This is a question that Dennis Gehman asked that I answered live on The Remodelers Show – see the written answer below – hear me answer the question live here.
“How much backlog should we have before turning down small projects and only accepting projects that are $100,000 or more?” – Dennis
I know Dennis’s business and in normal times, that’s more the ideal project that he takes on – the bigger projects. With the pandemic, with COVID, with everything that is going on, he, like a lot of remodelers, has been a little bit more open to taking on some smaller projects.
To answer Dennis’s question, I would say it depends on who I’m talking to. I know that some of my clients have more stomach for a shorter backlog than others. Some of my clients, if they don’t have 3+ months of backlog for their team of six people out on the field – they start to get nauseous! I have other clients that feel fine about having 5 weeks of work ahead of them.
The guy that needs 3+ months would have a very hard time understanding how the guy with 5 weeks of backlog is okay. So everyone has a little bit different stomach for how big of a backlog they want.
If you schedule out too far it can become a little bit of a sales problem where some people might not want to wait that long. There’s a lot of different factors in play here.
Dennis, my biggest thought for you is this: If a previous client approaches you about a small project, we are going to be much more open to taking on smaller projects and little things for them. We want to continue to enhance and develop that relationship and trust that we have with our previous clients. But if it’s a small project for someone we’ve never worked with before, and we’ve got a really strong backlog (which as we said means different things for different people), we might turn that down.
So my answer is that I want to know how many irons in the fire you have out there. If you’ve got 6 things under design and development that you are feeling really good about and you’ve got two and a half months of backlog, and you think you are going to get from two and a half to four months of backlog in a hurry, my advice is different than if you said, “You know what, we’ve got two and a half months of backlog but I don’t have a lot in the hopper.” In that case, I might say to continue to push on those small projects.
So, it depends on multiple factors, but those are some things to think through. I hope that helps!
The other thing I would encourage you to do is to really get clear with this month, next month, and the following month. We have a spreadsheet that helps you calculate your backlog. If you want a copy of that email Bailey (email@example.com) and ask her for it!
Using this spreadsheet you can document all of your projects that are sold (not that you might sell) and how many labor hours you are expecting for each of those different projects. In the spreadsheet it’s got a formula that says, “Okay, based on the number of hours that you have sold and that are still remaining, and based on the number of guys you have out on your field, here’s how many weeks and months that you have as far as backlog goes.”
When you have that and you’re clear on the amount of backlog you have, that helps you make a decision about which projects to take.
When you’re unclear with that and you are just operating off of how you feel, not facts, then it’s a little riskier to turn things down. But once you have the facts about your backlog, then you can make clearer and better decisions.
If you want a copy of the backlog spreadsheet, Email Bailey at firstname.lastname@example.org and ask for the spreadsheet for the project backlog and we’ll send that over to you.