One of the biggest challenges for contractors is establishing a well-balanced, healthy backlog of work. A backlog is an indicator of financial health and stability for your business based on the total projects you have in the pipeline. Too much in the backlog and you could face problems like cash flow issues, increased projects costs, and scheduling obstacles. Too little? Your business is stuck in survival mode, scrambling with profit fade and retaining employees. Either way, profit margins are increasingly under pressure as project owners face high borrowing and project costs in the context of a slowing economy.
We’ll take a deep dive into current trends influencing backlogs, how construction backlog affects contractors, steps to better manage your backlog for business stability, and how STACK supports a healthy pipeline of work.
Current Trends Influencing Construction Backlogs
The Associated Builders and Contractor’s (ABC) Construction Backlog Indicator reports the average backlog is 8.6-month average for commercial, 7.5-month for infrastructure, and 4.8-5-months for residential. Trends currently affecting these sectors include:
- Infrastructure Projects: The influx of government-funded infrastructure projects from the Infrastructure Investment and Jobs Act, including roads, bridges, and renewable energy initiatives, has increased backlogs, particularly for contractors involved in public sector work.
- Labor Shortages: Ongoing labor shortages in the construction industry are contributing to extended project timelines and higher backlogs, as firms struggle to hire skilled workers to meet demand.
- Supply Chain Disruptions: Although easing somewhat since the pandemic, supply chain challenges still impact construction timelines, adding to project delays and extended backlogs.
- High Interest Rates: Higher interest rates have a direct impact on the residential construction sector and have made borrowing more expensive for both homebuyers and builders, slowing the pipeline of work.
Why You Should Analyze Your Backlog’s Health
- Cash Flow Challenges
Longer backlogs can result in delayed payments. When the average payment terms are already 120 days, you face reduced liquidity and increased financial strain. On the contrary, if there’s not enough work in the pipeline you’ll struggle with an inconsistent revenue stream. - Increased Project Costs
Prolonged project timelines caused by backlogs can lead to cost increases for materials, fuel, and labor. When you have fixed-price contractors it’s unlikely clients will take on those costs, reducing your profit margins. - Impact on Reputation and Future Work
Extended delays in starting or completing projects can lead to strained relationships with clients, potentially affecting future business and referrals. - Project Cancellations or Postponements
In times of economic uncertainty, longer backlogs can result in project cancellations or postponements. Clients may decide to hold off on new projects until market conditions improve, leaving contractors with idle capacity. - Scheduling Complexity
Longer backlogs can complicate scheduling and leave you juggling overlapping projects. This can lead to inefficiencies, delays, and increased operational costs.
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Steps to Effectively Manage Your Backlog
While maintaining a reliable backlog is challenging, there are steps you can take to stay financially and operationally stable when building your pipeline of work.
- Know What’s Feasible: Do you have the capacity to meet the demands of the work? Be honest about the jobs you can handle. Projects should only be added to the backlog if you can avoid scheduling conflicts and meet deadlines.
- Learn to Say No: Be selective in accepting jobs by analyzing historical project data for the most profitable jobs. You will create better forecasts for revenue streams.
- Allocate resources properly: Ensure you have enough labor and materials and use accurate forecasting and supply chain management.
- Use the right technology: Preconstruction and Construction management platforms can help ensure accurate estimates, track projects and backlogs, and provide real-time visibility.
- Consider economic conditions: Be aware of economic conditions and projections and find the right balance between growth and risk.
How STACK Supports Your Healthy Pipeline
Our main advice? Always be bidding. Focus on building the pipeline of new project opportunities that are predictably profitable for your business. STACK’s powerful tools and comprehensive cloud-based platform can help your business reach growth goals with:
Improved Efficiency and Speed
STACK allows you to quickly create accurate takeoffs and estimates by automating repetitive tasks, reducing manual errors, and providing access to updated data from anywhere. Increased speed allows you to bid on more projects that align with your business and manage a larger backlog without sacrificing accuracy or time.
Real-Time Collaboration and Access
STACK is accessible anywhere, anytime, allowing real-time collaboration. This ensures that all stakeholders are on the same page, leading to fewer delays and improved coordination, helping keep the construction pipeline moving smoothly.
Data Centralization and Access
Having all project data centralized in STACK allows for easy tracking of multiple projects in one place. Stakeholders can assess the backlog at any given time, seeing how each project is progressing in terms of resources, timelines, and costs. This helps in allocating resources efficiently to prevent bottlenecks and manage workloads.
Expand Your Financing Options
Seek out financial institutions with construction-specific programs, like STACK’s partner Billd. You can pay for materials upfront and have cash on hand for other expenses, avoiding the long repayment cycle and a halted backlog.
Accurate Forecasting
Forecast future work and backlog capacity with STACK’s comprehensive dashboards. These insights help you understand whether to take on new projects and how current jobs will impact the future workload, ensuring that the backlog is neither overextended nor underutilized.
Scalability and Flexibility
STACK grows with your business and can meet the demands of additional projects and team members. You can also easily adjust your workload by making quick changes to project estimates and scheduling as needed, keeping your backlog manageable.
Seamless Integration with Other Tools
STACK’s robust, open API allows seamless flow of data in your workflow, reducing duplication of work and ensures that your backlog is aligned with available resources, finances, and timelines.
Customer Relationship Management (CRM) Integration
STACK partners FollowupCRM and TopBuilder allow you to track customer communications, maintain relationships, and ensure repeat business. A healthy backlog isn’t just about new projects but also maintaining ongoing client relationships for future projects.
Overall, construction backlogs present financial, operational, and reputational challenges for contractors, making effective backlog management critical to business sustainability. A healthy backlog will help you decide how to use time and resources when variables invariably pop up. Conveying financial health and timely projects will help build client trust, solidify your reputation, and futureproof your business for success.
