What is backlog?
Backlog is contracted work not yet performed or billed. For a contractor it is the signed project value still to be delivered; for a services company it can also include the unperformed portion of multi-year agreements. Associated Builders and Contractors publishes a monthly Construction Backlog Indicator that expresses backlog as months of work ahead, which is a useful way to read it.
Why it matters to a revenue leader
Backlog is the bridge between what sales won and what operations will bill. A revenue leader who knows backlog in months can see a revenue gap long before it shows in the P&L, and can say how much new work the team must win to keep crews busy. Sponsors and lenders read backlog as forward visibility, so its quality matters: signed contracts with start dates count for more than verbal awards. Investopedia notes that a backlog can signal strong demand or a capacity problem, so read it next to crew utilization.
How to calculate it
Ending backlog = starting backlog + new contracts booked − revenue earned on that work. Backlog in months = backlog ÷ average monthly revenue.
Common mistake: including verbal awards or unsigned change orders.
Example
Fictitious numbersA fire protection installation branch starts the quarter with $8.0 million in backlog, books $3.0 million and earns $3.6 million. Ending backlog is $7.4 million. At $1.2 million of revenue a month, that is about six months of work.
"How many months of backlog does each branch hold, and how much of it has a firm start date?"