ClearTalk is a podcast where Solutions360 chats with industry thought leaders about best practices, strategy, and insights within the Integration industry.
On this week’s episode, our CEO, Brad Dempsey welcomes Tofiq Indawala, Director of Product Management, to the podcast to discuss backlog burn rate and what it means to business owners.
A question that Solutions360 keeps hearing, and especially in our last Master Class, is what is backlog burn rate?
Backlog is essentially unfinished work – it’s an order from a customer that an integrator has not delivered.
When you sell something, like an AV system or any kind of project, you book a sale when you close the deal. Normally, there is a financial agreement between the customer and the integrator, which could be a signed proposal. At that point, you have a backlog.
When you calculate backlog for an entire integration company, take the value of all your active projects, minus the revenue that you have already recognized. This gives you the outstanding backlog on all your projects.
Backlog = Original Value of the Project – Recognized Revenue
Backlog by itself is only one part of the picture when integrators start looking at financials. When we talk about backlog burn rate, we are referring to how backlog shifts over the project lifecycle, as you recognize more revenue.
How much backlog should you have?
This answer will be different for each integration company, but a good starting point is to look at your average project revenue month over month. How many weeks of backlog do you have? This will tell you how long you can continue without selling a new project or a job.
Having an accurate sales forecast is key for calculating backlog. If your forecast is kept up to date and is accurate, you can determine whether any potential incoming orders will cover the outgoing revenue. You are always filling your backlog funnel with those new sales. And that is why it’s critical to maintain an accurate sales forecast.
Also on the podcast, Tofiq shares the most important KPIs that integrators should measure to help manage their backlog.
Listen to the full podcast for Tofiq’s top recommendations!
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