Understanding Your Backlog (1 of 2 for Ops Managers)
This is the sixth post in our seven-part series on using reporting to help you run your Tree Care, Landscaping, or Lawn Care business. This is the first post we’re writing specifically to help Operations Managers and supervisors. We’ll discuss the importance of the backlog for your company.
What is a Backlog?
As it relates to your Tree Care or Landscaping business, Merriam-Webster defines a backlog as “an accumulation of tasks unperformed or materials not processed.”
Basically, it’s all the work you have sold but have not completed.
Calculating Your Backlog
If you correctly use your timesheets, you’ll understand the windshield time and downtime your crews have at the office. The remainder should be time actually in the field.
If you’re doing this manually, take the number of employees you’re running and their average hourly direct labor hours (spent ON A JOB) daily, and multiply the number of people in that crew.
If you know your employees average seven hours per day in direct labor, that means a three-person crew can run 21 hours per day on a job (7 hours per day X 3 people = 21 hours daily). Over a five-day workweek, that same three-person crew can complete 105 hours of work ON client properties.
Once you figure out the capacity each crew has, add up the hours each week each crew can work. This gives you a weekly number.
Using our example, let’s say you have two crews of three people and one crew of two. The crews of three can each complete 105 hours of work. The two-person team can only complete 70 hours per week (7 hours per day X 2 people = 14 hours of work; 14 hours daily X 5 days per week = 70 hours.)
Your production capacity looks like this:
Crew A – 3 people = 105 hours/week
Crew B – 3 people = 105 hours/week
Crew C – 2 people = 70 hours/week
105+105+70 = 280 hours per week of direct labor.
Now, divide the number of direct labor hours in your backlog by the direct labor capacity you’ve just established.
If you have 1,000 hours of direct labor in your backlog, divide 1,000 by 280 and get 3.6. This means you’ve got roughly three and a half weeks of backlog.
Let Software Do the Heavy Lifting
Rather than going through the math manually (forcing you to be aware of every job and the direct labor hours involved), use software to help. Spreadsheets like Microsoft Excel or Google Sheets will allow you to add the hours in a specific column. If you add all the direct labor hours into a column on the spreadsheet, you can set the spreadsheet to total these for you.
If you have an industry-specific software platform, it will often have some functionality built in to help you calculate this backlog. There’s a way to figure this out.
Either way, don’t spend hours and hours doing this by hand unless it’s absolutely necessary. You can use the math in the section above as a guide to help you set up your spreadsheets or leverage your business management software to do it for you.
Why Are Backlogs Important?
Knowing and managing your backlogs is vital for at least two crucial reasons. First, you must understand and manage your cash flow as a business. Secondly, you must communicate with your customers about your backlog (and where they are in it) or risk losing them.
Cashflow Management
We discussed the importance of cash flow in a previous blog. The short version is that your cash flow is how you keep the lights on and the bills paid. In fact, according to this article from Total Landscape Care, “Without it [a backlog], maintaining employees and positive cash flow is near impossible.”
If you are not tracking your backlogs, you might start a week of work only to realize that you don’t have enough work to finish the week. That’s a scary situation regarding payroll, employee retention, and your ability to pay bills.
Customer Communication
According to G2, “Customer communication is how a business interacts with its customers using communication channels and strategies. Effective communication with customers can help build relationships with the target audience and promote customer engagement and retention.”
Said another way and tailored to our context, if you’re going to keep the customers your company has worked so hard to earn, you’ll need to give them some idea of when their project will be completed.
In an ideal world, you’ll give the Sales staff an estimate of where the current backlog stands. Then, they’ll communicate that to the customer at the point of sale. (Hey, I said “ideal world,” not the “real world.”)
Once you’ve got approval from the customer, you should call or email them to give them the timeline. If it’s two weeks or ten weeks, notify them. For backlogs longer than a month, you should also give the customer some “check-in.” So, if the backlog is six weeks, you should email or call them after about three weeks and communicate, “Hey, we’re still on track to get your job started in three weeks.”
