29 May 2021
What Does New Construction Backlog Mean To You?
What is a Backlog?
Backlog is the amount of work, measured in dollars, that construction company are contracted to do in the future. The greater the value of the backlog, the more comfortable contractors can be with respect to their near-term economic circumstances. A construction backlog can be an indicator of a company’s financial health, and some very important players might use it to determine the risk you pose for them. But, most times, buyers have been pretty ecstatic that we have a little bit extra time to get things lined out a little bit better. One of the biggest reasons for us to be backlogged, it's hard to get our materials.
Increase in Price (Our Views)
We have had some price increases since then as material prices have increased and harder to get. So, the prices have gone up. If you've tried to buy lumber in the last 6-8 months it's up 300% and that is one of the biggest reasons for the new construction backlog.
Strategy of Cannon Builders:
Cannon builders are unique in a way that we try and schedule one closing per week. We don't want to overload quantity and let that take over quality. So, with closing one home per week, that is part of where our backlog has come from, some of our buyers have moved up, a couple of them have moved back, but for the most part, it has been phenomenal. Because we have been selling, we have very limited opportunities in the communities that we have just opened phases on. So typically when you're in closeout, it's the leftover picked. That is not the case right now, we typically struggle at the end of the community trying to find out how the home site that's going to fit the house or just even work for whatever reason, but it has been like, that's why this week I was told to agree on over there, it's just gone, they're still tree line or backing the farms or other sides, sides walkout home sites. That doesn't happen to close out a number and it's just because it's happened so quickly, people have picked what they want, not necessarily picked the best lots or whatever
A long construction backlog can spell trouble, too
Having a long backlog can be an issue as well. If you’re telling prospective customers that you can’t start their project for nine months, it’s going to be hard to win new jobs. This will often balance itself out over time, but it’s a dangerous trap to dig your way out from. Again, customers might question your ability if you have a long backlog. Yes, you have customers, but a long backlog could mean that you’re behind and can’t manage your projects effectively. Absolutely nobody wants to enter into a contract with someone who they suspect can’t hold a deadline.
How to calculate a construction backlog
While you probably have a decent idea of how long it’ll take you to get to your projects in your head, you need to get it on paper. You need an accurate and trackable system for determining your backlog effectively. Also, a surety needs hard numbers to assess risk — not handshakes and loose scheduling. The easiest way to calculate your backlog is to use a standard WIP (Work in Progress) report. By including the contract value and information for upcoming awarded projects in your WIP report, a surety can establish where your business stands on the current projects using the Percentage of Completion Method. The surety can also get a clearer picture of the health of your financials and when you’ll likely get to the future projects.
Strategies for managing a construction backlog
If you’re looking for help striking that ideal backlog balance, these tips should help.
Measure your backlog accurately
We’ve already established that a backlog is much more than a schedule in your head or written on the back of a sheet in your clipboard. Use construction-specific accounting and management software to maintain an accurate WIP and backlog.
Communicate clearly with your clients
Like previously mentioned, talking about your backlog the wrong way can throw some red flags to
