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When sales slow down and your backlog dries up, you haven't kept your pipeline full in accordance with your backlog requirements. The result is chaos!
Keeping your pipeline full means that you must have enough opportunities in the funnel in order to close them and convert them into sales that keep your backlog levels in harmony. Getting these 'opportunities' is the result of your marketing program, closing them and converting them into "done deals" is the result of your selling system.
The Feast or Famine Syndrome
Understanding your backlog requirements is simple. You must categorize the work, compute the turnover rate for each category and then average the turnover rate for all types of work. Then utilizing the formulas for Minimum and Maximum Backlog requirements, you can then compute the range that your backlog should be in at all times.
As I have often said, the biggest problem most home service professionals have with their backlog requirements is that they don't know what it should be. The result is that they take on more work than they can handle and usually at lower markup rates. The consequence is chaos and lack of control and the end result is lower or no profits.
The right approach is to calculate your required backlog and learn to increase your markup when you get to the 'Max' and to schedule the work to fit neatly into your operations plan. You don't need the additional work above your Maximum Limit at your normal markup amount. To put it plainly, you've got more work than you can handle. So, to offset the chaos this will cause your organization, you raise your markup to compensate for the additional stress you'll inflict upon your 'Capabilities and Capacities' that set your limits.
This allows you to avoid taking on more work than you can properly handle and to capture additional markup when you know you're getting at your maximum backlog in order to offset the result of the additional burden to your operations plan.
Understanding your backlog requirements also helps you to control the 'rollercoaster' effect that so many unprepared home service professionals fall prey to. By watching your backlog amounts change each month as you complete or '"burn off'" the work you have a good view of what you have on hand and when you'll need to bring some jobs into the mix. This is a strategic view based on your requirements and needs as a company to function evenly and properly and in accordance to your strategic business plan.
The Key Elements
The key elements of running a smooth operation and to avoid the deadly profit sucking 'roller coaster' effect are to have the following in place.
- Your Maximum and Minimum Backlog Requirements
- Your Prospects, Marketing and Selling Systems
- Your Lead Generation/Qualification System
- Your Operations and Scheduling Systems in Place
- Your Estimating and Selling Capacities
- Your Job Cost, Tracking and Report System to All Required Managers Functioning Properly
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Henry Goudreau, C.S.L.
HG & Associates, Inc
www.hgassociates.com
"We turn contractors who dream of a successful business, into business managers
who make a business successful!"
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