It should also go without saying that any changes to that timeline should also be communicated. Tell them even if you’re running ahead of schedule and you’ll be out earlier than agreed. You’ll be surprised how often you get information that you didn’t have before (“We’re hosting a graduation party that day!”), allowing you to better position your crews for success.
This communication is only possible if you actively track and manage your backlog.
What do you do when you’ve got a LONG Backlog?
Having a long backlog sounds like a significant “problem” to have, right? Like, what could be the downside of that?
I’ve worked in a business with dramatic backlogs, and I can assure you that it does cause problems. Even when you tell a customer, “It’s going to be 12 weeks before we can start on your project,” they get antsy. They want it done sooner, despite what you’ve told them.
Here are some ways to help offset a long backlog and make your customers happy.
Standardize the customer communication
You should be doing this anyway, but make sure you have a standard Sales process. Two parts of that process should be 1) asking the customer about their timeline for completing the project and 2) communicating the backlog.
Asking, “When would you like to have this completed?” goes a long way. You might discover they’re hosting an event at their home and need a hard completion date for the project. If that fits well within your existing backlog, you should be good. If not, you can quickly disqualify the prospect by saying, “That date is just six weeks from now. Unfortunately, our current backlog of work is eight weeks, so I don’t think this will work for either of us.” (Note that you should have asked these questions when qualifying the lead in the first place!)
Additionally, as mentioned above, standardize the communication for accepted jobs. Make sure customers who have agreed to work with you aren’t waiting around for ten weeks without any contact. A phone call or an email stating “We’ll be out tomorrow” after they haven’t heard from you in two months will aggravate your customers.
Prioritize incoming jobs
You can reduce your backlog by prioritizing the type of work and customers you take on. Start with your Ideal Customer Profile.
Let’s pretend that profile is a young married professional with two incomes, no kids, and a first-time homeowner. Got that picture in your head? Great.
Now, let’s say you have two potential jobs in front of you. Both reached out to you; both asked for a small patio. One potential customer fits your Customer Profile perfectly; a young doctor in his late 20s, married to a woman who works as an HR Manager for a manufacturing company. They have no kids, are improving their first home, and want an entertaining space. The other potential customer is a more traditional couple. The husband works each day as a mid-level manager at a retail chain store, the wife stays home with their three children, and they’re living in the second home they’ve owned.
Both might be great customers. No judgment on either! But if you identified the first customer as your “ideal” customer, you simply (and politely) decline to bid on the second customer’s project. If you really don’t want to turn the work down, you might consider using a trusted subcontractor. If you do this, don’t forget to capture your profit margin on top of their bid.
Another option is prioritizing new projects by only selling to customers where you’ve got the potential for recurring revenue. For example, if you run a design/build company and offer Plant Health Care (PHC) programs, prioritize plant installs over hardscaping. This allows you to upsell recurring revenue to that new customer.
Other ways to reduce your backlog include prioritizing jobs for existing customers or setting a temporary cut-off for customer budget (only working on jobs above or below a specific price).
Cut down your labor deficit
While supply chain issues are still persistent in the summer of 2022, most long backlogs are not related to the limited supply of soil, mulch, or pavers. Most of our backlog issues stem from the fact that we’ve got more work than we can produce in a reasonable amount of time.
Do your best to devise creative solutions around reducing the amount of labor involved with tasks. Maybe there’s a piece of equipment you can rent (or buy, depending on the volume of work) that will significantly reduce the man-hours on a specific task. For example, a spray truck saves a ton of time compared with mixing PHC treatments in a backpack sprayer.
You may also consider partnering with a temp agency. Having less-skilled workers complete tasks like excavating a site might help your backlogs. If you line it up correctly, you can have many projects excavated and prepped, allowing your hardscape crews to focus on laying the block and finishing, for example.
Examine your processes
Okay, your backlog is a mess, and you’re getting antsy, impatient customers threatening to cancel their jobs because of the wait. What can you do?
