, the backlog covers roughly seven and a half months of overhead before new work is needed.
Why backlog matters
- Bonding. Sureties look at backlog against working capital and equity when deciding how much more work to support. See bond capacity.
- Hiring and crews. Backlog by month shows whether to add a crew or slow down.
- Bidding. A thin backlog six months out is the signal to bid more now, not in six months.
- Valuation. Buyers of construction companies look closely at the quality, not just the size, of backlog.
Common backlog mistakes
- Counting verbal awards, letters of intent, or jobs "we are basically getting". Only signed contracts belong in backlog. Track the rest as a separate pipeline.
- Ignoring margin fade. A $2 million job that will lose money is not good backlog.
- Using billed-to-date instead of earned-to-date, which understates backlog on jobs that are overbilled and overstates it on underbilled ones.
- Forgetting that change orders increase backlog only once approved.
- Treating backlog as cash. It is future revenue, and costs come with it.
Related terms
Backlog connects to estimate at completion, gross profit, working capital, and the WIP report. For planning, read how to manage construction backlog and how to forecast cash flow for a construction business. Smart Business Automator's job costing and WIP views show earned revenue and remaining contract value per job, so backlog comes from the same numbers as the books.
Frequently asked questions
Is backlog the same as revenue?
No. Backlog is future revenue on signed contracts. Revenue is what has been earned so far.
Should letters of intent count as backlog?
Most contractors and sureties exclude them until a contract is signed. Track them as pipeline or awarded-not-signed.
What is a good backlog for a contractor?
There is no single number. Compare backlog to monthly revenue and to overhead; many owners watch how many months of work and overhead it covers.
Does backlog include change orders?
Approved change orders, yes. Pending change orders are usually tracked separately until signed.
