Sales backlog ratio

February 21, 2023

If not, the backlog should be prioritized, with a focus on its size and prioritization. Defining “construction backlog” is far easier than managing one. Essentially, a company’s backlog is the amount or value of projects that they have in the pipeline on which work has not yet started. 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. Any benchmark for Ticket Backlog will vary depending on the company, product, and industry.

  • Having the right process to prioritize tasks is key to ensure your time is well spent.
  • Writing professionally since 2004, Charmayne Smith focuses on corporate materials such as training manuals, business plans, grant applications and technical manuals.
  • On the other hand, companies generally want to avoid having a backlog as it could suggest increasing inefficiency in the production process.
  • RevVana is a revenue forecasting app on the Salesforce AppExchange.
  • Sales backlog is typically expressed as a ratio that compares daily, weekly or monthly order totals with order processing capacity.
  • But showing that you’re too eager to tackle their job might call your credibility or worth as a contractor into question.

While this may be positive for customers, it may signal decreases in sales and revenue that can overall impact future forecasting. With an understanding of the definition of backlog and the impacts it can have on revenue forecasting, you may be wondering how to factor sales backlog data into your company’s revenue forecasting processes. For instance, a company may encounter significant additions to its sales backlog over a set period. While this may seem like a cause for concern, an increasing sales backlog value can be the result of increased sales, which signifies a positive trend in company health. That being said, a high sales backlog value also indicates increasing customer demand and future financial stability, all of which should be used as factors in revenue forecasting. The simplest way to find a sales backlog ratio is by dividing the number of backlogged orders by the number of sales in a given time.

And it helps to avoid stronger, more vocal characters having too over-bearing an influence on the result. Consider a business with the capacity to process 100 orders per week. When their brand initially launches and their product isn’t well-known or in-demand, they’ll likely have no problem meeting order targets every accounting consulting week. As their reputation grows and sales increase, they’ll begin to exceed their maximum capacity each week. The company provides repair and new construction services at its five shipyards located in southern Louisiana and Texas. This backlog depreciation should be charged to the revaluation reserve account.


Prioritization templates allow you to create a repeatable, more transparent, and less random approach; not to mention pave the way for a starting point with stakeholders. In many cases, these lender backlogs resulted in situations where delinquent borrowers were able to remain in their homes for several years without making any mortgage payments. The housing recovery did not begin in earnest until such backlogs were mostly cleared. Once you’ve sized up the backlog – or enough of it – ask the Product Owner to have another quick look at priorities. Maybe now they can see the relative size of the features they’ve asked for, they might change their view of priorities.

At the same time 400 hours of work is completed every week, therefore the backlog is in balance and within the  target of 4-6 weeks. The best practice for the process industry is to have a backlog of 4-6 crew weeks in total for weekly and daily work. If it’s 6 weeks and if no additional work orders are added it will take 6 weeks for the crew to finish all work orders during regular work hours. It’s also possible to temporarily inflate sales backlog with limited-time sales events or discounts, which can then be brought down to more stable levels over time.

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Managing sales backlog effectively means understanding what the backlog ratio represents and how it impacts business operations. While initial backlog growth is generally positive, steady revenue combined with customer fulfillment will increase your company’s value. We have a backlog because we are in possession of an executed order with a buyer, but the settlement did not occur prior to the report date. In general, a contractor’s contract base bid is the total dollar amount offered on a contract without taking into account any bid incentives or percentage reductions. A contractor who has been approved by the state government to install or construct new facilities or upgrade or modify existing ones is included in this list.

What is Construction Backlog?

Backlog Depreciation arises due to the inconsistency of revaluation of assets. Hence this amount is transferred to the revaluation reserve account which has a higher tax credit compared to normal Depreciation charges. In 11 USC 365, an unexpired lease or anexecution contract are terms that refer to an execution of an estate agreement. Property or other asset bound or only related to Property or other asset is defined as Applicable Contract. Each Contract in the Trust Fund’s corpus can be identified as of the Cut-off Date. I've taken this to mean last 4 weeks, as that appears to be what you are doing.

Backlogs at a company are formed when production capacity is less than the rate at which orders are received. It may be difficult to predict how long an order will take to process, so having a backlog indicates that customers are not receiving their products as quickly as they would like. Backlogs can also lead to cancellations because customers are not willing to wait for their orders to be processed. It is possible for a company to have a backlog because its employees work longer hours than they would like, and the company is unable to invest in new products or services. Businesses should be able to manage their backlogs in a way that allows them to make better decisions about how to spend their resources and how to run their operations more efficiently.

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The result is likely to be the complete elimination of the order backlog in the near future, after which sales can be expected to plummet, unless steps are taken to book more customer orders. Several ways to increase the backlog are to reduce prices, invest in more sales staff, or open up new sales regions. When you get further down the backlog, you’ll get to a point where the items are really rather fuzzy. Size enough of the items to see you through the foreseeable future. Savvy product owners rigorously groom their program's product backlog, making it a reliable and sharable outline of the work items for a project.

There’s also the option of automating some of the order processing process. This will reduce the amount of time employees spend on tasks that aren’t particularly important. Businesses should also pay attention to their revenue allocation. When allocating funds to a government contract, it is critical to account for the level of business activity that is taking place. If the company is experiencing a high level of activity, the government contract should expect higher revenue. It would appear, however, that if business activity levels are low, revenues should decrease.

Of course major changes in plant workload or staffing will require spot changes, but these should be very infrequent. With these two numbers in hand, the backlog KPI can be computed. A sales backlog has a significant impact on the quality of revenue forecasting. When managing your sales backlog, all additions or updates made to the backlog must be well documented and easily accessible.

Orders that remain unfulfilled or unprocessed are considered backlogged orders. These incomplete orders represent unearned sales revenue that remain available for the company to earn. When managed effectively, the company’s backlog can ensure that customer demand is satisfied.

Many contractors that end up with excessively long backlogs do so because they’re grabbing every contract they can get. This is often the result of undercutting everyone else’s prices, and it usually comes at the cost of their own profitability. New customers might like that you can jump right on their projects. But showing that you’re too eager to tackle their job might call your credibility or worth as a contractor into question. After all, good contractors are hard to find, so the ideal prospective customers expect to wait at least a little while. However, there’s a fine line between the organic growth of a business and prioritizing fast growth by taking on lots of new projects in a short amount of time.

If your backlog exceeds 50 stories per quarter, you should investigate the root cause and identify the cause. Consider investing in your backlog as a long-term investment in your company. A large product with ten product owners who are responsible for different areas may have a backlog twice as large as a product with five product owners who are responsible for different areas. A product owner should be able to keep approximately 150 different items at once.

Famine means there’s no money coming in, but feast creates management challenges that you might not be ready (or able) to handle. Calculating Ticket Backlog requires knowing what your normal timeframe is for resolving tickets. Whether this is hours or days, you’ll want to tally all unresolved tickets that are open longer than this time period. RevVana is a revenue forecasting app on the Salesforce AppExchange.

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