Another great way to start chewing into that backlog is to examine your processes. I mean ruthlessly, honestly evaluating your production. How long does it take to get on the road in the morning? How much downtime is your crew taking at job sites? Is there a more efficient way to spread that mulch than you currently do?
Don’t approach this as a punitive measure; you’re not trying to beat up those hard-working crews! Instead, this is an opportunity for you to demonstrate impressive leadership skills. You can focus on training and documenting your processes, so people get out the door more quickly, finish jobs faster, and eat into that backlog.
Few things show “I’m ready for the next level” more effectively than taking on a massive problem like this and providing tangible results.
What do you do when you’ve got a SHORT backlog?
With inflation, rising gas prices, and increased labor costs, the possibility of a recession is good. What do you do for a backlog that’s dwindling? Here are some practical suggestions you can implement that may help you increase your backlog, keep your team working, and keep the cash coming into the business.
Expand your service area
Expanding your service area a bit can increase a short backlog. If you are running a short backlog (two to three weeks), you may be able to beef that up by expanding your service area just a bit.
I know gas prices are high right now. But if you don’t have work lined up, that’s a much worse scenario. You’ll start to lose staff if they have nothing to do, and windshield time is something you should be charging for anyway. If you’re really concerned, you can add a small fuel surcharge to jobs outside your normal radius as a “stop-gap” until your backlog is built back up. Most customers will pay it without fighting, which will offset the additional expense.
There’s one legitimate pitfall to worry about here. When the economy bounces back, and you no longer need those jobs, it’s tough to “walk it back” and reign in your service area to a smaller radius again. I’ve had to try and communicate that before, and it’s tough, especially if you have a great client in that broader radius who starts referring friends and neighbors.
I would argue this is the lesser of two evils (the other being diminished cash flow and losing staff), but it’s still something to be aware of if you choose this route.
Ramp up marketing
This advice likely seems counterintuitive, but it’s true. In economically lean times, the companies that at least maintain their pre-recession marketing budgets usually come out ahead. Why? Because when small businesses start to look at places to “save money,” for some reason, marketing is usually the first on the chopping block.
According to the Harvard Business Review, “Companies that have bounced back most strongly from previous recessions usually did not cut their marketing spend, and in many cases actually increased it.” They go on to say that you can’t keep doing the “same old things” and expect a return, however. “But they did change what they were spending their marketing budget on and when to reflect the new context in which they operated,” the article says.
What does that mean for you? You’ve got to keep your marketing spend up but change the messaging. For example, you will likely find that messages about luxury or “making the neighbors jealous” doesn’t resonate well in economically tight times. The better move will be to pivot your marketing efforts to talking about giving your customers time with family since they’ll likely be working more hours to keep their family going.
Get Creative
You’ve probably heard “Necessity is the mother of invention.” No one actually knows where that comes from, although people suspect it’s a modern translation of a quote from the Greek philosopher Plato, who said, “Our need will be the real creator.”
Creativity in marketing doesn’t mean you have to spend a ton more money. It means you have to learn to do more with what you’ve got. Look at the tools, resources, and assets you currently have.
For example, does your business management software offer any automation that you can use to leverage more sales?
Do you have a well-thought-out, documented program for incentivizing and capturing referrals from your existing customers? If so, have you told them about it?
What about upselling opportunities with your existing customers? That’s a much easier and more cost-effective way to increase your sales than attempting to acquire new customers.
The point is that you need to examine areas you can improve what you’re doing now rather than spending a lot of time and money. Do more with what you’ve got as a starting point.
Conclusion
You need to know your backlog and track it by service line. This keeps you informed about the cash flow into your business and keeps your customers happy.
Go back and read Part 5 in this series – Timesheets Give You Critical Insights (2 of 2 for Office Managers)
Continue to Part 7 in this series – Estimated v. Actuals (2 of 2 for Ops Managers)
Download the FREE guide: Reporting Basics for Landscaping and Tree Care Companies