Backlog is the total value of signed work you haven’t yet earned. For a job in progress, backlog equals current contract value minus earned revenue to date. For the company, it’s the sum across all open jobs plus signed jobs not yet started. Some companies track “gross profit in backlog” too: the projected profit still to be recognized.
Why it matters
Backlog tells you how many months of work you have lined up and whether you can cover overhead next year. It drives hiring, equipment purchases and bidding decisions. Sureties look at backlog against working capital and equity when setting bonding capacity, because a contractor can take on more work than its balance sheet can support.
Worked example
Illustrative: Riverside Medical Center has a $49.3M contract and $35.78M earned to date.
- Job backlog: $49.3M minus $35.78M = $13.52M
- Gross profit in backlog at 11.4%: about $1.54M
If the 14-job portfolio has $90M in total backlog and the company earns about $7.5M a month, that’s roughly 12 months of work on hand. Three fading jobs would shrink the gross profit in that backlog even if the revenue figure stays the same.
Common mistakes
- Counting verbal awards or unsigned LOIs as backlog.
- Reporting revenue backlog without the gross profit in it. Low-margin backlog can be a trap.
- Using billed to date instead of earned revenue, which distorts backlog by the amount of over or under billing.
How os.construction handles it
We’re building backlog to roll up from each job’s live contract value and earned revenue, so it’s current whenever someone asks, not only at month-end.